The Three-Ring Market Circus

Last Week

Recent Wall Street trading has evolved into a three-ring circus, with AI developments, Fed Policy, and the War captivating investors. Those circles intersect as the war’s inflationary impact influences Fed policy, massive debt issuance and spending by AI companies stimulate growth and drive rates higher, and technology advancements also improve efficiency and are therefore disinflationary. Financial markets were relatively stable last week, as there was no needle-moving news in any of those circles. Broadcom’s earnings were in focus on the tech front, as the company posted strong results but weaker-than-expected forward guidance. A stronger-than-expected nonfarm payrolls report led traders to raise the odds of a Fed rate hike at the upcoming meeting. Energy prices spiked as the War raged on with no end in sight.

The S&P 500 and Russell 2000 both finished essentially flat, while the Nasdaq Composite pushed up 0.4%. Declining issues outnumbered advancing issues by a factor of 4-3, with the Oil & Gas sector faring the best on the back of a nearly 10% spike in crude oil prices. The Dollar and Gold were both marginally lower, and bond yields crept higher, with the yield on the 10-year Treasury rising 6 basis points to 4.78%, equaling its highest level in twenty years.

On the Chicago Sports Scene, with less than 20 games left in the MLB season, it looks promising for October baseball on the South and North Sides! The Bears open the NFL season in Carolina next weekend, with Super Bowl aspirations.

This Week

The August consumer price index will be in focus on Friday, the final major inflation reading before the Federal Reserve’s September policy decision. Economists forecast core inflation to dip to 2.4%, the slowest rate since March 2021. With inflation moderating and the jobs market stable, many are asking why the Fed is under pressure to raise rates at its next meeting. The producer price index reading from the previous day will also be closely watched.

The big tech news will be Oracle’s earnings report on Thursday. Doomsday prognosticators point to the increased price of Oracle’s credit default swaps as a canary in the AI coal mine.

Any developments in the Middle East could affect financial markets. The other war, Russia’s invasion of Ukraine, will also be in the news as the U.S. has sent a delegation for peace talks. The full-scale invasion of Ukraine by Russia began in February 2022. That conflict was also expected to be short-lived. China’s ambition to take over Taiwan presents yet another, and perhaps most significant, geopolitical risk.

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