“Labor”ing into the Weekend
Stocks dropped last week into the seasonally weak long Labor Day weekend. More hawkish talk from Fed Chair Powell at Jackson Hole continued to weigh on asset markets. Consumer staples and utilities posted the lone gains in a defensive week. Last week, U.S. markets were down from -3.0% for the DJIA to -4.2% for the NASDAQ. This morning, Treasury yields are higher up to +15 bps for 30yr maturities. Last week, Treasuries sold off, ranging from 3-to-4 bps to the mid-teens depending on maturity. The U.S. dollar is stronger this morning. Real rates higher along with a stronger dollar remains negative for stocks.
Over the weekend, Goldman Sachs released a research piece outlining their renewed expectations for an economic “soft landing”. Decelerating GDP growth, a narrowing of the labor supply/demand imbalance, and a large decline in inflation (particularly for goods) all point to encouraging progress on the path to a soft landing for the economy, writes Jan Hatzius in “Global Views: Progress Toward a Soft Landing.” The recent data reinforces their view that the Fed will slow its aggressive rate hike campaign believing in a 50bp hike in September followed by 25bp moves in November and December. Key to watch: the August CPI release on Sep 13.
Higher uncertainty lies in Europe. The Nord Stream 1 gas pipeline from Russia to Europe is offline indefinitely with Putin playing economic energy hostage games. The European gas contract, surged as much as 30% on Monday, dropped nearly 26% today. This will continue to punish Europe’s economies with its large manufacturing base and more direct ties to China.
Stock Talk Podcast: It’s still Summer. Not Time to “Light this Candle” https://www.youtube.com/watch?v=fgZPMM4LEGs&list=PLxj0FBH5Bt8twiZx9RvxpW9AydohZ5W3-&index=30
News or Noise: Buy the Dip or Stocks making New lows? https://www.youtube.com/watch?v=xlvqU0G1kqU&list=PLxj0FBH5Bt8vxmPI12L9xWcpoVMX7jqvZ&index=37
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