Dan says that what is going on right now is not that surprising.
Nobody is saying mission accomplished yet and the Fed has not nailed the landing.
China data is important, CEO confidence is important and Dan says to focus on the 10 year US treasury is not doing or doing.
Guy agrees with Dan and thinks the Fed will win out in terms of having to continue this rate hike cycle.
Nobody is saying mission accomplished yet and the Fed has not nailed the landing.
China data is important, CEO confidence is important and Dan says to focus on the 10 year US treasury is not doing or doing.
Guy agrees with Dan and thinks the Fed will win out in terms of having to continue this rate hike cycle.
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NewsTranscript
00:00 Major markets managing another day of gains even as data on housing and manufacturing
00:04 came in weaker than expected.
00:06 The S&P up four-tenths of a percent, the Dow rising for a fourth straight day, closing
00:10 above its 200-day moving average for the first time since April.
00:13 The Nasdaq posting its highest close in nearly four months.
00:16 But with a slew of retailers reporting this week as well as more data on the housing market,
00:21 can this momentum continue?
00:23 Tim Seamork, fresh back from vacation.
00:25 Hello.
00:26 Nice to be here.
00:27 You've been away for a week.
00:28 You've gained some perspective.
00:29 I'm not sure.
00:30 What do you think of where we are right now?
00:32 We all rallied this thing pretty hard.
00:33 And I think the tailwinds from disinflation, so off that CPI, I was at a kilt on and bagpipes
00:39 in my hand in Scotland.
00:40 No, I didn't.
00:41 I just told you I didn't.
00:43 But when I looked into that CPI number, clearly the deflationary tailwind from that dynamic,
00:49 I think what you're getting also in terms of finished goods prices and the market feels
00:53 that this is coupled with on a day like today when you got really not, like a terrible New
00:59 York number, a not great housing survey, and then China cuts because their economy really
01:03 needs to do some major boosting.
01:07 This is a dynamic that actually the equity markets have enjoyed.
01:10 And we've all done this math.
01:11 I mean, 18.25% on the S&P off those intraday lows.
01:15 Semis are up 29.5% in 29 sessions from July 5th.
01:20 So this is a dynamic that I think doesn't really weave in EPS dynamics from what was
01:24 a pretty good second quarter.
01:26 But again, I think less Fed and the CPI dynamics are what from afar is what this market did.
01:33 And I'll just say this is a market, though, that behaves as if the Fed put is in play.
01:37 This is a market that's behaving like the market we knew last year.
01:41 And that's what's interesting to me, because the positioning for the investor base, I think
01:47 for the last six to nine months is maybe as much to do with the market's rally as anything.
01:51 Yeah.
01:52 I mean, Mike Wilson's out with a note today saying basically that where we are right now
01:55 is very different because from an interest rate, from a policy, from an earnings perspective,
02:02 we are in a very, very different place.
02:04 And yet here we are sitting at these levels, Dan, and we're about to get a more real-time
02:08 read on the U.S. consumer than that CPI that we rallied off of.
02:12 Yeah.
02:13 Listen, I'll just say this.
02:14 I mean, we've all been doing this a long time.
02:15 This is not that surprising.
02:16 If you think that the S&P was going to maybe correct and it was going to go somewhere in
02:20 the mid-3000s and it almost gets there, and then you say, oh, well, it could get back
02:24 up to 4200, it's going to overshoot.
02:26 I mean, that's the way this stuff does, and it doesn't line up with the data precisely.
02:30 And Tim just mentioned Q2 earnings, and I think when you focus on those major names,
02:34 the huge components of the S&P 500 and the NASDAQ, they were clearly better than a lot
02:38 of people had feared.
02:40 But then when you broaden it out, OK, and then you take out energy, there was not a
02:43 lot of great stuff.
02:44 There was not a lot of really good visibility.
02:46 And then now you piece it together with some of this data that we're seeing, and Tim used
02:49 the term disinflation.
02:50 So we're seeing, you know, inflation.
02:52 It's a tailwind.
02:53 Yeah.
02:54 And it's a tailwind.
02:55 It's a tailwind.
02:56 But no one's saying mission accomplished yet.
02:57 No one's going to put their faith that the Fed nailed the landing because there's a lot
03:00 more that has to happen.
03:02 I think what's different also, if you think back to 2008 coming out of the financial crisis,
03:06 I mean, China and what they were going to do as far as spending was really a huge tailwind,
03:12 if you think about it.
03:13 We don't have that right now.
03:14 We don't have Europe.
03:15 We have, you know, it's not just this housing data that's rolling over now.
03:18 We also have a scenario where small business CEO confidence is really low.
03:23 So again, don't be fooled by what the stock market has done in the summer after a sustained
03:28 downturn like we had.
03:30 I guess I'd focus a little bit more on what the 10-year U.S. Treasury yield is doing or
03:34 not doing, because at 278, it's really suggesting that we're going to be well below the sort
03:40 of growth that people would expect with an S&P 500 that's raging.
03:44 So to me, I think I'm a little bit more bearish on the stock market than I am on the economy.
03:49 I just think that the market has shot too far too fast.
03:52 Guy?
03:53 I agree with Dan on this one.
03:56 I'll say I think what the market is trying to do is say, hey, Federal Reserve, we see
04:01 the data coming out and it's miserable.
04:04 Obviously, today's data was miserable.
04:06 And we don't think you can continue this rate hike cycle in the wake of or in the face of
04:12 what's been really poor data.
04:14 And we're just going to keep pushing the envelope here on the buy side and equities, which I
04:18 sort of get.
04:19 By the way, on the flip side of that, they've trotted out all kinds of people from the Fed
04:23 to suggest quite the opposite, that you know what, inflation is still our main concern
04:28 and we're going to do everything we can to combat it.
04:29 And they're the battle lines.
04:31 But I think the Fed will win out on this one in terms of having to continue this rate hike
04:36 cycle.
04:37 And I don't think the market's going to like it.
04:39 And oh, by the way, which I love to say, we haven't even started QT yet, and that starts
04:43 in September.
04:44 So let's see how the market reacts to that.
04:46 So I think this this look, I thought it would stop at forty two hundred, forty three hundred
04:50 now.
04:51 But I think it's too much, too fast.
04:52 And I think it's discounting everything the Fed's trying to do.
04:56 Jeff Mills, are you going to round out the caution on the panel tonight about the markets?
05:01 Yeah, I guess so.
05:03 And we're all saying it in different ways.
05:05 But I think the bottom line is that, you know, the catalyst for this latest market move is
05:10 this Fed pivot.
05:11 It is interest rates going from 350 to where we are today.
05:14 It is this peak inflation narrative.
05:16 And look, I've been fairly bearish and negative for a number of months now.
05:21 And I'll say this, the inflation peaking narrative, the slowing, that's clearly a positive.
05:26 Right.
05:27 I think it reduces the fears of some sort of 1970s type issue.
05:31 It reduces the fears of a super aggressive Fed, maybe the severity of a GDP contraction,
05:36 which I think we do get.
05:37 But what the Fed needs to see is a sustained drop in inflation.
05:41 They need to be convinced of that.
05:43 And they're going to keep hiking until that happens.
05:45 And I just don't think they're going to see what they need to see until they hike us into
05:49 probably a recession or at the very least, you know, a very noticeable and impactful
05:54 S&P 500 earnings slowdown.
05:56 You know, we've gone from 252 now to 243 for 2023 earnings.
06:01 So ultimately, that's going to impact valuations.
06:04 I don't think that, you know, given the fact that the Fed's tightening, growth is slowing,
06:08 unemployment claims are moving in the wrong direction.
06:11 I don't know how high of a multiple this market can carry.
06:14 So again, that's still what leaves me with a fair bit of caution here.