The Retail Sector Was Hot, Hot, Hot – Fed Minutes Due

  • WMT & HD beat, investors go crazy for retail.

  • Oil and gold turn, Treasury yields rise.

  • Housing starts are down 9%, repeating the trend.

  • Capacity utilization is pushing inflation.

  • The FOMC minutes are due out at 2 p.m.

  • Try the roasted tomato risotto.

Housing starts collapse… down 9.1% from the -2.1% expected (recall that the NAHB index came in at 49 on Monday – the lowest since the GFC – Great Financial Crisis) ….. Building permits were weak at -1.3% while industrial production grew more than expected at +0.6% and capacity utilization reached 80.3% above forecasts. 80.2% expected…remember – anything north of 80 is considered inflationary.

Treasury yields have risen but remain inverted and will likely remain so for the foreseeable future – Do whatever you want with this information. Oil – which broke support at $89.45 on Monday remains just below the trendline at $86.51. On Monday I said that if we break the support it is possible to see the Oil trade down to $84.50 a barrel…. a level last seen in February – before Vlad invaded Ukraine.

There are conflicting views on why we have seen the weakness – the most common is the destruction of demand caused by the coming recession as well as the weakening of the Chinese economy (China being the largest oil importer). There is also the idea that the Saudis are now ready to increase production and this adds to the angst… In any case, the year-end targets are everywhere…. ranging from $60 to $150+. The bet now is that we will see $60 before we see $100….

Gold holds the line at $1787/oz…. let’s see what happens today after the release of the FOMC minutes at 2pm…. Will golden bugs react to what we learn (if we learn something new). It’s in a bit of a fun spot – below trendline support but holding firm – uncertain of where to go next.

Stocks had a mixed reaction at the end of the day…. the Dow gained 240 pts, the S&P gained 8 pts, the Nasdaq lost 25 pts, the Russell gave back 1 and the Transports gained 112 pts.

WMT and HD – both killed it…. beating expectations and leaving investors wanting more…. remember – it would have been a disaster if WMT had missed the reduced estimates…. the stock gained 5% on the day. HD also rewarded shareholders by also beating estimates…. up 4%. Both names are members of the Dow Jones and this helped the Dow Jones rise by 240 points.

Retail ETF – XRT was HOT, HOT, HOT too….… up 4.2% as well…. and think of the other names in the band…. TGT +3.8%, KSS +6.5%, COST +1.2%, DGN +1.1%. High-end retailers were also up – JWN +7%. M +6%, DDS +3.7% and TPR +3.5%… Now look at the consumer sector – both consumer discretionary – XLY +1% and consumer staples – XLP +1 % – which is strange…. and that speaks to two things….One – commodities remain a defensive game – it’s flat on the year – while the discretionary sector tells you that investors have gone shopping on the back of WMT and HD reports ….…..that etf (XLY) is down 16% year-to-date – up after falling more than 34% in June….investors see this sector as an opportunity If they think that any coming recession will be mitigated and they think the worst is over….. …they can grab what looks like good deals – But if the coming recession is long and deep – discretionary spending will be the first thing to be reduced and the discretionary sector will be under pressure again. Just enter with your eyes open.

Technology, Healthcare, Energy and Real Estate all ended the day lower, while Industrials, Utilities, Financials, Communications and Basic Materials ended the day higher. Nothing dramatic to report.

This morning we heard from LOW, and they beat and reiterated that they expect fy to gain between $13.10 and $13.60/sh…they also expect to see some expected selling $97-99 billion in 2023…and the stock is trading higher in the pre-mkt…up 3% or $6.80/sh to $221.

TGT also needs to come out…and remember – like WMT -TGT pre-announced (warned) and lowered the estimates….and they FAILED…. how stupid was that? They had the chance to rewrite the playbook – like WMT and they ALWAYS missed…. now this is laughable…they are taking a big hit trying to offload all that junk inventory……. Traders take it down, then up and down again…. is currently trading down 1% pre-market.

TJX must come out before the open.

Today, ecological data concerns only consumers and retail sales…. Advanced retail sales m/m are expected to be +0.1%, while retail sales excluding autos and gasoline are expected to increase by 0.4%. lots of speculation on what they will reveal…. Will they show a FED at the edge of a pivot? Will they show a Fed committed to raising rates aggressively to keep inflation under control? Or will the minutes leave her vague…. using a language that can be interpreted in many ways… Will we see evidence of QT? Clearly, recent market action is expecting a 75 basis point pivot to something different – ​​think 50 basis points. That would suggest a softening of thinking…and explain the recent double-digit rally in stocks…. This is where I say – be careful…. the messages remain mixed at best.

Look – I suspect the minutes will have a hawkish tone and I also suspect we’ll find that there’s been a lot of talk about a 100bps increase for July – which ended up being 75bps…I also expect the tone to remain high as “inflation is their goal” and we have heard this from 5 different FED spokespeople over the past 2 weeks. But – let’s see…. Tomorrow – we will hear from Ester George (Kansas City) and Neely Kashkari (Minneapolis)….

This morning US futures are down…. Dow down 150 pts, S&P down 30, Nasdaq down 110 and Russell down 14 pts. No specific reason other than today’s economic data and FED minutes. A market pullback would not be out of place after the S&P rose 16% and the Nasdaq rose 18% in the past 4 weeks…. all as investors expect the Fed to pivot…. What I don’t do.

In Europe – stocks are down…..the energy crisis in the zone is worsening – natural gas futures jumped 5% and UK inflation jumped to 10, 1%…against the expected rise of 9.8%…So inflation is NOT under control in the UK or Europe as a whole…So expect rates to continue to rise at the next meetings of the BoE and the ECB. As of 7 a.m., European stocks are down between 0.5% and 0.75%.

The S&P ended the day at 4305 up 8 points and broke the next century mark. We traded up to 4325 – just 10 pts from overhead resistance…. the futures action suggests we’ll back off a bit and digest….and wait for the FED minutes…. I think this rally is a bit long in the tooth, but that doesn’t mean it can’t go higher…..In any event – I think we are going to have more chop in the weeks to coming… September and October tend to be the volatile months and the last two weeks of August tend to be lower volumes causing exaggerated movement in either direction. We remain within the 4115 / 4335 trading range.

Roasted Cherry Tomato Risotto

For this you need: 3 cups of Arborio Rice, 1 stick of butter, olive oil. 1 shallot and 1 sweet onion (chopped), 3 cloves garlic (chopped), fresh basil – chopped, salt and pepper, ½ cup white wine (Pinot Grigio works well), 10 cups chicken stock (hot) and grated fresh parmigiana cheese (as much as you want) ….

Preheat the oven to 350 degrees.

Clean and cut the cherry tomatoes in half. Mix with olive oil, garlic, basil, salt and pepper. Spread on a baking sheet lined with parchment paper.
Roast for 25 minutes.

Meanwhile, take a large, heavy-bottomed saucepan and melt the butter with a drizzle of olive oil over medium heat.

When the butter is melted, add the shallots and chopped onions. Sauté 2 to 4 minutes until translucent.

Then add the rice and stir to coat it with the butter, oil, onions and shallots, then continue to sauté for about a minute.

Add your white wine and stir until completely absorbed.

Then we start the process that makes the risotto creamy. Add a ladle of your hot chicken broth and stir constantly until absorbed. Repeat until you have used most, if not all, of your broth; and when your rice is tender but not mushy. You DO NOT need to use all the broth if the rice is tender. You don’t want mushy rice.

At this point, remove from the heat, add the parmesan, stir in your tomatoes (which probably came out of the oven about 5 minutes ago) and serve immediately.


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