When the Chips are Down.
Robert R. Fragnito
Chief Operating Officer | Financial Advisor | Portfolio Manager at MCF Capital Management, LLC
U.S. stocks finished in negative territory on Thursday as a strong U.S. dollar and rising bond yields took out Wednesday’s Nvidia earnings driven rally.??
Stocks traded mostly in the red on Thursday as investors shifted focus away from Nvidia’s blowout earnings report to Friday morning’s speech by Fed Chair Jerome Powell at Jackson Hole. In addition to tomorrow’s speech, U.S. Treasury yields advanced in reaction to economic data releases as the fed-policy sensitive 2-year yield rose back above 5% and the 10-year yield finished at 4.23%.
Initial jobless claims data showed the number of Americans seeking unemployment benefits last week fell to a three-week low of 230,000. Durable goods orders sank 5.2% in July, although if Boeing orders are excluded, it would mark a rise for the third month in a row. Moreover, orders on the headline figure would reflect an increase of 0.5% if autos, transportation, and planes are excluded. ???
Investors also digested comments from Federal Reserve officials. Philadelphia Fed President Patrick Harker, a voting member of the Fed’s policy committee (FOMC), said in an interview with CNBC on Thursday that he believes the central bank has raised interest rates high enough to bring inflation down—but, as he put it, “we will see.”
Separately, Fed President Susan Collins of the Boston Fed told MarketWatch that she is in the middle camp on whether the central bank has done enough on inflation. Collins, a non-voting member, said policy makers have earned the right to take their time on future decisions.
In other markets, WTI crude oil rose 0.2% to settle at $79.05/barrel on NYMEX. Prices on U.S. crude oil settled higher on Thursday after Citigroup’s head of commodity research said OPEC may need to cut production further, futures settled in the previous session at their lowest levels in a month.
Elsewhere in the energy complex, natural gas rose 0.9% to $2.52/MMBtu as the EIA reported Thursday that supplies rose below forecasts. Meanwhile, gold prices finished lower on Thursday, bucking a four-day winning streak as traders awaited Powell’s speech. Gold futures fell -0.1% to settle at $1,947.10/ oz on COMEX. After the New York close, spot gold was positive and the U.S. dollar index was seen charging ahead to nearly 104.
On the international front, the BRICS bloc, which consists of members Brazil, Russia, India, China, and South Africa extended a surprise invitation to expand membership at their summit in Johannesburg.
The bloc invited Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates to join the group. During the summit, Brazil’s President Lula raised the topic of the bloc having a unified currency to lessen dependency on the U.S. dollar.??????
Lastly, the U.S. Treasury’s auction of 30-year TIPS was viewed as soft, MarketWatch reported.?
Looking Ahead
Nvidia’s earnings did not sustain positive market sentiment on Thursday. In fact, Nvidia finished the day relatively flat after a surge in pre-and-post market trading, shares finished up 0.10% at $471.63 according to Refinitiv data.
This confirmed our belief, as we mentioned earlier in the week, that what will be said at Jackson Hole on Friday is of primary concern for investors. Most especially now that U.S. bond yields picked up their march higher after a brief reprieve this week.
Fed funds futures traders appear to be reacting ahead of Powell’s speech also. Roughly 25-minutes after the New York close, traders significantly increased the previous day’s probability of a 25 bps hike at the Fed’s September policy meeting. To be clear, the probability of “no hikes” at this upcoming meeting is at 81% down from 86%.
For November’s meeting however, the gap between the “25 bps hike” and “no hike” probabilities appear to be reaching a 50/50 split—tomorrow’s comments are likely to impact this dynamic.????????
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In our view, Powell’s speech at Jackson Hole will have to be executed with near perfection for the market to have a positive reaction. Moreover, it may require the Fed Chair to actually be hawkish so that the credibility of the Federal Reserve is intact.
Powell will speak at 10:05 AM ET on Friday.?
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MCF Capital Management, LLC is an independent, family-run, financial advisory firm that manages investment portfolios for individuals and businesses through Quantitative Market Data Analysis.
THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.?
???SOURCES:?Refinitiv, Dow Jones NewsPlus, MarketWatch, Wall Street Journal, Barron’s, FinancialJuice, Investing.com, CNBC, Wells Fargo Investment Institute, TradingView