VantagePoint | August 19th, 2024

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GOOD MORNING

Here's everything you need to know this week: More than usual, we’re all living for the end of this week. All your favorite hottest economists and monetary policy idols will be dressed in cowboy gear and trying to agree on how much to cut interest rates in September. Meanwhile, Democrats will gather in Chicago to try and keep up the Harris-Walz ticket’s momentum. Vice President Harris will accept her nomination on Thursday evening, while Fed Chair Powell will take off his chaps and address the US economy on Friday.

1. Wall Street Is Watching Wyoming

Jay Powell goes to Jackson Hole for two reasons: to kick the double mandate’s ass or go hiking, and he’s all out of trail mix. The Federal Reserve’s big August gathering is summer camp for top economists who sit around telling war stories over the campfire. Then Chair Powell takes all their sound counsel and plays cryptic oracle at the end, leaving markets to scramble and overanalyze every word he utters. So, what’s going to happen? Well, we just got a flood of data showing that inflation is cooling off, the job market isn’t on fire, but it ain’t dead either, and the economy hasn’t fallen apart—yet. However, with a major jobs report and the Fed’s September meeting around the corner, Powell’s speech could give us the first real clues about the Fed’s thinking. That sound you hear is the market crossing its fingers and toes that J-Pow alludes to 50bps in his Friday musings.

2. Warren Buffett Knows Beauty When He Sees It

When we think cosmetics, we think Warren Buffett. Finance fanboys everywhere were reading the tea leaves on Berkshire Hathaway’s new $266 million bet on Ulta Beauty, sussing out what The Oracle might be seeing in Illinois mascara futures. Buffett’s investment behemoth scooped up shares that had been tossed in the discount bin, dropping 42% after two rounds of lowered guidance, despite earnings expectations only dipping 5%. Since then, the stock has jumped 15%, but even with that bounce, it still looks like a bargain. Sure, Ulta’s facing some real threats, like Sephora invading Kohl’s and Amazon expanding its luxury cosmetics lineup, but you know what it does have? Warren Buffett experimenting with makeup.

3. Jamie Dimon Wants To Get Taxed, Hard

Jamie Dimon thinks the ultra-rich should start actually paying their fair share in taxes. In a PBS NewsHour chat, the JPMorgan CEO, who is worth more than $2 billion, casually suggested that the wealthy should stop getting away with paying less than the middle class to help tackle the U.S.’s eye-watering $35 trillion debt. Dimon’s solution? Don’t slash spending on things like infrastructure or the military; instead, take a page out of the “Warren Buffett rule” playbook and stop letting billionaires like him skate by on bargain-bin tax rates. Naturally, not every member of the tres commas club will be happy with this idea, but Jamie Dimon remains very much not everyone.

4. To Take Down Nvidia, SoftBank Reached Out To… Intel?

SoftBank’s idiosyncratic chief, Masayoshi Son, has a new dream: building an AI chip empire from scratch, outpace Nvidia, and dominate the market. According to the FT, one of his first steps was to rope Intel into the heady scheme, but Intel apparently remembered it’s having a hard enough time with its own reality. The talks tanked as Intel fumbled on speed and volume because of its recent cost-cutting spree and layoffs, precipitated partly by not being Nvidia. Intel shares were up roughly 5% last week, which is not so bad unless you notice that Nvidia’s were up over 17%. Never one to give up on a dream (sorry, WeWork), Son’s turning to Taiwanese chip giant TSMC to fuel his vision, but there’s been a catch there as well, it seems; TSMC is swamped with orders… from Nvidia. Your move, Masa, you glorious dreamer.

Political and Market Sentiment

Kamala Harris’ rollout of her beefed-up Bidenomics plan (let’s be frank with each other) is set to be a huge talking point for Democrats at this week’s DNC. Conversely, the GOP (minus its candidate, who is talking about other things) will be taking shots all week at items like Harris’ push for a federal ban on corporate price gouging that they are framing as some form of postmodern socialism. Dems are framing it back as just good old-fashioned Teddy Roosevelt-style trust-busting regulating, so expect to hear a lot about how this isn’t some radical new idea but rather a way to keep capitalism fair and in check, especially in the wake of disasters and crises. Kentuck Gov. Andy Beshear, reportedly on Harris’ VP list, went as far as to offer that her economic plan “is making sure that capitalism stays within the guardrails.” So, yeah, they have the week to fine tune those talking points.

Global Markets Overview

Europe: The STOXX Europe 600 popped 2.46% as rate-cut hopes fueled a rally. Germany’s DAX jumped 3.38%, France’s CAC 40 gained 2.48%, Italy’s FTSE MIB surged 4.09%, and the UK’s FTSE 100 rose 1.75%. The eurozone economy’s steady 0.3% growth in Q2, mirroring Q1, added to the optimism. Meanwhile, in the UK, inflation ticked up to 2.2%, but slowing services prices have markets betting on potential rate cuts. Central bank rescue mission, anyone?

Asia: Japanese equities roared back, with the Nikkei 225 jumping 8.7% and TOPIX up 7.9%. A weaker yen (let’s not get into specifics and accidentally arouse a hedge fund manager with a carry trade fetish) gave exporters a boost, while better-than-expected U.S. data calmed recession fears. Meanwhile, Chinese stocks (as is their wont) shrugged off weak economic data, with the Shanghai Composite inching up 0.6% and the Hang Seng gaining 1.99%. But again, the yen… so cheap [Homer Simpson drooling sound here.]

The Week Ahead

It’s going to be a rather quiet week for earnings, finally, but one result we’ll have an eye on is Palo Alto Networks, which is set to drop its Q4 earnings Monday after the bell. Analysts are expecting $2.16 billion in revenue and $0.69 per share, and blah blah blah. What we’re hoping for is the PANW will be throwing some serious shade at archrival Crowdstrike in the wake of its catastrophic security update that made the world pretty much stop for a few hours. We wouldn’t be shocked if PANW raised guidance on the notion that it added a few more clients after July 19th. Since then, PANW shares have been up about 3% while CRWD shares have been down about 23%.

Let’s Dive Into More Details Below…

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1. Goldman Sachs Cuts U.S. Recession Risk to 20%

Goldman Sachs reduced its U.S. recession risk forecast from 25% to 20%, citing strong economic data such as retail sales and jobless claims. This revision reflects growing confidence in the resilience of the U.S. economy, bolstered by consumer spending and labor market stability.

2. Investors Regain Confidence as Inflation Calms

Recent data showing lower inflation and fewer initial jobless claims have helped stabilize investor confidence. This shift indicates optimism in the market as inflation fears diminish, which could encourage more investment activity and higher stock market performance.

3. Judge Blocks Launch of ESPN-Fox-Warner Bros. Discovery Sports Bundle

A judge granted Fubo TV’s request to block the launch of the Venu Sports bundle, a joint venture by Fox, ESPN, and Warner Bros. Discovery, over antitrust concerns. This injunction halts the introduction of a highly anticipated $42.99-per-month sports streaming service.

4. New Real Estate Rules Take Effect Nationwide

A landmark settlement with the National Association of Realtors has led to significant changes in real estate commissions. As of August 17, home sellers are no longer required to offer compensation to buyers' agents, which could reshape the way homes are bought and sold across the U.S.

5. AT&T Workers Strike Over Unfair Labor Practices

Over 17,000 AT&T workers across the Southeast U.S. are on strike, protesting alleged unfair labor practices. This marks the second strike in five years, and it is expected to disrupt services in multiple states, potentially impacting AT&T's business operations.

6. China’s Property Crisis Could Impact Global Iron Ore Prices

China's real estate downturn is predicted to lower iron ore prices, potentially erasing $3 billion from government revenues. With a cooling property market in China, demand for raw materials like iron ore could see a significant drop, affecting global suppliers.

7. Canada’s Largest Railroads Could Strike, Disrupting U.S. Supply Chains

Canada's two major railroads, Canadian Pacific Kansas City and Canadian National, are on the verge of a strike, which could disrupt supply chains across North America. The railroads are key conduits for goods between the U.S. and Canada, and a strike could severely affect trade.

8. Hedge Fund Manager Warns of Market Volatility

Mark Spitznagel, head of Universa Investments, warned that the recent stock market turbulence is a precursor to more significant volatility. He highlighted concerns about growth and indicated that investors should brace for a challenging market environment ahead.

9. Perdue Recalls 167,000 Pounds of Chicken Products Due to Metal Contamination

Perdue Foods has recalled over 167,000 pounds of frozen chicken nuggets and tenders after reports of metal contamination. The recall affects multiple products and could have a significant impact on consumer trust and Perdue’s market standing.

10. Stock Market Shows Resilience After Best Week of 2024

Despite recent volatility, the stock market had its best performance of the year, with the S&P 500 closing at a high for 2024. This rebound is driven by cooling recession fears and optimism over future Federal Reserve actions regarding interest rates.

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Today's insights are courtesy of VantagePoint, over 40,000 traders worldwide use their patented world leading AI forecasting software.

Learn More ➔