Let's get to the big story breakdown while a double header is about to test Wall Street and it's high stakes earnings report after the closing bell on the 26th, followed by Fer Kevin Jackson Hole debut on Thursday and Friday.
And this morning we are looking at US Treasury yields easing slightly on reports that the Treasury can use its $950 billion general fund for long-term debt buybacks.
But with 30 year Treasury yields recently rebounding back to 2007 highs, chip stocks sliding 5% last week and lower this morning.
Markets are pricing in about a 40% chance of a September rate hike from the central bank, and investors are bracing for high volatility while as we kick off a new trading week.
We are joined by Ebo co-founder and CEO of key advisors.
Management and good morning.
A lot to look forward to a lot of anticipation as we head into the trading week following that buyback announcement from that, which failed to ease deeper anxiety over inflation as well as that and that uncertainty.
There is a lot of expectation about that and as we head into that 2 p.m. hour and that presser.
So what do you anticipating as we kick off this week?
Well, look, I think at this juncture it should be very clear the reason why Besson is doing what he's doing is he clearly understands because he knows the capital markets very well that the bond market is going to drive the bus in regards to the direction of the stock market and frankly the fact that the tenure is still staying at that.
47 level speaks volumes about the future expectations of inflation and economic growth.
So I think investors need to brace themselves as we go into September for a very choppy market and probably in our opinion, another correction that we think will be a viable correction.
And the reason why we believe that is the fact that when you look at oil prices and the sanctions that are probably going to be announced this afternoon, that's probably going to potentially put more pressure on oil in the near term.
So we've had oil go from the high 60s in July to now we're sitting in 80 to mid 80 range.
You should expect an acceleration of the inflation print that we're going to get the week before the Fed.
Meets in September and that's why I think you're starting to see expectations of some type of tightening increase.
So we think you're going to see increased volatility on bond yields.
We think bond yields are going to go higher here in the short term because of inflation, but ultimately I think the economic fundamentals are going to win and that's why we would be buying a September dip.
But I think you need to be positioned for some choppy waters here.
Yes, Eddie, you brought up a lot of important points and you mentioned bus, so it is back to school season, and we know that Americans are paying attention to that pain at the pump, but as you mentioned, that 10 year yield does remain elevated and of course there is the question about elevated borrowing costs to what that poses.
To the trade and in particular cap back so I do want to get your perspective on in video earnings and the AI trade and that is something that we're paying attention to that this week ahead of earnings so if it doesn't blow past expectation, what that, what does that mean and tell us a little bit about seasonality.
Well, I think with the semiconductors that we have no doubt in our opinion earnings are going to be great.
They have been great for these semi names, but the reason why they've been selling off post earnings, when you look at the whole scope of technology, semis have been weak since the end of June, where software has actually been stronger.
And the reason why is the semis have a much higher bar to hit.
So even when they guide up and earnings are fantastic, it's not enough to impress the street because they've already done that.
We've had this rolling correction of technology, and I think that's going to happen with semis, so we would be buying dip on semis.
We would not be surprised to see Nvidia stock go down post earnings like a lot of the other semi names, but it's not for fundamental reasons.
It's just due to expectations.
So those expectations are going to get recalibrated, and that's why I think if you buy the dip in those names, if you have the right risk tolerance, 6 months out, you'll be rewarded.
But I wouldn't get very aggressive with semis right here ahead of earnings.
Yes, and speaking of expectations, we are heading into the Jackson Hole symposium at the end of this week and there are a lot of expectations about what Thatcher Kevin Warsh may say, but he doesn't have to answer any questions because it is not a press conference.
So give us your take on what we could expect on Friday.
Well, the market is still trying to figure out the new Fed in regards to, you know, not giving much guidance and leaving some uncertainty out there.
I think the problem the market and Warsh and Company are going to have is they have pigeonholed themselves.
The last two meetings with this 2% core number and we're not even close to 2% core.
So if we're going to see any type of tightening, we think they'll do it on the balance sheet, not in the form of rate hikes, and we would anticipate September being the meeting to do that and then we think they'll be one and done.
So you know, Jackson Hole could be kind of the.
Catalyst that gets us into that September chopiness, but better believe that the market is going to dissect every word that Scott, that he says.
And if Kevin Warsh doubles down again on their commitment to 2%, the market's probably not gonna like that because we know that it's not going to be 2% when we get the Fed meeting in September.
And speaking of which, as of right now before the markets open and before Besson's speech, markets are pricing in about a 40% chance of a September rate hike.
But depending on how things go, do you think the equity market is underestimating the risk that the Fed raises rates at the end of the year?
I do think that we are not pricing enough chance of some type of tightening, and again, we keep referring to rate hikes, but they can tighten on the balance sheet, and he is a balance sheet hawk, so that's where I would anticipate them doing that.
The bigger thing is the bond market.
Whether the Fed cuts or raises isn't as important as what happens to the bond market.
So if we get inflation accelerating in September, it doesn't matter what the Fed is going to do.
You're probably going to see the bond market re-accelerate to the upside, and I think that's why Besson and Company are starting to buy and add liquidity to the bond market, because they clearly recognize the impact that high oil has on the inflation data we're going to be getting.
And finally, because you mentioned bonds, I do want to end the discussion on yields.
So how should investors be positioning their portfolios right now?
Obviously everyone's risk tolerance is different.
I think one of the clearest signals right now because of what the Treasury is doing is in regards to getting the dollar down.
I think gold is a great way to allocate assets in a defensive area for us, we would not be fully invested in bonds.
We have used gold as our.
Defensive strategy for a couple of years now.
We've adjust the percentages based on, you know, what the signals are telling us from a technical perspective, but right now, technically and fundamentally, uh, for us, gold looks really, really prosperous for the rest of the year.
And then I would be more broad-based, equal weight, S&P is doing really well.
Healthcare is doing really well.
We would favor software right now and cybersecurity over some of the semi names and chips, but we would buy the semi names and chips in September, October sell off.
So you got to be nimble in this market because these things and assets are moving very, very fast, and you don't want to take a big drawdown.
Well, Eddie, less than 60 seconds here.
You mentioned healthcare, so tell us why you're watching the sector.
So the sector has not really been strong for a few years and now it's finally caught a bid and you look at one area that can benefit tremendously from AI and that's healthcare.
That's why we own the ETF and healthcare.
We also own some individual names in the healthcare space, and healthcare can also do well in a volatile market relative to some of the technology and higher beta names.
So it's a, it's an asset allocation we have for clients right now to help further diversify their strategy.
Eddie, always great talking to you.
Thank you so much for joining us on this Monday morning as we head into the final full trading week of August.
Thank you.
