When I made the difficult decision to reduce my exposure to large-cap tech earlier this year – I wasn’t sure how things would pan out. In the short-term – I looked foolish. These stocks surged higher without me. However, since then, large-cap tech is trading lower than when I sold it (on average). But is this a dip you should buy? I don’t think so – not just yet. The broader index is only 6% off its all-time high. That’s nothing in the larger scheme of things. I’m choosing to remain a little more patient – where I think the index could correct somewhere in the realm to 10-12%.
"Interest Rates / Bonds"
Powell’s Ready to Cut… And Not Just Once
Today Fed Chair Powell delivered precisely what the market wanted to hear… help is on the way. As a perpetual (closet) dove – Powell did his best to stay balanced however the cat is now out of the bag. Rate cuts are coming. And there will be more than one. Consistent with other meetings – Powell said rate cuts are an option if economic data continues on its current path. In other words, it was the (same) scripted “data dependent” Fed.
However, there were some important nuances.
Real Retail Sales Continue to Warn
When I caught the headline “retail sales hold up in June – better than expected” – I was curious to read the detail. Yes, it’s true that nominal sales were flat MoM. But that’s not what it states. They don’t mention “nominal”. As analysts and investors – nominal values are of very little use. What helps us more when forecasting trends (and assessing risks) is real sales. Real retail sales are those adjusted for inflation. And with inflation stubbornly high ~3.0% year-over-year (approximately) – that makes a big difference. When viewed through this prism – real retail sales have been declining for months.
It’s Fed Week… Market Sees Cuts Coming
Are rates restrictive? And if they are – how do you know? That’s the question the Fed will address tomorrow – but it’s not easy to answer. For example, on the one hand there’s a (large) cohort who believe the Fed are falling ‘behind the curve’ – therefore increasing the odds of a recession. They feel that growth risks are to the downside – and do not need to wait for both inflation and employment data to confirm what’s ahead. On the other side of the coin – there are those who think we still run the risk of higher inflation if acting too early.
For a full list of posts from 2017…