Well, ok then – apparently the quickest way to calm down an angry bond market and a nervous stock market is to knock $4 off of the price of a barrel of oil.
Stocks finished higher on Tuesday as oil got whacked, bonds rose causing treasury yields to back off and traders and algo’s went right back into the ‘risk’ trade buying the very names in technology and semiconductors that they dumped on Monday. I say traders and algo’s because long term INVESTORS are not that skittish – they do NOT run for the door on Monday, sell everything and then run back in the door on Tuesday and buy everything – I mean it’s exhausting.
As the bell rang – the Dow showed a gain of 160 pts, the S&P added 25 pts, the Nasdaq gained 171 pts, the Russell up 14 pts, the Transports gained 24 pts, the Equal Weight S&P lost 5 pts, while the Mag 7 added 227 pts.
And the message could not be any clearer – Oil drops, inflation anxiety drops, Yields drop, gold ends the day unchanged and stocks go UP!
Investors ran right back into all parts of the tech sector – the XLK up 1%, Semi’s up 1.6%, Disruptive Tech up 2.6%, the Growth Trade up 0.7%, Cloud & Web X.0 – ARKW +1.6%. To be fair – money moved out of Software and Cybersecurity names.
Of the other S&P sectors – money moved into utilities, Communications, Healthcare, & Financials…. We saw weakness in Consumer Staples (which makes sense as money moved into ‘risk’ and out of ‘boring’), Energy & Industrials.
Ok so what happened to oil? Tensions in the middle east remain high – yet oil has gone down for 3 days…. Brent lost 3.6% while WTI gave up 4.6% – and this morning they are lower again…Brent down another 3% while WTI is down 2.6%. So, what gives?
Did Trump suddenly decide to play nice in the sandbox? No he did not, in fact, he threw sand in their face – putting more economic pressure on Iran by threatening secondary sanctions against countries that continue doing business with Iran.
But we did get an API report that shows US Crude stockpiles ROSE by 4.2 million barrel last week. We also got reports that suggest Oman is pushing on Iran to come back to the table, and Pakistan has apparently made some progress to get Iran to reopen the Strait of Hormuz. The Pakistani’s delivering a US proposal to Iran that would involve ending the naval blockade in exchange for reopening the Strait. So, think about it – oil isn’t falling because the conflict has eased, its falling because the ‘perceived supply risk’ has changed!
And all this was enough for the oil traders to take some of the risk premium out of the market causing prices to fall and remember why this is important…..oil has been at the center of the inflation/bond market problem. Higher oil feeds inflation expectations. Higher inflation expectations force investors to demand more yield to own long-dated bonds. Higher yields tighten financial conditions (without Kevy doing a damn thing) and pressure stock valuations – especially the long-duration growth (tech) names. So, when oil gets whacked, that entire equation runs in reverse. Bonds rally, yields fall and suddenly everyone wants tech again and that explains the move in the QQQ’s and the Mag 7!
Now, the 10 yr – which traded as high as 4.74% last week – ended yesterday yielding 4.62%! The 30-yr ended the day at 5.16% down from 5.33% on August 18th.
In addition, we had a $69 billion – 2 yr bond auction yesterday and it was solid. The notes were priced at 4.204% versus the 4.208% yield in the market. The bid-to-cover was 2.60 x’s, while indirect bidders (foreign central banks/overseas institutions bidding thru intermediaries) took 66% of the offering. Direct bidders (institutions bidding directly with the treasury) took 23.1% while dealers were left with just 10.9%.
So, while it looks like demand was there – there is a nuance…..yes indirect demand was strong, but direct demand was weak (23.1% vs. the average 30.1%), so while it’s fair to say demand was solid – it wasn’t spectacular. And don’t forget – this was a 2 yr auction (short end of the curve) the real fight is on the long end of the curve (10 – 30 yrs) because that is where investors are demanding greater compensation for time, inflation, deficits, debt and fiscal risk.
So, yes – it was good, but problem solved? Not even close!
Why? Because the structural problem in the bond market hasn’t changed. Scotty still has an enormous amount of debt to finance, the deficit remains huge, corporate America- especially Big Tech – is competing for capital, and investors are still demanding more compensation to lend money long term. To be clear, I am not trying to be a party pooper – I’m just making it clear that the road ahead is rocky.
And Scotty’s buyback strategy continues to be debated. Famed investor Stanley Druckenmiller came out swinging, arguing that long-term bond yields are one of the last remaining ‘fiscal disciplinarians’ and that trying to artificially suppress long term yields only delays the real conversation – controlling the deficit, controlling spending and keeping the debt from growing faster than the economy.
In the end – the bond market isn’t looking for financial ‘gimmicks’ – it wants ‘discipline’. Spend less, borrow less, and convince the bond market that Washington is serious about getting spending, deficits and debt under control.
And Gold? Well, it’s up 14% this month – busting up and through resistance at $4,200 to trade as high as $4,700 where it ran into resistance. This morning it is down $36 at $4,620. Trendline support is $4,520 with short-term resistance at $4,700. A push up and through puts $5,000 into the bullseye. A failure to hold support will see it test $4,380.
Ok – so what did the eco data tell us? July New Home Sales fell 10.5% vs. the expectation of -1.4%. This morning we learned that 30 yr Mortgage rates are now 6.8% up from 6.5% (and that is not helping housing). Consumer confidence was weaker than expected as well…. coming in at 89.4, down from a revised 90.2 – suggesting that consumers are becoming increasingly concerned about future business conditions, employment and inflation.
And then there was Dick’s Sporting Goods. The stock got absolutely trashed – falling 30% – after reporting disappointing results and a weaker outlook raised new questions about the consumer and the Foot Locker acquisition. Remember – they announced the Foot Locker deal in May 2025 and closed it last September, arguing that the combination would create value. Well, less than a year into ownership, investors are asking exactly where that value is.
Now, while one company does not make an economy – isn’t it interesting that Dick’s got punched in the face on the same day that consumer confidence weakens and new-home sales fall 10.5%!
And tonight is all about NVDA…I won’t rehash it; we discussed this already – you know the deal. Jensen not only has to WOW us, he has to talk about demand for the newest chip – Vera Rubin. He has to convince us that the AI story remains alive and well and then guide well above the Street’s forward estimate.
Right now, the Street is looking for 3Q revenue guidance of about $104.2 billion. That’s the hurdle. And just meeting the hurdle may not be enough. If Jensen gives us $107–$108 billion, thatshouldcause the stock to rally. If he gives us $100–$102 billion, even after a huge 2Q beat, the trader types and algo’s are likely to throw a fit. In the end – all Jensen has to do is validate the ‘entire’ AI investment thesis. My gut says he will not disappoint – let’s see what the algo’s think.
Eco data today includes – Personal Income and Spending – both expected to be a bit lower, and the biggie – the PCE Price index at 8:30. M/m & y/y are both expected to be lower – which is good, but remember – the market is already looking thru this and into next month’s inflation reports – ever since oil surged by 18% in August. We will also get the second revision to 2Q GDP and that is expected to be unchanged at 1.5%.
This morning – European markets are marginally higher.
US futures are treading water ahead of the big day. Dow futures are down 2 pts, S&Ps are down 10, Nasdaq is down 46 while the Russell is down 11pts.
The S&P closed at 7,677 – up 24 pts…. We are right in the middle of the trading range – 7550/7800. An NVDA beat should help the broader market push up to test the highs, while any perceived disappointment will cause tech to sell off causing the S&P to test support.
Grilled maine lobster tails
There’s nothing complicated about this one. Fresh Maine lobster tails, a hot grill, plenty of garlic-herb butter and fresh lemon. Give the lobster a quick kiss on the grill for some char, then finish it gently in a sauté pan with the butter. Serve it with corn on the cob and and call it dinner.
Prep time: 15m
Cook time: 10m
Total time: 25m
Serves: 4-6
Ingredients
4 Maine Lobster Tails, Olive Oil, Fresh lemon Juice s&p, Chopped Italian Parsley
1 stick of butter
2 cloves of garlic – minced
1 shallot – minced
Preparation
Step 1
Make the herb butter – Put the softened butter in a bowl.
Mince the garlic and shallot and add them to the butter along with the parsley, lemon zest, lemon juice, salt and pepper.
Use a fork to mash and fold everything together until it’s completely incorporated.
Taste it. You should get butter first, then garlic and shallot, with that little hit of fresh lemon at the end.
Step 2
Heat the grill
Step 3
Prepare the lobster – Take the tail and slice open – pull the meat out somewhat – not completely removed from the shell. (Shell remains part of the presentation) – rinse and pat dry.
Step 4
In a small bowl, combine the olive oil, about 2 tablespoons of the herb butter, fresh lemon juice, s&p. Brush the lobster meat generously with the mixture.
Step 5
Place the lobster tails on the hot grill – meat side down.
Grill for 1 1/2 mins, just long enough to develop some color and a little char.
Turn the tails over and grill shell-side down for another minute, brushing the exposed meat with additional herb butter.
Remove the lobster from the grill. It won’t be completely cooked — we’re going to finish it gently in the butter.
Step 6
In a large sauté pan, melt the remaining herb butter over med-low heat. Add another handful of chopped Italian parsley.
Place the lobster tails into the pan and spoon the melted garlic-shallot butter continuously over the lobster meat.
Cook gently for another 3 mins or so – continuing to baste, until the lobster meat is opaque, tender and just cooked through. Avoid overcooking it — lobster goes from tender to rubbery very quickly.
Step 7
Arrange the lobster tails on a warm platter and spoon plenty of that hot garlic-herb butter from the pan over the top.
Finish with fresh parsley, a squeeze of lemon and a little freshly ground black pepper.
Step 8
Serve immediately with grilled corn on the cob.
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