Stocks Rebound Into Jackson Hole — Can the Rally Continue?

Adam Turnquist:

Welcome to the latest LPL Market Signals. I am your host today, Chief Technical Strategist, Adam Turnquist. You'll notice Jeffrey Buchbinder is gone on a much deserved and probably a much-needed vacation this week. So I've got some big shoes to fill, but luckily I've got Jeffrey Roach, our chief economist, joining us to break down the economics. A good week to have you on, especially with all the focus on the Fed. Hope you're doing well, Jeff, and hope you had a good weekend.

Jeffrey Roach:

We did, we did. It's looking forward to the fall weather and things are never dull. So, speaking of dull, you switched right on time to important disclosures.

Adam Turnquist:

<Laugh>? Yes. Yes. Well, we're not going to go over those in detail, but they are there for you. Because we got toa pretty busy week and a pretty busy agenda. Just going over the recap for last week, we had buying pressure return in the market in a pretty big way, the S&P rallying, substantially snapping a four-week losing streak. We'll also take a look at earnings just as an update there. We're getting close to winding down the second quarter earnings, and so far so good. Of course, with a technician running the show today, we're going to go over some key charts to watch this week, so maybe a little bit more technical than usual, but we'll get your take on those as well, Jeff. And then of course, we'll get your take on the Fed with Jackson Hole coming up on Friday. It's going to be a big one.

Jeffrey Roach:

Yeah, we got toa lot of exciting things to talk about.

Adam Turnquist:

All right, we'll start off looking at the performance for last week and quite a week for the S&P 500. The first time it's been up in over four weeks, rallying 4% there, you can see on the top left. When we look at trading volume, it was relatively light, especially for a big week like that. But advancers versus decliners, that's one way we measure the strength of the buying pressure. Very, very broad, very bullish. You had advancers outpace decliners by five and a half to one last week, so that was a good sign for the market. It was tech driven. You can see the NASDAQ composite up 5.3%, but small caps also trying to keep up. The Russell 2000 up 3%, so at least participating overall in the rally and at the sector level, you can see technology leading the way, up 7.6%. A pretty big statement from the tech sector when you look at the breakdown,

Adam Turnquist:

at least technically, retesting those April lows, and that's right where buyers came in and defended that support level. A very, very important support level there. So nice to see tech rallying there. Semiconductors doing quite well last week with NVIDIA up around 20%. So some pretty big moves there. Definitely more a risk on tone and when you look at international markets a very similar path. The recovery in the Nikkei up almost 10% last week. So a pretty big bounce there. Lots going on the economic calendar last week, what were some of the key takeaways you were looking at, Jeff?

Jeffrey Roach:

Yeah, so it was a big week last week. So think retail sales, producer price index, which is, you know, a measure of inflation for wholesalers. And then of course, consumer price index, the measure of inflation for consumers and a number of other items. Of course, Thursday mornings, 8:30 Eastern, we always get our initial jobless claims numbers. I think part of it was you know, you're talking about volume, Adam, and remember this, you know, this last week was the week following the real shock coming out of the Nikkei and yen, BOJ and market spiking the previous, that previous week. And perhaps, you know, markets kind of set, were settling a little bit where, you know, the inflation numbers were improving, continue to improve on a rate of change basis. Granted, price levels are still incredibly high, but in terms of the rate of change, that's slowing down, that's of course what the Fed cares about.

Jeffrey Roach:

Because rate of change is how they measure it relative to the ongoing activity of businesses, consumers, the economy in general. So yeah, one of the things I'll highlight, I know there's a ton of numbers on here just to reorient our listeners. Left hand side domestic sectors. So you think about all the sectors of the S&P 500, right hand side, get a little more international, and that's where you see emerging markets and then developed. And so, you know, you think I just wanted to call out just briefly. The bottom right is where you see Asia Pacific, so Nikkei, then of course some of the Chinese markets. Very, very different experience, even when you look at the year-to-date numbers. And I think that's kind of the key to what we've been talking about for quite a while at LPL Research about the idea that, you know, Japan has showed some strength most of this year. Whereas China continues to struggle with a number of things, not just economic, think demographic, right? I mean, just birth rates, the overall structure, the infrastructure. And you can see that in the year-to-date column there in the bottom, right. So a lot of numbers, and I know Adam, you're a big highlighter guy, you're not using your highlighter, so we got to do a little better job of explaining all these numbers on the page.

Adam Turnquist:

Yeah, I'm missing the highlighter today for anyone that's watched any of my other presentations. There's a lot of yellow on the screen, but good point on Asia Pacific, some pretty big discrepancies there. And one could probably argue the fact that China is flat or just negative on the year marginally is a pretty good number when you think about what's been thrown at China considering their economic backdrop. Certainly not bullish. I feel like there's kind of a waiting period there, waiting for a catalyst, just haven't seen it yet. Maybe the People's Bank of China delivers some type of stimulus, that bazooka moment, but for now, not the case at least yet.

Jeffrey Roach:

Yeah, that's right.

Adam Turnquist:

Let's jump ahead to more on the macro. When we look at the top left here, the Agg, the Treasury index, all higher over the last week. So prices higher, yields lower. Relatively quiet though I think when you compare it to what happened in equity markets, the two years. So that monetary policy sensitive part of the curve, flat on the weak 10-year yields, we're down about five basis points. We're recording this Monday afternoon. It looks like tens are trading right around, call it 3.85, 3.86. The key level to watch, and we'll go over it on the chart in the upcoming slides here, is going to be 3.75 to 3.80. That's a major support level. We did get yields bouncing off that, so keep an eye on that level this week. When we look at commodity markets, I think what happened in the metals market was interesting.

Adam Turnquist:

Gold breaking out, you can see on the bottom left toward the middle of that table 2,487 in price, did rally to new highs. So another breakout after substantial rally went into a consolidation phase and then broke out in the direction of the longer-term trend, which of course for gold is higher, and it wasn't just a weaker dollar story. We're seeing over the counter gold purchases substantially higher. That's according to the world Gold Council. In addition to that, you have central bank buying in gold, that's remained steady and a big theme for the yellow metal. And then you're also seeing an inflection, we'll call it in gold, physical gold ETF holdings, which have been basically in outflows for the last several years in deviating from price action. We're now starting to see inflows return to that area of the market, which I think is people may be chasing this gold rally, finally showing up in some of those ETFs.

Adam Turnquist:

And I think another potential tailwind there. And then last one, Jeff, and I'll turn it over to you, is just highlighting copper, did get a little bit of a bounce over the last week. Part of that driver, we'll call it a relief rally in copper, considering how oversold it was, is just exports out of China, dropping from all-time highs. I think they were down 40% on the month. That suggests maybe demand in China for copper is picking up a little bit, good sign for maybe some economic growth there, not only in China, but if you look at copper just as a leading economic indicator maybe a good sign for the market overall.

Jeffrey Roach:

Yeah. And then the two things I'll add, just Adam, good points there. You know, the top left, you see fixed income in that section. You know, most people, those that are not in the weeds like we are stay with us. We're going to show the fixed income world in yields rather than prices. You know, most of the time, Adam, it's so funny, you know, we show this slide, and you look at fixed income and you have these prices, you think, well, most of the time investors, your average mom and dad investor don't think of yields in prices, bonds and prices sorry, bonds in prices. They think of bonds and yields. They have both. So just a little teaser for a couple charts down the road here. But wanted to highlight before we leave this page, just one thing in terms of the yen.

Jeffrey Roach:

So that's bottom right, middle of the pack there, Japanese yen. Just a reminder to folks, you know, part of the reason why we have so much volatility between the dollar and the yen is because we've had two very, very different regimes going on. Fed had been tightening rates last couple years, while the Bank of Japan has still had an extremely, extremely loose accommodative policy. Whenever you have divergence like that is ripe it seeds for volatility, as we say. So just a reminder there, we're seeing a little bit of the unwinding and the stabilization of that and the strength of the Japanese yen. That's partially because we're now moving to a new regime when you think about those two central banks, Bank of Japan and our own central bank here in the U.S., Federal Reserve.

Adam Turnquist:

Yeah, good call out on the yen and, you brought up a good memory. I started my career on the trading desk, and I was equity focused going in, and it was my first exposure to fixed income. And our head trader, I got the price yield relationship flip flopped one day, and he drew a teeter totter, and he put price and yield on one side, and he taped it to my screen as a reminder. And he maybe said some other words along the lines, but yeah, it was a good memory <laugh> of that relationship between price and yields. A flashback there. This, we'll call this a fun fact. Just looking at momentum, we actually ran the numbers and looked at how many times has the S&P actually rallied 3.9% in a week going back to 1950.

Adam Turnquist:

The specific answer, up to last week, you had 117 other periods, so that's 3% of all weeks you've had a rally that big or more. And this is what the returns look like for the S&P coming into it. You have the one week return on the left there, down 1.7% on average. So evidence of kind of a relief rally taking place. One week after you get that big rally, the market tends to be flat. You can see the average return about negative 0.1%, but then momentum really starts to build, as you can see, the one to 12 month returns. And on average, again, of 117 occurrences, the market's higher, higher by an average of 12 a half percent, 12 months later, nearly 80% of those occurrences also positive. So just to put some context around last week's big rally, and I think one of the drivers that brought buyers back into the market is really, there was no major blowups in terms of some of the financial measures that we look at. I guess that's what really this chart is showing us here, Jeff.

Jeffrey Roach:

Yeah, exactly. And just to also to add to that, you know, the idea that, you know, objects in motion tend to stay in motion, objects in rest tend to stay in rest. The whole point of momentum being a really, really powerful factor. And for those that have studied markets, you know, they understand that momentum and size, style factors that are so important. But you're exactly right, there is no real catalyst to convince investors that there was a change in momentum or a change in regime or change in direction. And this is a little granular, but it's pretty easy to understand. So we all know that the last couple of weeks, particularly that weekend, a few weekends ago, when Japan just plummeted, and that did end up having some very, very short-term contagion around the globe.

Jeffrey Roach:

But, you know, the volatility measures really spiked, and it's interesting and important to say, okay, well, outside of volatility, straight up volatility, was there anything else going on that was worrisome? So you look at this, this is taken from the office of you know, financial research out of Treasury. And they do a great job of looking at stress metrics in a whole way, a host of different areas of the market, whether it's funding between banks or currencies or sovereign debt or equity valuations. That gray line I want to call out there, that's safe assets, that includes gold. Some of the other safe haven items like 10-year Treasury also includes yen itself and Swiss franc, which is fascinating. And that gray line, hovering below zero means that even when there was a spike in volatility outside of just the volatility moves, underlying stress was still below average, below zero means below average.

Jeffrey Roach:

And it's just a really important metric to track. This is daily observations, that's why it's so choppy. So for our listeners and watchers to the podcast, you can see how much this is going up and down. It's not like a monthly or, you know, quarterly statistic. This is a daily stat, hence the little bit of the choppiness, but below zero, that's good news, meaning relatively low levels of stress, meaning other things matter to the markets. So central bank activity matters, certainly, overall growth metrics of an economy that matters, you know opportunities for businesses to, you know, make money in the margins that matters. In terms of stress though, it's still a period of very low stress.

Adam Turnquist:

Yeah. One of the other things that mattered last week I think was just inflation data. There was maybe a sigh of relief, we'll call it as CPI/PPI came in, in line, or I guess no major surprises there. And it looks like the overall consumer is still keeping up or beating inflation. And that's what this chart has shown us here.

Jeffrey Roach:

Yeah, that's right. So it's, this is a really good chart that explains why things are still okay, meaning, you know, we've had inflation up. This is measuring various statistics since the end of 2019. So since the end of 2019, as of now, inflation's up almost 18, a little over 18%. That's tough. However, when you add in another component of what's happening, well, disposable personal incomes per capita up almost 26%. So this explains why people are still taking European vacations, why they're still buying, you know, RVs, not quite as much of course as they were say in 2022. But the resale market there is quite interesting. If you didn't buy an RV in '21 or '22, now, might be your time as you know, borrowing costs are set to lower the rest of this year as the Fed cuts. But the point here is this explains why the consumer has been able to beat the incredible and historic rise of inflation. That's just because income has been even more historic in the rise for your average household.

Adam Turnquist:

All right, we're going to switch gears a little bit and go from econ to earnings. Just as a quick update, recapping a strong second quarter, we'll take a look at the new earnings dashboard looks a little bit different than the cockpit version we had before with some different visuals, but this is the new one that's out. And you can see for the S&P 500, a pretty solid earnings season. There's only, I think, 40 companies left to report. So tracking toward growth on the top left there at 11.2%. Now, if you exclude some write downs, I think around 9.1 billion from Warner Brothers, we'd be closer to 13% earnings growth. So impressive quarter for the S&P, you have about 78% of companies beating on the bottom line. That's above the longer-term average, 60% beating on revenues. That's a little bit below the longer-term average.

Adam Turnquist:

I guess we'll call that a wash. But nonetheless, margins are improving from Q1. That's another constructive data point. I think they're up close to 12% in the second quarter. So the companies are earning more. The earnings growth rate looks good. And then when you look at just forward earnings estimates, they're holding up very well, only down they've only been cut about 1%. Typically, you see cuts at least 2% or more as you get through earnings season. So those earnings holding up well, certainly helping the case for the rebound in equity markets. I think one of the other stories is that bar has been raised for the S&P 500 earnings backdrop and the companies have been able to deliver. However, the actual reactions and the reward that you get from earnings may be a little bit underwhelming, we'll call it, just considering that high bar, even when you beat, you have to beat by a substantial amount. And that average beat rate right now for the S&P 500, a little bit underwhelming. And I think that has been a factor in some of the, especially in the tech sector that has had such a meteoric rise in some overbought conditions there weighing on the space. But overall, a pretty solid earnings season. We'll definitely need to see this continue throughout the rest of the year, I think, for this market to hold up, if not continue to move higher. Any other takeaways I'm missing here on the earnings front, Jeff?

Jeffrey Roach:

Well, I think, you know, businesses have done a pretty good job in managing costs, you know, to allow for decent earnings. And you think about some of the layoff announcements that were made, you know, a year ago. And so, you know, there's we're kind of past the, you know, the challenge of filling openings, now businesses seem to be managing labor costs pretty well, hence giving them a little bit of an edge in managing profit margins.

Adam Turnquist:

Yeah, and last thing I forgot toto mention is just the multiple. When you look at the four multiple for the S&P, even though we've had a dip and a subsequent recovery still trading around 21 times, that's well above the longer-term average. I think that the 10-year average is just around 18. So with rates not moving materially lower off the lows that we witnessed, it's a harder case to make, I think, for that multiple. But nonetheless growth is there and we're seeing a pretty good reporting season for Q2. All right, let's transition to charts from earnings to the technicals here. Of course, we have to talk big picture with the S&P 500, lots going on here on this chart. So let's just frame it up from a longer-term perspective and break that down, and then we'll get into the shorter term.

Adam Turnquist:

But if you look at the technicals here, you can see we've been in a rising price channel really since the October 2022 lows. You can see that lower end of the channel, the upper end of the channel. We're still above a rising 200-day moving average. So hard to argue with the longer-term trend here, but we know that bull markets are not linear. You can see that on this chart. You often get pullbacks, you get a correction, completely normal within the context of a bull market. And what we've really witnessed on the shorter term here is the market got very overbought in July. It ran into the upper end of that rising price channel, and then we started to see things capitulate a little bit. We like to use that 20-day moving average as kind of a dynamic area of support representative of the shorter-term trend.

Adam Turnquist:

And you can see in bright blue, we started to break below that 20-day moving average. That was the warning shot for investors that we could have a little bit of a deeper pullback. And that's really what developed here. We had a sharp drawdown into those August lows. Think a pullback technically of eight and a half percent. And when you're looking for a bottom as a technician, there's kind of a checklist you go through to at least give yourself an edge in terms of is this sustainable bottom or a relief rally? And we haven't gone through that checklist or checked enough items off to really call this a durable bottom. One of the things we like to see is really washed out oversold readings, many different measures to look at. The one we brought today is just looking at how many stocks have made new four-week lows.

Adam Turnquist:

And you can see on that bottom panel in red, typically when you get a drawdown at least a 5%, you're going to have at least half of the index register, new four week lows. And you can see even back in April, that was the case when we had that five and a half percent drawdown. Of course, the correction lows last year, you were through that 50% threshold. What you have coming out the other side is a rebound in breadth. And even though we've had a sharp rally off this August 5th low, we're not seeing a lot of new four-week highs. So on the flip side, breadth has not snapped back. Typically, you see that expand over the last week, only about 12% of the S&P registering a new four-week high, that's pretty underwhelming. So things that we're looking for on a shorter-term basis, a close, a weekly close would be nice above 5,566 that would suggest a higher high being made.

Adam Turnquist:

And that may be the lows have been set here. We're also looking for that breadth expansion and leadership trends to reassert themselves. Keep in mind, we're coming into a very weak seasonal period, September, the weakest month for the S&P 500. By the way, we have an election coming up that's usually a big source of volatility. So, we're still a little bit cautious here on this latest rebound. Not to mention just the sheer scale and size of this rebound. We typically see at bottom being a process, not a V-shaped type of recovery, but we welcome the, the latest rally, at least from an equity perspective. We just think there's still some potential downside risk here for the market.

Jeffrey Roach:

Well, that's good. I think you got a couple of sector charts and well, there's your volatility and then your then your yield. So yeah, that's, you know, just to add in here to the next and kind of segue you, we just showed the, you know, the two-year history. What's interesting in that previous graph, Adam, you know, just seeing how dramatic in the pessimism that was going on, you know, October 2022. Now granted the conversation is all about, hey, the Fed was going to break something, we're in recession, things are falling apart. And then, you know, you realize, oh wow, people are still pretty well padded with cash, especially those that, you know, refied their house you know, in the previous year or less and have a bunch of extra cash because of the lower rates. But yeah, certainly in this chart, looking at just the incredible outsized move in volatility, I think maybe Adam, if you, I don't know if you're going to talk about this, but I know some on our team within research we talked was, is this a quote unquote true measure or was part of this volatility kind of a pseudo spike because this was before the market was even open on that infamous Monday a few weeks ago.

Adam Turnquist:

Yeah, I think it comes with a bit of an asterisk because in the futures market, we didn't have the same size moves. When you look at, depends on how far out on the curve. I think you could call it a volatility event, maybe not to the scale it shows up on this chart. Because if you look at that single candlestick, so just the low versus the high on the day, it was over 40 points on the VIX. That's the highest on record in terms of a trading range. And the levels that we witnessed here on the VIX going as high as the, you know, mid to upper sixties, that's comparable to the Global Financial Crisis. I think 9/11 some major, major events in the world, very rare you see the VIX move that high considering it was an unwinding of the yen carry trade and some other more, maybe we'll call it idiosyncratic factors in terms of whether it's Warren Buffet in his Apple position it was maybe just a storm of news that hit the market.

Adam Turnquist:

I'm not sure if that's enough to justify that type of movement in the VIX, but we did see the VIX futures curve. I like to look at that to measure the degree of panic in these situations. And we look at the front month or spot VIX and we compare it to the longer-term VIX because normally the curve is sloped in what's called contango. So the front month is cheaper than the longer-term contract. And when there's a panic in the market, you have a rush of buyers going into hedge positions in that front month contract. So that contract will trade at a premium to the longer term. That's what's called backwardation. It's very rare on the VIX. And you can see that on the bottom panel when it's green. And that was as high as March 2020. So a big move in terms of panic there.

Adam Turnquist:

So we're still above the 200-day moving average, simplistically, I always like to look at the VIX. If it's crosses above the 200-day, consider that a risk off backdrop below the 200-day, you're back to risk on, and we're getting close to that risk on switch going through that 200-day moving average. So we'll call that a level to watch this week. But we're still below the longer-term average here. You can see 19 and a half. That's been the normal VIX closing price going back to the early 1990s. And as we know about volatility typically mean reverts. We have been in a very low vol regime. So potentially this is the starting point of maybe some elevated volatility as we move into the fall. I think the macro backdrop, the geopolitical climate, certainly, would align with that call as well.

Jeffrey Roach:

Yeah.

Adam Turnquist:

One of the other questions we've had a lot is just small caps. We got very excited about small caps. They had a huge rally back in July. It was, you know, everyone was asking, are small caps going to lead the way here? Are small caps back. And we were cautious. We did change our Strategic and Tactical Asset Allocation View from negative to positive. That was a few months ago. But we had this rally, however, we didn't have enough follow through. You can see technically this is the S&P small cap 600 getting rejected right off the 2021 highs nearly at the penny pulling back from that resistance level. And now we're holding above support above the 200-day. So that's a good sign if you're watching small caps in this index, want see this one close the price gap at 1,397. And as asset allocators, we're always thinking about large versus small and how does that fit in our decision making process.

Adam Turnquist:

And I like to use the ratio charts to really identify where leadership is, the strength of that leadership. And this one has been a pretty consistent trend of small cap outperformance. And you can see that on the bottom panel comparing the S&P 600 versus S&P 500. So the fact that this ratio chart's moving lower, that's indicative of the S&P 500 outperforming, haven't had a reversal there yet. So technically to make the case for small caps to lead the way, you'd really want to see this trend reverse and have some follow through. And I know Jeff, on the economic side, you look at other things, but maybe where we're at in the cycle, how does that align with small caps leading the way?

Jeffrey Roach:

Yeah, yeah. We're still at a pretty tenuous situation because you think, you know, small caps tend to outperform large caps when we're in a rate cutting environment. So you think about, okay, where we, you know, might be the rest of the year as the Fed begins to cut rates and they tend to rally in that environment, but you also would need to offset it the competing force. I think right now, in terms of where we are late cycle we're slowing down as an economy in general, that's typically a tough time for small caps. So, that's where you say, okay, well in this case, you know, there still might be some choppiness, I think for the small cap space where investors are trying to figure out, okay, which factor is going to be the winning factor between those two competing factors and forces going on right now.

Adam Turnquist:

The other question, and these are all going to be addressed, I should highlight in our LPL Weekly Market Commentary, we had our major Focus event last week and we kind of recapped it with questions from the field. So that will be available on lpl.com. The other one, what's going on with yields, and just a quick look at 10-year Treasury yields, because they have been trending lower, that has not changed pretty much for most of the year, had a brief rally in yields higher. And since then, we've been declining really since call it the March April timeframe. And we got very oversold coming into August. You can see retesting those December lows right around that 3.75 to 3.80 range. That's that green line. That's the support level that we are watching technically. And we've had a little bit of a relief rally, meaning prices or I should say yields rallying higher after reaching really extremely oversold levels.

Adam Turnquist:

And the trend is still lower here. So I think in terms of upside risk, maybe you get to 4%, maybe 4.20, and that would be the time to fade that move if you're, you know, wearing your trader's hat today. But for now, I think that 3.75 area is going to be a major support level. If we start breaking below 3.75, that does raise the question, are we going to go and retest those 2023 lows near 3.25? And I think, and Jeff, correct me if I'm wrong, if we're talking about a 10-year around the 3.25 range, we're probably talking about a different economic environment maybe.

Jeffrey Roach:

Yeah, that's pretty dramatic. You know, you think about, you know, anything in that low range, you know, you're thinking, okay, the yield curve's still going to look a little bit strange, right? Unless the Fed really gets aggressive again, which is probably not going to happen. So that would be, that'd be a pretty tough, that a signal would be that you know, the economy's certainly in recession at that level. But I think you're right. I mean, if we're continuing to see the 10-year inch down a little bit lower that's consistent with a slowdown and you know, what you want to see is that this thing eases up in a measured pace and not any dramatic shifts spikes either to the downside or the upside.

Adam Turnquist:

Yeah, I think stability will be key here. And that was really a good direction for the 10-year coming off those bear market lows, just kind of a sideways price action, call it somewhat predictable. Equity markets like that in the Treasury market. Another area that likes lower yields, especially real yields, is gold. And this one has been interesting. You think about if we're slowing a little bit and there's geopolitical risk, yields are moving lower. We talked about some of the other catalysts with central bank buying, gold continuing to shine here. Another record high for the yellow metal last week, breaking out through these July highs. You can see it had a significant rally, spent some time in consolidation and then broke out again to new highs. And you can see momentum. We like to use different momentum indicators to really help validate breakouts or breakdowns.

Adam Turnquist:

And in this case, you have what we call the PPO indicator in a buy position. So giving more confirmation of a breakout and that middle panel, and we'll call it gold yellow, that's the actual known ETF holdings in physical gold. You can see how it's deviated from price action for the last couple years. And they started to see some inflows just over the last few months. I think that's another catalyst to watch, see if that trend continues. But very constructive price action here for gold. I don't know what the message is for the market with gold continuing to put up new highs in the context of an equity market rebound and some of the other risks. But it seems to be a little bit contradictory <laugh> to at least the bull market that we've seen in gold kind of keeping pace.

Adam Turnquist:

Mm-Hmm, <affirmative>. Mm-Hmm, <affirmative> last one. We got to talk about the dollar/yen of course, another big question. Has the carry trade been completed? Really tough to call. It's hard to get the data around how many people are short yen. We use a proxy in terms of some of the CFTC data, which is weekly from the Commodity Futures Trading Commission, and for the first time in call it three years speculators. So these are your hedge funds. Trading directionally with leverage are now long the yen. So we look at long positions, short positions, we combine them for a net position, and in this red, you can see that's short yen in this category, finally turning positive. So at least by this measure, you can make the case that the speculators in that market have are covered. They're no longer short yen as an aggregate group.

Adam Turnquist:

Now this is a very small sample size when you compare it to the whole entire global market of currency trading. So keep that in mind as well. But I think as a proxy, at least, I think you can make the case here that a lot of it has been completed. Technically, when we look at the dollar/yen holding above support at 141, that's a key level to watch. I think if we start breaking through 141, look for more volatility there, that could spill over into, of course, Japanese equity markets. But as we witnessed also into U.S. equity markets, I know we got lots to talk about for the week ahead, so I'm just going to keep this chart quick. This looks at just price action coming into Jackson Hole, which is of course is on Friday and then coming out of Jackson Hole after the chair.

Adam Turnquist:

speech, typically, I think it's always on Friday, at least from my memory. And here you can see, I don't know if there's any major takeaways in the data, and maybe that is the takeaway that Jackson Hole doesn't, it probably has more longer-term implications than anything kind of a mixed bag. One month performance kind of flat though. So, that is one thing to keep in mind, a very low positivity rate at 52%. So maybe there's time to digest whatever the new implications are for any monetary policy changes. I know I'm going to flip here and then turn it over to you to hear your thoughts, what you're expecting for Jackson Hole and then the rest of the economic calendar this week.

Jeffrey Roach:

Yeah, so you we're recording here in the afternoon of the 19th, and investors are in a little bit of a sweet spot, I think, for this week, because we get some really important information on Wednesday, and then we get the Fed's speech and perhaps possible reaction to that on Friday with the Jackson Hole event. So let me explain that. And it's on Wednesday, we're going to get the initial preliminary estimates of how much the Bureau of Labor Statistics is going to revise job growth for the last year. So it's a little bit of old news in the sense that, you know, typically when you go into a slowdown, you know, previous months job gains are revised downward. So, it's pretty much guaranteed, I think, a consensus that the revisions on Wednesday from the BLS will show that the economy added, well, I should say, businesses added much fewer jobs than originally reported.

Jeffrey Roach:

So not too much as a surprise, however, it is going to tell us something. And so that's on Wednesday, two days after that, we're going to hear from Chairman Powell, of course, the symposium that's called the well, the title of this symposium that's hosted by the Kansas City Fed out in Jackson Hole, Wyoming, for all the great trout fishing folk, the most prominent one being of course Volcker back in the day, hence the location. But it actually starts, the symposium starts earlier in the middle of the week, and then the highlight, of course, is the speech from Chair Powell on Friday. But what I think is really going to be helpful, and again, it's going to be helpful for investors to think through and reassess where things are. The title of the symposium is "Reassessing the Transmission and Effectiveness of Monetary Policy."

Jeffrey Roach:

So, that's going to be very important for investors is they get a handle on any potential policy tweaks. We got a little bit of a tweak back in the day, several years ago when the Fed started talking about the 2% target is a long run average 2% target, meaning it's very possible that inflation hovers above it, sometimes hovers below it sometimes, but on average 2%. Well, they explained that tweak at a Jackson Hole event. So Jackson Hole is quite important. Interesting as you think about what does it mean for markets in the near term, that slide you showed previously, Adam, you know, perhaps it is more of a longer-term feel. It allows for institutional investors to think about, okay, how do we set ourselves up for the end of this year and into 2025 and perhaps even longer.

Jeffrey Roach:

But it's important. Now granted the Fed's mandate, that's set by Congress, it's not as if they're going to change their mandate. They can't do that. Congress has mandated that this central bank looks at and manages toward price stability. That's the first of the dual mandate. And then the second one, of course, is full employment or steady growth. So a price level and a growth component, that's their dual mandate. What the Fed does have discretion on is how to manage to those mandates. And Jackson Hole is often the place where they communicate any tweaks to that. So that's going to be extremely important. And it might be a little bit of a surprise. I think at this point though, the Fed has done a very deliberate job in preparing markets for the first rate cut to happen in mid-September. So I think that's, you know, really the question I think markets are trying to work through is, okay, not if the Fed cuts, but by how much? Is it going to be a 25 basis point or one quarter of a percent, or is it going to be a full half percent? Most likely at this point, unless things we have an extra downside shock in the data, it most likely it'll be a quarter point reduction in the September meeting.

Adam Turnquist:

Yeah, the title kind of suggests we could see some fireworks, but that's not the Fed's M.O., at least this Fed <laugh> certainly a big event for Friday. I'm looking forward to that. I know you'll be keeping us updated as usual on any big changes.

Jeffrey Roach:

Yeah, I think it's fair to say, Adam, I think you know, Chair Powell is not the most emotive kind of person. <Laugh>, you know, <laugh>,

Adam Turnquist:

Yeah, it seems like a steady hand, we'll call it, without too many surprises for the most part. But I think that's going to do it. That's all the slides. I had a lot of slides. It's probably more than usual. But when you tell a technician to maybe three or four slides, you usually get maybe seven or eight <laugh> because there's a lot of important charts as we believe. So thank you for filling in Jeff and stepping in, giving us the economic update. We'll have Jeff Buchbinder back next week, back in the saddle. So looking forward to that. Have a great week, everyone, and take care. Thanks.