Markets mixed as mag seven drives S&P higher, equal weight lags, FOMC and trade talks in focus

• Yawn! Stocks did nothing.

• Price Weighted vs. Cap Weighted – a short lesson.

• Jimmy Who? Did What?

• It’s the start of ‘The Meeting’ – What will JJ say tomorrow?

• UNH and MRK disappoint.

• Bonds unchanged, Gold up, Oil up.

• Try the Summer Rigatoni.

So, it was a relatively quiet day….The Dow lost 65 pts, the S&P gained 1 pt, the Nasdaq gained 70 pts, the Russell lost 4 pts the Transports added 7 pts, the Equal Weight S&P lost 42 pts while the Mag 7 gained 227 pts. Now notice what happened and this goes to my ‘the market is tired’ argument. The S&P ended the day ‘higher’, the Mag 7 ended the day higher, yet the Equal Weight S&P ended the day lower…..

Remember – the S&P is an index weighted by market capitalization, meaning larger companies (like the Mag 7—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla) have a disproportionate influence on the index's performance. The Mag 7 stocks account for a significant portion of the S&P 500’s total market cap (around 30-40%). When these mega-cap stocks perform strongly, they can drive the S&P 500 higher, even if many smaller companies in the index decline.

The S&P Equal Weight Index gives each of the 500 companies an equal weighting (approximately 0.2% each), regardless of market cap. This index better reflects the performance of the "average" stock in the S&P 500. If smaller or mid-cap stocks perform poorly, the Equal Weight Index can decline, even if the Mag 7 stocks are up.

Yesterday - the market favored large-cap tech/growth stocks (think Mag 7), Energy stocks and Consumer Discretionary stocks - vs. the other sectors. This divergence led to the S&P 500 (heavily influenced by Mag 7) to rise while the Equal Weight Index (more balanced across sectors) fell.

Sector performance showed that TECH, Energy and Consumer Staples were all the rage yesterday - rising 0.8% and 1.15% and 0.6% respectively. Real Estate was the biggest loser – down 1.7%, Basic Materials down 1.4%, Utilities and Consumer Staples down 1%, Healthcare down 0.9%, Financials down 0.7%, Communications down 0.5%, while Industrials lost 0.3%.

Back to the markets – there were no fireworks over the massive EU/US trade deal (announced on Sunday), no major moves over the ongoing US/China talks in fact – the sense is that Trump is set to extend the time frame for those talks to continue (removing yet another potential negative catalyst), no major concerns over the $69 billion auction of 2 yr notes nor the $70 billion auction of 5 yr notes even as the 5 yr auction suggests investor caution.

And in a new twist – Jimmy Fishback – Founder and CEO of Azoria Capital – a name you may not know – filed a lawsuit to force the FOMC to open today’s meeting to the public arguing that the FOMC’s closed-door meetings violated the Sunshine Act of 1976. This act requires certain federal agencies to hold open meetings unless specific exemptions apply. Jimmy’s argument is that the FED is ‘non-compliant’ with this transparency law.

Much to his surprise - the judge in the case ruled that the FOMC is not a government agency subject to the Sunshine Act’s requirements. Just a side note – the media is suggesting that Trump encouraged Jimmy to file the suit because JJ” s ‘high interest rates’ (4.25% is far from ‘high’) are intended to ‘undermine Trumps economic agenda’ yet there is NO definitive evidence that this is true. What is true is that Fishback has recently launched (July 8th) his ‘Azoria 500 Meritocracy ETF’ leaving Judge Beryl to question whether the legal action was a publicity stunt to generate interest in this ETF.

Ok – So here we are…. the FOMC is now officially ‘in the room’ – discussing those ‘high’ rates…what will we hear tomorrow? My gut says and the market says that JJ will hold rates steady – BUT will hint at a future cut after labor day…Look – we didn’t hear from Nicky T of the WSJ, we didn’t get a ‘Special Report’ from Goldman suggesting that the FED is changing the narrative – so history suggests that the FOMC – may show some splintering, but in the end will vote to stay the course. This should surprise NOBODY.

This morning we heard from UNH (a Dow component) and they missed (badly) – EPS of $4.08/sh vs. the estimate of $4.48/sh and well below last year’s report at $6.80/sh…They also reinstated full year guidance (after they pulled it 2 months ago) and it is below what street analysts were expecting. The stock is trading down $10 or 3.25% at $273/sh.

Remember – the Dow is a Price Weighted Index – meaning stocks with higher prices have a bigger influence on the index. The Dow divisor is 0.163 - For every dollar that UNH falls – the index will drop by 6.1 pts….so a $10 drop (3.25%) translates into a 61 pt drop in the Dow from UNH alone….Now since the Dow is a Price weighted index – a $10 drop in KO (would equal 14.7%) will have the same effect on the index – yet the percentage drops are much different. Contrast that with the S&P. A $10 drop in UNH (-3.25%) will only impact the S&P by about 2.25 pts, while the same drop in KO (-14.7%) will cause the S&P to decline by 5.5 pts.

OK – let’s move on…. Eco data today includes Wholesale Inventories, Retail Inventories, S&P Core Logic 20 city home prices, JOLTS report, Conference board consumer confidence and the Dallas Fed Services Activity. The ONLY data point today that matters is the JOLTS report (because of the FOMC meeting) – everything else is really just noise.

We are going to hear from 30+ companies today…. besides UNH – we will hear from NUE, RCL, MRK, REGN, SYY, FAST, JBLU, HUBB, GLW, SWK, PG, BA and the list goes on…

In the end – the focus will remain on the trade talks, the FOMC meeting, tomorrow’s PCE report and Friday’s NFP report…

US futures are UP – the Dow is up 40, the S&P up 20, the Nasdaq is up 105 while the Russell is up 10.

European markets are up as well…Eurostoxx, Germany, France and Italy all up better than 1%. It’s all about better-than-expected earnings…the whole trade deal ‘thing’ is so yesterday.

Bonds did nothing really…. yields remain in line.

Oil surged on the back of new threats by Trump on Russia – rising $1.82 or 2.8% yesterday. He warned of secondary sanctions if Vlad doesn’t stop lobbying bombs into Ukraine within 12 days…This action clearly viewed as ‘escalatory’ sending oil higher. This morning oil is trading up 21 cts at $66.92.

Gold sold off yesterday after piercing trendline support to end the day down $21 or 0.65%. This morning though – it is up $13 at $3,380 on the back of those Russian threats…leaving it still below what is now trendline resistance at $3,407. It remains in the $3,330/$3,500 trading range. If the whole Russian issue settles down, then I suspect Gold will retreat.

The VIX continues to decline…. oh boy…..just wait…. just ONE negative headline is all we need.

The S&P closed at 6,389, up 1 pt. Again – the action suggests we are going to push higher…. but I still think it feels a bit tired, so I am in the ‘be patient camp.’ Recall that the S&P is ‘overbot’ even more than it was yesterday…. This morning the RSI is at 76.2951….9% above what is considered overbot…..and remember – so are the Nasdaq and Mag 7. Remember it is now August/September/October – it is usually a weak time for the markets – so no need to chase anything. And even IF JJ suggests a September rate cut is coming – it won’t be a surprise…the mkt is already pricing that in.

Summer rigatoni

Simple yet delicious.

You need – 1 lb. of Rigatoni, 2 cartons of cherry tomatoes, 2 eggplants, 5 garlic cloves, shallots, s&p, olive oil and of course fresh grated Parmegiana cheese.

Begin by smashing the garlic, slicing the tomatoes and shallots, and slicing the eggplant into small bite sized cubes.

Add this all to a roasting pan, season with s&p and drizzle with olive oil – so that everything is coated NOT drowning, just coated.

Place in a 400-degree oven and roast for 20 - 30 mins…. Keep your eyes on it so it doesn’t burn.

Now bring a pot of salted water to a boil and add in the pasta and cook for 8 mins or until aldente.

Strain and set aside – saving a mugful of the pasta water.

When the roasting is done remove from the oven – add the pasta to the roasting pan and mix well. Toss in 3 handfuls of fresh grated cheese and serve immediately. YUM!. (If you need to moisten then add in a bit of the pasta water – but you may not need it).