Performance anxiety on Wall Street? — PCE data in the spotlight

• Eco data suggests all systems GO! – S&P enters a new century!
• Today’s PCE will either support or deny that!
• Bonds UP, Gold UP, Oil Flat.
• Try the Porcini Rubbed Rib-Eye – Tagliata Style.

Earnings season is in the rearview mirror, and as I said yesterday morning, investors, traders, and algos will now turn their full attention back to the economic data — and that’s exactly what they did.

The data was good, so they took stocks higher….The Dow added 72 pts or 0.2%, the S&P up 20 pts or 0.3%, the Nasdaq raced ahead by 115 pts or 0.5%, the Russell up 5 pts or 0.2%, the Transports added 17 pts or 0.1%, the Equal Weight S&P gave up 4 pts or less than 0.1% while the Mag 7 added 139 pts or 0.5%.

Now here’s something curious… August — which so many thought would be a rough month — has been anything but. The S&P is up 4.7%, the Nasdaq +5.37%, and the Russell led the charge, up a whopping 10.4% month-to-date.

That money which sat patiently on the sidelines, waiting for a pullback that never came, is now forcing PMs, and hedge funds to suffer from “performance anxiety.” So now, they’re rushing in, worried about being accused of “missing the boat.”

Now, to be clear, I was one of those voices telling you to be cautious. Chasing tech — which I still think looks a bit overvalued (although the RSI is not telling us that right now at 63.278)— wasn’t the best idea. Instead, I suggested looking at some underperformers: Healthcare (XLV) is up 7% off the August low, Basic Materials (XLB) +7.5%, SMIDs (IWM) +11.5%, and Consumer Staples (XLP), which is flat on the month (hey, 1 out of 4 isn’t bad).

Remember, I said: you’re invested, you already have tech allocations, so you didn’t miss out on anything. And if you did nothing? Kept that money parked in a government MM fund? You still made 4.25%. That’s a win in my book. For the record, I’m up 5% this month (in my personal account) on that same strategy — and I didn’t chase (to add) a single tech name.

Was I maybe a little too cautious? Sure. But – hindsight is 20/20 and I’m not 40 yrs old! (LOL) September is just days away…..Capisce?

Thursday’s slate of reports came in solid across the board, reinforcing the message that the economy and the U.S. consumer are holding up just fine. GDP topped the already strong forecast of 3.1%, coming in at +3.3% annualized. Personal Consumption rose +1.6%, beating last month’s +1.4%. Core PCE Q/Q held steady at +2.5%, a sign that inflation isn’t worsening. Initial Jobless Claims came in at 229k versus 230k expected (and better than last month’s 234k), showing no cracks in the labor market.

Housing data was a mixed bag: Pending Home Sales slipped -0.4% m/m, but the y/y number jumped +0.3%, beating the +0.1% estimate and easily topping last month’s -0.3%.

All of this set the stage just 24 hours ahead of today’s economic data — and it’s a big one: the PCE Price Index (m/m and y/y). Remember, in this case weaker is better. Estimates are calling for a +0.2% m/m gain (softer than last month), with y/y holding steady at +2.6%. Core PCE — which strips out food and energy — is expected to rise +0.3% m/m (unchanged) and +2.9% y/y, just a tick higher than last month’s +2.8%. The market already knows this, so that should not come as a shock.

The real surprise will be if the number comes in significantly stronger than expected — and we’ll find out in just a couple of hours.

Beyond PCE, we’ll also get Personal Income (+0.4%, better than last month), Personal Spending (+0.3%, also stronger), both pointing to a resilient consumer. And finally, the University of Michigan sentiment read: expected to remain flat at 58.6, while their 1-yr inflation expectation is seen ticking slightly higher at 5.0% vs. 4.9% last month.

Bonds rallied with stocks – the TLT and TLH both higher by 0.7% and 0.5% and that sent yields lower…. The 10-yr yield fell 3 bps to end the day at 4.20%, while the 30 yr fell 5 bps to end the day yielding 4.87% - lower yields certainly helping the mood for stocks.

Oil continues to do nothing…. It remains with the trendlines - $62.55/$64.40. This morning it is trading at $64.20.

Gold surged $28 to end the day at $3,476 on the back of that better-than-expected eco data – suggesting lower rates ahead and lower rates supports higher gold prices. When we broke out of the trendlines, I said that gold would most likely test the August highs of $3,525 ish….and if today’s PCE data suggests that inflation is not an issue and that the September rate cut of 25 bps is locked in and a possible November/December cut of another 25 bps gets locked in, that will only cause the excitement to continue.

Now, this morning US futures are all lower….. Dow -85, the S&P’s -7, the Nasdaq is -45 while the Russell is -4. Today is the last day of the trading month for August – by all accounts it has been a good month and all eyes (or at least the ones that are at work ahead of the long holiday weekend) are focused on the PCE report. In any event – be careful to make too much of the report today – so many people are gone and so many more will be making their way out of town by noon. I am not making any decisions today – I’m good. I hope you are as well.

The S&P closed in another new century at 6,501 – up 21 pts. Again, closing at an all-time high. While I thought we would reject going higher – the algo’s thought otherwise. Remember - September is a volatile month that usually ends a bit lower….. The recent action shows that having a plan is important.

Porcini rubbed rib-eye – Tagliata ctyle

For this you need: Dried porcini mushrooms, sugar, s&p, garlic, olive oil and balsamic vinegar, boneless rib-eye, arugula, red onion, shaved parmesan cheese and one lemon.

Grind 1 oz of dried mushrooms until fine...you can use a mortar and pestle or a food processor.

Next combine the mushroom powder with 2 tbsps. of sugar, 1 tbsp. of s&p, 4 garlic cloves (chopped) and about 1/4 cup of olive oil. Set aside. You can make a container of this rub up to this point and store it in the fridge in a sealed jar. When you get ready to use it - take it out of the fridge. Mix and then massage it into your meat of choice.

In this case – we are using a bone-in rib-eye – again you can use a different cut if you want, but I love the rib-eye.

Season the meat with salt. Now massage the porcini rub into the meat, making sure to coat it well.

Preheat your grill or if you don’t have one – preheat your oven to 400 degrees.

If you are using your grill- place the rib-eye on the grill and cook for 4 mins/per side – remove and let rest for 5 mins…. Your instant read thermometer should read 135 degrees.

If you are using your oven -

In a large cast iron skillet – add about 1 tbsp. of olive oil and heat it up. Add the steak and listen to it sizzle, brown on both sides. Now, place the skillet into the oven and let it cook for about 5-8 mins – depending on its thickness. Again, your instant read thermometer should read 135 degrees when inserted in the center. Remove and let stand for 5 mins – tent it to keep it warm.

Now slice the steak at an angle so that you can fan it out on the plate. Lay down some arugula and red onion, place the steak on top and then drizzle with a bit more of the olive oil and a squirt of fresh lemon juice. Then top with the shaved cheese.