Three cuts priced in but investors want a kicker, Fed to announce on Wednesday

• CPI is benign, markets now expect 3 rate cuts.
• Stocks rallied, bonds got whacked, oil sold off and gold teases the highs.
• FED is in ‘blackout mode’ – FOMC meeting on Wednesday.
• Watch for Goldy or Nicky T to whisper a story – if it is different than the expectations.
• Try the Meatballs – I mean who doesn’t love meatballs?

CPI nailed it…..coming in just as expected, so while it was not ‘better than expected’, it wasn’t ‘worse than expected’ and that made all the difference in the world. Couple that with the softening job market and BAM – stocks rallied.

The Dow gained 617 pts or 1.4%, the S&P up 55 pts or 0.8%, the Nasdaq added 157 pts or 0.7%, the Russell up 44 pts or 1.8%, the Transports added 223 pts or 1.4%, the Equal Weight S&P up 115 pts or 1.5% while the Mag 7 gained 345 pts or 1.1%.

Now, you would think (because of the way the market reacted) that the latest PPI and CPI news suddenly suggests that the FED should cut rates – when in reality – we have been talking about the fact that they are going to cut rates for weeks now… What was 1 rate cut is now 3 rate cuts this year – September, October and December that total 75 bps….But the market knows this – so the rally (in my opinion) suggests that investors are expecting a ‘kicker’, something else to excite them…..so what could that be? It could be a more aggressive cut or at the very least a more aggressive (think dovish) policy statement.

So, Now that this part is over, the focus is squarely on the FED, but since the FED is now in ‘blackout mode’ (the announcement is less than 1 week away) we won’t hear directly from any of the FOMC members – we could hear from any of the non-members of which there are a few - think Raffi Bostic, Alberto Musalem, Lorie Logan, Mary Daly, Tommy Barkin, & Jeffrey Schmid, or we could hear from our friends at Goldman Sachs or finally from Nicky T at the WSJ.

Now while the non-voting members will only speak for themselves (if they speak at all) it is Goldman or Nicky T that will get the call to ‘leak’ the story – IF it is different from the 25 bps cut that the market and investors already expect…..And that will most likely happen over the weekend (think a Goldman Sachs ‘Special Report’ or on Monday/Tuesday in the WSJ.

Expect to see a WSJ article that might say something like.

Fed leans toward aggressive 50 basis point rate cut amid cooling labor market.

Or if Goldman gets the call first – the expect to see something like.

Should Fed consider accelerating easing?Risks and opportunities for a deeper cut.

And remember – that special report will go out to Goldman clients only (think Sunday) and then parts of it will be leaked to CNBC on Monday so that Andy (Sorkin) can make it sound like it’s his idea.

Those headlines would make it appear that they (Nicky and Goldman) are ‘curious’ when what they are doing really is ‘floating the balloon’ – so that the FED can see how investors react – before – they actually do it. It’s all very orchestrated…. It’s the dance they do.

The move sent bonds surging – the TLT added 0.7%, the TLH up 0.4% while the AGG gained 0.2% and yields plunging….the 2 yr falling to a low of 3.47% before ending the day yielding 3.54%, the 10 yr breached 4% to test 3.99% before ending the day at 4.02% while the 30 yr kissed 4.63% before ending the day at 4.64%. Recall the 30-yr yield was as high as 5.07% on July 16^th…. causing markets to choke just a bit….. 30 yr mortgage rates are now ~6.35% down from 7% over the summer – and that is why we saw Mortgage Apps surge this week (+9.2%). The drop in rates will save you about $250 month on a $500k 30 yr mortgage.

Oil is once again under a bit of pressure – which is good for the consumer and for the economy. It is down 9% from last week and is now below all 3 trendline supports. The story is once again about how supply is outstripping demand – not because demand is waning, but because OPEC+ is raising production bringing more supply to an already well supplied market. The EIA (Energy Information Administration) now predicting that we will have an oversupply of 2 million bpd thru March 2026 – and that should send oil into the low 50’s! And if that happens, it will be like a massive tax cut for global consumers.

Gold continues to trade at the highs…between $3,600/$3,675 as the speculation builds on how many and how aggressive JJ will be!

US futures though this morning are taking it all in stride – trader types taking a ‘bit off the top’ after the surge higher – in a move to have some cash on hand in the event of a ‘sell the news reaction’ next week. At 5:30 am – Dow futures are down 75 pts, S&P’s down 10, the Nasdaq down 15 while the Russell is down 12. The only thing to consider is the U of Mich Sentiment surveys which come out at 10 am…. And they are expected to be in line….so no surprise.

European markets are also a bit lower…. Spain down 0.5%. The UK is bucking the trend – up 0.3% - they reported zero growth in July down from +0.4% in June and that is suggesting that the BoE will cut rates next week. Yesterday, the ECB held rates steady – no surprise there either – that was the expectation.

The S&P closed at 6587 up 55 pts marking yet another new high. Yesterday I said that the trendline suggested that at 6535 we were kissing resistance, but the interpretation is in the eye of the beholder. Either we kiss it and fail, or we kiss it and penetrate – and penetrate it was! To be clear – the majority expectation is for 3 – 25 bps cuts this year…..the outliers are calling for more….think 100 bps worth of cuts this year…In either case – the jury is set to announce their decision on Wednesday at 2 pm…followed by a presser at 2:30….and that is where we will ‘hear’ what JJ has to say. How he says it, the tone he uses, the phrases that he added and the phrases that he deleted from the last statement will all tell us all a story…. Will it be Romance? Comedy? Or Mystery?

Stewed meatballs

This is a country dish – meant to fill you belly for little money. It’s meatballs in a ‘stew’. It’s a classic southern Italian dish that again represents the simplicity of the ingredients. It’s not about fancy – it’s about going to Nonna’s house after school!

For this you need Ground beef, 2 eggs, Italian bread soaked in whole milk, parmegiana cheese, s&p, minced garlic and diced yellow onion. (All the stuff you need for the meatballs. You can mix ground pork and ground beef if you prefer).

Then you need a peeled yellow potato, carrots, celery and onions. 1 can of peeled Italian tomatoes in their juice (not puree), 1 bag of frozen peas, veggie broth, olive oil and s&p.

So, make your meatballs – set aside.

Cut up your veggies – they should be a bit chunky – not diced.

In a large sauté pan – heat up the olive oil – add the chunky veggies. Sauté for 10 mins or so. Now add in the meatballs and let them cook and brown up.

Hand crush the tomatoes and add to the pan. Toss in the peas and 1 1/2 cups of the broth. Season with s&p – mix.

Now cover and turn heat to med low and let cook for 15 mins then uncover and cook for 10 mins more.

That’s it…. Serve in a large bowl in the center of the table with plenty of fresh sliced Italian Bread. A glass of chianti works really well with this. Simple, delish and it’s only one pan clean up.

The kids will love this simple dish. I mean, who doesn’t love meatballs?