Looking for a Top, the Fed's Risky Paths, Lithium Americas Energized
Let's see if we saw a meaningful selloff yesterday, look at whether the Fed pivoted, why bonds were brave and what's up with Boeing and Lithium Americas.
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A meaningful selloff? That's the question most traders and investors that I speak to in a casual, "off the record" way were asking last night. The truth is that we never really know that we have just experienced a significant top until it has passed and looks quite obvious on the charts after the fact. It's also true, and I have said this in the past, that shorting stock or making bearish investments (not trades) at the start of a Fed pivot toward easier policy can be akin to picking up nickels in front of a steamroller.
That said, has the Fed really pivoted? Is there really a steamroller? Is that pivot, if it exists, still bullish for equities if equities go into said pivot at record highs and at what most investors see as stretched valuations? Fed Chair Jerome Powell spoke publicly on Tuesday from Warwick, Rhode Island. His words, and how he presented himself, were the primary reason why the algorithms that control price discovery in 2025 went into retreat.
To be clear, Powell did not change his tune. He really did not adjust anything that came out of last week's post-statement press conference. Powell has never been enthusiastic about easing policy with inflation still above target and with labor markets clearly weaker, but not overtly weak. The fact that the current Fed Chair, who clearly still has as much influence on the Federal Open Market Committee as he ever has after last week's statement, spoke publicly just one day after we heard from the Fed most dovish (Miran) and most hawkish (Hammack) officials may or may not have been a quirk in scheduling. We'll answer the question atop this section as we work our way through this morning note.
Powell
Fed Chair Jerome Powell reiterated the narrative that he tried to get across to traders, investors, economists and businesspeople last week. Powell said, "Near-term risks to inflation are tilted to the upside and risks to employment to the downside -- challenging situation."
Put bluntly, Powell is unsure and is not confident in policy direction as he sees both sides of the Fed's dual mandate coming under unwelcome pressure.
I have said or written often, once one does not adjust policy when one can, one is forced to pull from one mandate in order to improve conditions impacting the other. As the old adage implies, once one is stuck in this awkward position, one must rob Peter to pay Paul.
Powell added, "Two-sided risks mean that there is no risk-free path."
The Fed Chair reiterated his view that increased tariffs were likely to lead to "one-time" price increases and that those "one timers" could present over a lengthy period of time. As Powell put it, "A one-time increase does not mean all at once."
Then Powell uttered the line that caused keyword reading algorithms up and down Wall Street (Wall Street as an industry, not the street in NYC, which is close to dead) to react in a negative way and take profits.
Powell said, "By many measures, for example, equity prices are fairly highly valued."
Quickly realizing that he may have just caused some market disruption, Powell then added that this is not "a time of elevated financial stability risks."
Too late. The horses were out of the barn.
Marketplace
The bond market was not as spooked by Powell's comments as were equities. Maybe that's because Powell did not refer to debt securities as "fairly highly valued." Bond traders snapped up the U.S. Ten-Year Note on Tuesday forcing that yield down to 4.11% (-4 bps). By day's end, the U.S. Two-Year Note paid 3.6% even (-2 bps). A U.S. Treasury Department auction of $69 billion worth of Two-Year paper also went off fairly well on Tuesday.
The high yield awarded of 3.571%, stopped through the "when issued" at the time of the auction and also happened to be the lowest award for this series at auction since September of 2024. Domestic demand was very strong, as directs took down 30.8% of the issuance. That's the positive. Foreign demand was not strong, as indirects took down a 57.8% slice of the pie. That left dealers with 11.5% of the auction, not really large by historic standards, but their largest slice since June.
The S&P 500 surrendered 0.55% on Tuesday as the Nasdaq Composite backpedaled for a loss of 0.95%. The rest of the market was not hit as hard. The small to mid-cap indexes were up between 0.06% for the day and 0.35%. The Philly Semiconductors lost 0.35%, while the KBW Banks gave back just 0.09%. The Dow Transports managed a gain of 0.59%.
Boeing BA was the largest gainer (+2%) among the Dow Industrial (-0.19%), which is an index that I really don't pay much mind to. It is, however, important that all in one day, Boeing submitted proposals to European regulators aimed at easing competition / antitrust concerns over its planned acquisition of Spirit Aerosystems SPR as the U.S. Air Force began production of its first F-47 sixth generation fighter aircraft.
Additionally, Boeing announced that the defense division will adopt Palantir Technologies PLTR Foundry platform to unify data analytics across facilities that produce aircraft, missiles, satellites and other possibly classified systems. My opinion, and I am biased both against Boeing and in favor of Palantir, is that if anyone can help Boeing get its collective head out of its collective tail, Palantir can.
Breadth
On Thursday, six of the 11 S&P sector SPDR ETFs closed out the day in the green, easily led by the beleaguered Energy XLE fund. In what represented at least a one-day flight to safety, the four defensive sectors were all among the winners, while the Discretionaries XLC and Technology XLK finished toward the bottom of the daily performance tables.
Losers beat winners by a 7-to-6 margin at the NYSE, and by a 3-to-2 margin at the Nasdaq. However, while advancing volume took a 49.3% share of composite Nasdaq-listed trade, which is hardly convincing and somehow managed a 57.6% share of composite NYSE-listed activity. Trading volume on Tuesday was nearly identical to Monday's totals. Activity was down small across NYSE-listings, up small across Nasdaq-listings and down small across the membership of the S&P 500.
Answer to the question at the top of the page? Tuesday never even came close to presenting as a Day One reversal of trend. For now, the confirmed uptrend is as healthy as a horse, and we all know how healthy horses are. That said, a little give and take is actually better for our marketplace over the medium to longer-term than is a market that makes new highs almost every single day.
News
- Federal agents on Tuesday, dismantled a network of devices in the New York City area that had been used to threaten senior U.S. government officials. There were supposedly signs evident of foreign involvement in whatever nefarious plan had been afoot. Agents discovered more than 300 SIM card servers and 100,000 SIM cards at multiple locations all within 35 miles of New York City as the President spoke at the UN with a number of high-level Trump administration officials in attendance. Matt McCool, a special agent in charge of the Secret Service field office in New York said, "The timing, the location, the proximity of this network had the potential to impact the UN."
- Lithium Americas (LAC) is trading more than 50% higher on Wednesday morning ahead of the U.S. open after having traded even higher overnight. Reuters is reporting that the Trump administration is seeking an equity stake of as much as 10% in the firm as it renegotiates the terms of its $2.3 billion Department of Energy loan for its Thacker Pass project.
- Micron Technology MU reported fiscal fourth quarter earnings on Tuesday evening and literally ripped the cover off of the ball. This is why we have been harping, of late, on the greatly increased need for memory chips in this data center / generative artificial intelligence environment. Micro easily beat Wall Street's expectations for both its top and bottom-line results, while issuing forward looking guidance that simply blew the street's expectations out of the water. The stock is trading just 0.4% higher overnight but is up 39.8% month to date.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.39%.
07:00 - MBA Mortgage Applications (Weekly): Last 29.7% w/w.
10:00 - New Home Sales (Aug): Expecting 650K, Last 652K, SAAR.
10:30 - Oil Inventories (Weekly): Last -9.285M.
10:30 - Gasoline Stocks (Weekly): Last -2.347M.
The Fed
(All Times Eastern)
4:10 p.m. - Speaker: San Francisco Fed Pres. Mary Daly.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: CTAS (1.19), THO (1.23)
After the Close: KBH (1.49)
At the time of publication, Guilfoyle was long PLTR, MU equity.
