🔥 CPI Report to Test Markets

Good Afternoon! Susan Wojcicki, a pioneering figure in the tech world, passed away (just yesterday) at 56 after a two-year battle with lung cancer. Known for being one of Google’s earliest employees, Wojcicki joined the company in 1999 as its 16th hire and quickly became a key player in shaping the digital landscape we know today. Her influence extended beyond Google, as she led YouTube as CEO from 2014 to 2023, turning it into a global platform where billions of people consume content daily.

During her time at YouTube, Wojcicki introduced significant changes that transformed the platform into a powerhouse for independent creators and advertisers alike. She championed the platform’s ad-sharing model, which allowed countless creators to monetize their content, and oversaw the development of YouTube’s premium services, such as music and kids' apps. Her leadership helped YouTube navigate through controversies related to content moderation and privacy while growing its ad revenue significantly. Despite her reserved nature, Wojcicki’s impact on the internet and social media was profound, making her a trailblazer in Silicon Valley.

MARKETS

• Investors faced a whirlwind week, starting with a steep market drop driven by recession fears and a sudden unwind of a yen carry trade. However, the market quickly bounced back as savvy investors saw buying opportunities, though volatility remained high. A surprising rally later in the week, sparked by better-than-expected jobless claims, underscored the unpredictability. Despite the ups and downs, the key takeaway is to maintain a long-term perspective, using strategies like dollar-cost averaging to navigate the market's twists and turns while finding strong investments at attractive prices.

INFLATION
CPI Report to Test Markets

CPI Showdown: Traders Brace for Big Market Swings

Wall Street’s version of a summer blockbuster is about to hit: the much-anticipated Consumer Price Index (CPI) report drops this Wednesday. And with it, traders are prepping for some serious market turbulence. The options market is signaling a potential 1.2% move in either direction for the S&P 500 ($SPY), reflecting the anxiety that's been building as inflation numbers approach. After last week’s rollercoaster—where the VIX spiked to levels not seen since the pandemic—the CPI could either calm nerves or send the market into another tailspin.

Volatility Takes Center Stage

It’s been a summer to forget for investors, but the drama is far from over. Last week, the S&P 500 managed to claw back some losses after Monday’s 3% plunge, thanks to the unwinding of a massive yen carry trade that rattled global bond markets. But don’t pop the champagne just yet—options pros are still not buying the recovery. Contracts betting on a 10% drop in the S&P 500 over the next 30 days are at their priciest since October. Even Jerome Powell’s upcoming speech at the Jackson Hole economic symposium isn’t expected to ease the tension.

The yield on the 10-year Treasury is also back to pre-jobs report levels, wiping out most of its recent decline. This suggests that traders are far from convinced that the Fed’s aggressive rate hikes are done crimping the economy. As Sage Advisory’s Thomas Urano put it, “We’re at an inflection point where bad news is suddenly good news because it might force the Fed to pivot.” But if Wednesday’s CPI data comes in hotter than expected, we could see another round of stock market whiplash.

Powell, Tech, and the Recession Watch

Jerome Powell’s Jackson Hole speech and Nvidia’s ($NVDA) earnings report later this month are the other two major events traders are watching like hawks. The options market is already pricing in similar moves for both dates, but what happens Wednesday could set the tone for the rest of the month—and possibly the rest of the year.

Meanwhile, the labor market continues to be a mixed bag. The yield curve between the 2-year and 10-year Treasury notes briefly normalized, a signal that has preceded every recession in the past 50 years, only to invert again as recession fears receded. With unemployment ticking up to 4.3%, well above Fed forecasts, the upcoming August jobs report will be just as crucial as the CPI in determining the Fed’s next steps.

So, what’s the bottom line? The market is at a crossroads. If the CPI comes in cooler than expected, it could confirm hopes for a Fed rate cut in September, potentially giving stocks a much-needed boost. But if inflation remains stubborn, expect more volatility and a possible retest of recent lows. As Brooke May of Evans May Wealth warns, “The economy isn’t as bad as people think, but I wouldn’t be surprised to see more downside for stocks in the coming weeks.”

PAST WEEK
Market Movements

• Warren Buffett’s Berkshire Hathaway sold 49% of its $84.2B Apple ($AAPL) stake last quarter, boosting the conglomerate’s cash pile to $277B. Despite the sale, Apple remains its largest holding.

• Wall Street’s “fear gauge,” the VIX, rose to its highest level since the pandemic market plunge in 2020.

• Google ($GOOGL) lost an antitrust trial over its search and ad business dominance to the DOJ.

• Uber ($UBER) announced its advertising business hit $1 billion in revenue. Uber Ads, which launched in 2022, sells ad spots across the Uber and Uber Eats apps, emails, in-car tablets, and cartops.

• Disney ($DIS) turned a profit in its streaming business for the first time.

• Nvidia ($NVDA) has been scraping large amounts of copyrighted YouTube videos to train its AI models, according to leaked documents.

• Palantir ($PLTR) shares are on the rise, boosted by an AI partnership with Microsoft

• Warner Bros. Discovery ($WBD) posted a whopping $9.1 billion loss in Q2, largely due to the declining value of its linear TV networks. That’s a blockbuster bomb for the books, and investors weren't thrilled.

• UK regulators are launching a formal investigation into Amazon’s ($AMZN) $4 billion investment in AI startup Anthropic, as governments ramp up scrutiny of Big Tech’s moves in the sector.

• TKO Group Holdings ($TKO), the parent company of WWE and UFC, is thriving, with record quarterly revenue of $851 million, driven by UFC’s 29% annual revenue growth.

MARKETS
This Past Week In Markets

Monday: Investors kicked off the week with dread thicker than your average Monday blues. The previous Friday’s dismal jobs report had everyone wondering if the Fed could avoid steering us straight into a recession. Spoiler alert: The markets tanked like they had no intention of hitting the brakes.

To make matters worse, a lesser-known carry trade involving the Japanese yen blew up at the worst possible time. Wall Street's clever trick of borrowing yen to buy dollars backfired when the Bank of Japan decided to raise interest rates for the first time in 17 years—right as the Fed was thinking about cutting rates stateside. The result? Traders scrambled, portfolios got a beating, and red dominated the screens.

Tuesday: Cue the dramatic comeback. Markets rebounded almost as fast as they’d dropped, with investors eyeing Monday’s mess as a prime buying opportunity. The year’s gains made it clear that Monday’s slide was just a bump on the road, so staying the course was the play of the day.

Wednesday: The week’s rollercoaster continued with a strong start that quickly fizzled out. Stocks slid again, but Wall Street pros weren’t panicking—they were shopping. Wells Fargo gave a thumbs up to large-cap stocks, Bank of America ($BAC) said it’s time to hunt for value, UBS suggested cozying up to gold and the Swiss franc, and Goldman Sachs ($GS) reminded everyone that diversification is the name of the game.

Thursday: And then, boom—markets soared on a surprisingly positive employment report. Jobless claims came in better than expected, sparking hope that last week’s ugly jobs data was just a fluke. The S&P 500 ($SPX) saw its best day of trading since 2022, a whiplash from the worst day since 2022 just a few days earlier.

Friday: After a week of wild swings, the markets ended on a high note, clawing back most of the earlier losses. The S&P 500 gained 0.47%, the Nasdaq added 0.51%, and the Dow inched up 0.13%. Despite Monday's steep sell-off and the market's sharpest drop since 2022, Thursday's rally helped turn the tide, fueled by better-than-expected jobless claims. Oil prices also saw a significant uptick, closing out the week with more than a 4% gain, driven by easing recession fears and rising geopolitical tensions in the Middle East.

The Bottom Line: Volatility is the name of the game right now, and while it might be tempting to bail before the next downturn, keep your cool. Stay focused on the long term, lean on dollar-cost averaging to smooth out the ride, and look for those quality buys amid the chaos.

Calendar
On The Horizon

This Week

After a quiet stretch, the economic action is about to heat up. The star of the show? Wednesday’s Consumer Price Index (CPI) report, which serves as the market's go-to gauge for inflation. If the numbers suggest inflation is cooling, expect some market fireworks. But if the report misses the mark, get ready for a bumpy ride.

Before that, Tuesday gives us a glimpse into the manufacturing scene with the Producer Price Index (PPI). Thursday turns the spotlight on July’s retail sales, showing us how Americans are spending their cash. And to cap off the week, Friday’s University of Michigan consumer sentiment survey will reveal how people are feeling about the economy.

Earnings season is winding down, but don’t sleep on it just yet. Some big names are still in the mix:

Upcoming Earnings:

• Monday: Barrick Gold ($GOLD), Monday.com ($MNDY), Buzzfeed ($BZFD)

• Tuesday: Home Depot ($HD), Tencent Music Entertainment ($TME), Asics ($ASCCF)

• Wednesday: Cisco ($CSCO), UBS ($UBS), Tencent ($TCEHY), RWE ($RWEOY), Vestas ($VWDRY), Dole ($DOLE)

• Thursday: Walmart ($WMT), Alibaba ($BABA), Deere ($DE), JD.com ($JD), Applied Materials ($AMAT), H&R Block ($HRB)

• Friday: Berkshire Hathaway ($BRK.A)

So, while the market braces for inflation news, keep an eye on these earnings reports from some of the biggest players in the game.