Another leg higher in oil, on top of a firm inflation backdrop, lifted Treasury yields to multi-year highs, hardening Fed rate-hike bets into next week’s meeting, and driving a fourth straight day of equity losses.
Stocks continue to leak lower and internal damage is mounting, but downside volume remains relatively contained and investor complacency persists. That’s why a bounce remains likely, even if the bigger warning signs are growing louder.
The upcoming CPI will either relieve the market pressure or confirm it.
Alright my friends, that is it for me today. Thanks for letting me play in the sandbox, and you know where to find me – over at the Pro Portfolio.
Have a wonderful evening.
One last thing before I bid you all adieu and get ready to lock in for the Oracle ($ORCL) and Adobe ($ADBE) earnings calls.
Here’s a snapshot of what the market expects for tomorrow’s August CPI report:
The headline CPI figure is expected to come in at 3.4% on a year-over-year basis, matching the July figure. The core reading for August is expected to inch lower to 2.4% from 2.5% in July.
While many tend to focus on the core figure, with food and gas accounting for 20%-25% of the average paycheck, it’s hard to think consumers aren’t feeling the pinch of current gas prices or the continued rise in food prices found in the FAO Food Price Index.
Later in the day, the University of Michigan will publish its preliminary September reading for Consumer Inflation Expectations and the market sees it clocking in at 3.9%, down a tick from 4.0% in August.
Position: None
Over at the Pro Portfolio we’ve been long the shares of the First Trust Nasdaq Cybersecurity ETF ($CIBR) since May 2022 when the shares were trading just under $41. Over time, we’ve build up the position size given our thinking that cyberattacks are the dark side of our increasingly connected, digital world and the more connected devices there are, the greater number of attack points for bad actors.
From the “early days” of AI, our thinking was that AI in the hands of bad actors would accelerate the vector and velocity of cyberattacks, resulting in even greater efforts to protect a company’s or a government’s crown jewels. Headlines and articles in recent weeks clearly support that line of thinking, but today, appearing at the Goldman Sachs Communacopia & Technology conference, Nvidia ($NVDA) CEO Jensen Huang had this to say about cybersecurity:
“A derivative of coding is, of course, bug finding. And a derivative of that which is a very large market is called cybersecurity. And the reason why there’s so much conversation today about cybersecurity is because the industry is getting ready to launch some products. And, what better way to create demand than to create a problem, And so.
“Who doesn’t want their market to be hysterical about their product and line up around the corner. For it. And so, there are responsible ways of doing it and there’s less attractive ways of doing it. But, there’s, a lot of demand creation about cybersecurity today because new products are about to be launched. And if you can code well, so you must be able to debug well. And, red teaming is finding a bug, blue teaming is patching a bug. And so it’s not a complicated concept.
“But the fact of the matter is cybersecurity will likely be the next major use case of AI. And it’s going to run continuously.”
In our view, that’s another driver for AI and data center capacity, and it’s likely to be a closer one than autonomous driving, which is expected to be a massive creator and consumer of data.
Bottom line, we continue to think cybersecurity should be a part of every investor’s portfolio and we prefer the diverse exposure offered by CIBR shares or other cybersecurity ETFs.
Position: TheStreet Pro Portfolio is long CIBR and NVDA
After today’s market close, Adobe ($ADBE) and Oracle ($ORCL) report their quarterly results.
For Adobe, which is expected to deliver EPS of $6.09 on $6.7 billion in revenue, it will be the first earnings since it announced Anil Chakravarthy will succeed Santanu Narayen as CEO December 1. Now to see if outgoing CEO Narayen delivers guidance that matches Wall Street’s expectation for the final quarter under his tenure. For Adobe’s November quarter, Wall Street sees EPS of $6.33 on $6.85 billion in revenue.
Turning to Oracle, the market consensus is for the company to post EPS of $1.74 on $19.13 billion in revenue for its August quarter. For the current one, those figures are $1.89 and $21.17 billion. In addition to those figures, we’ll be following Oracle’s remaining performance obligations (RPOs), which stood at $638 billion exiting its May 2026 quarter. During that May quarter, management booked $67 billion in AI infrastructure contracts. We’ll also be looking to see if Oracle increases its capital spending plan for its fiscal 2027 beyond the $70 billion shared back in June.
In reviewing both earnings releases and corresponding earnings calls, we will also be mindful about what is said pertaining to the pace of AI adoption and usage.
Position: None
While I was supposed to be refueling for the balance of the trade day and post market close earnings calls, after reviewing some things over at the Pro Portfolio we cut back our position size in United Rentals ($URI) and locked in an enviable gain that rebuilt cash levels. We also downgraded our rating on URI, and laid out what we’ll be watching over the coming days to determine what’s next for our remaining shares.
Position: TheStreet Pro Portfolio is long URI shares.
Inflation concerns are seeing central banks shift to a tightening stance. Are they indirectly calling the market top?
Another item that seemingly points to a more hawkish Fed outcome next week:
Stanley Druckenmiller, a close ally of Federal Reserve chair Kevin Warsh, told a private Wall Street audience that US borrowing costs remained a “little low” and central bankers who thought monetary policy was restrictive were “ridiculous.”
The macro hedge fund manager, a longtime mentor of Treasury secretary Scott Bessent and Warsh, said in a closed-door meeting on Thursday that rate cuts “are no longer needed.”
“Committee members on the Fed who keep saying fed funds rates are restrictive are just ridiculous,” he told a packed crowd of hundreds of Wall Street investors on Thursday morning at a conference hosted by Piper Sandler in New York, according to a transcript seen by the FT and multiple people familiar with the matter.
The full article from the FT can be found here.
Position: None
