Last week was all about U.S. debt, the dollar and yields. The latest Treasury auction came in at higher yields, adding concerns around the rising cost of financing the U.S. debt and creating some volatility across markets. In response to higher long-term rates, U.S. Treasury Scott Bessent’s announcement to double the size of treasury buyback cap operations from $2 billion to $4 billion. That initially pushed yields down — the 10-year briefly fell toward 4.64% and the 30-year toward 5.18%. However, the announcement couldn’t ease investor worries about the bigger structural issues of the high fiscal deficit and inflation, driving yields back up again. The move also pressured the dollar as that was the only release valve given that bond market could not clear the sovereign risk premium. Gold and Bitcoin moved higher, while the S&P 500 saw some volatility and finished the week lower. On earnings, retailers generally reported solid sales growth, but Walmart was the key disappointment. Comparable sales grew 2.6%, below expectations of 3.7–3.8% and last year’s 4.6% growth increasing concerns on the health of the lower-end consumer. This week, there are two main events to watch. Jackson Hole on Friday and Nvidia earnings on Wednesday. At Jackson Hole, the market will be focused on guidance, if any, from Warsh, particularly given the tension at the long end of the curve. The Fed appears comfortable allowing higher long-term rates to tighten financial conditions, while Treasury is simultaneously trying to limit the rise in those same yields.
Market Update
Main story of the week last week was rates again, as Kevin Warsh’s Jackson Hole speech came across hawkish, saying that 2% inflation “is a firm, fixed target” and that “it is the Fed’s job to deliver stable prices.” With yields already under pressure and the Treasury announcing plans to double the size of its long-term buybacks, all eyes were on Warsh. Warsh’s speech shifted rate expectations, with the market bringing the possibility of a rate hike in September back to the table (60% likelihood as of Friday). The largest yield moves occurred at the short end of the curve on Friday, resulting in a bear flattening. The 1-year Treasury yield rose to 4.15% from 4.04% and the 2-year climbed to 4.34% from 4.20%, while the 10-year increased more modestly to 4.73% from 4.67%. Turning to equities, investors were focused on Nvidia’s earnings, which came in significantly above expectations and continued to support the strength of the AI narrative. Software also rallied following strong earnings from Salesforce and CrowdStrike, suggesting that the SaaS AI concerns may be alleviating. This week we have the August jobs report on Friday, where expectations are for 65k job gains and a tick up in the unemployment rate to 4.2%. This report will likely be heavily scrutinized by investors as it will be a key data point for the Fed when it comes to their monetary policy decision on Friday, as well as the next inflation report.
Jackson Hole – A More Hawkish Warsh
On Friday, Kevin Warsh sounded more hawkish, with two key takeaways from the meeting that somewhat clarified the Fed’s reaction function. On the one hand, he noted that inflation trends have not meaningfully improved and indicated that “we have work to do,” which the market interpreted as a signal that he will raise rates if inflation does not improve. The hawkish tone pushed the probability of a September hike to 57%. However, we believe the August employment report and CPI will ultimately determine the next move. If inflation continues to trend lower or the labor market weakens, the Fed still has the flexibility to remain on hold until December, after the midterm elections. Otherwise, the issue becomes one of Fed credibility, which would likely force them to raise rates.
July PCE Inflation
July’s PCE report showed that inflation remains stubbornly elevated. Headline PCE prices rose 0.2% in July or 3.7% year-over-year (YoY), while core PCE (ex food and energy) increased 0.2% for the month and remained at 3.3% YoY, indicating that underlying price pressures are still running well above the Federal Reserve’s 2% target. Overall, core PCE inflation still looks pretty firm compared to CPI – over the last three months, core PCE has continued to run well above CPI, with the 3-month annualized Core CPI at 1.6% versus 3-month annualized Core PCE at 3%. Overall, the report points to an economy that is not generating meaningful further disinflation, which will likely keep the Fed focused on inflation risks. This increases the likelihood that monetary policy will need to remain restrictive—and potentially tighten further—if price pressures do not ease in the coming months.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
Lido Advisors, LLC is an SEC-registered investment adviser. Please note that SEC registration does not denote any particular competence or ability and no inference to the contrary should be made. For complete information on the services we provide and our fees, please review our Form ADV at adviserinfo.sec.gov, call 800-301-LIDO, or mail us at 1875 Century Park East Suite 950, Los Angeles, CA 90067.
The information contained herein reflects Lido’s views as of the date of this newsletter. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Lido has obtained the information provided herein from various third-party sources believed to be reliable but such information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Lido is not responsible for the consequences of any decisions or actions taken as a result of information provided in this newsletter and does not warrant or guarantee the accuracy or completeness of this information.
Past performance is not indicative of future performance. The information in this report is for informational purposes only and should not be relied upon as the basis of an investment or liquidation decision. Nothing in this report shall be construed to be a solicitation to buy or offer to sell any security, product or service to any non-U.S. investor, nor shall any such security, product or service be solicited, offered or sold in any jurisdiction where such activity would be contrary to the securities laws or other local laws and regulations or would subject Lido to any registration requirement within such jurisdiction. All content herein has been obtained from sources deemed to be reliable, but is subject to unintentional errors, omissions and changes without notice, and is not warranted as to its accuracy or completeness. You should not rely on the information contained herein, and should rely solely on, and carefully read, the appropriate offering and related subscription materials relating to any specific investment product before making any investment decision.
Not all investments are suitable for all clients. It should not be assumed that any security listed or any recommendations made in the future will be profitable or without loss, including risk of loss of principal, or will equal any prior performance. All investments involve the risk of potential investment losses including the potential risk of loss of principal as well as the potential for investment gain. Further, the prior performance figures indicated herein represent portfolio performance for only a short time period and may not be indicative of the returns or volatility each portfolio will generate over a long time period. The performance of the portfolios should also be viewed in the context of the broad market and general economic conditions prevailing during the periods covered by the performance information. Any references to future returns/risk are not promises of the actual return the client portfolio may achieve. Before investing, investors should seek financial advice regarding the appropriateness of investing in any securities of investment strategies discussed. Not all investments are suitable for all investors.
The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.
Lido specifically disclaims any and all liability arising from the information or illustrations presented in these materials and is not responsible for the consequences of any decisions or actions taken as a result.
