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<\/figure>\n\n\n\nSome of the aspects of the durable goods report weren\u2019t as dismal as the headline number implies with the following categories expanding:<\/p>\n\n\n\n
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- Defense capital goods, up 2.5%<\/li>\n\n\n\n
- Communication equipment, up 1.2%<\/li>\n\n\n\n
- Machinery, up 1.1%<\/li>\n\n\n\n
- Electrical equipment and appliances, up 1.0%<\/li>\n\n\n\n
- Motor vehicles, up 0.8%<\/li>\n\n\n\n
- Fabricated metal products, up 0.7%<\/li>\n<\/ul>\n\n\n\n
Help Wanted<\/strong><\/h2>\n\n\n\n
In a sign of labor market tightness that may embolden Powell\u2019s Fed, unemployment claims totaled 230,000 during the week ended August 19, much softer than estimates calling for an unchanged 240,000 from the previous week. The four-week moving average of 236,750 did tick higher, however, but it remains well below the yearly high of 256,750 from the week ended June 24. Continuing claims came in at 1.702 million for the week ended August 12, below expectations of 1.708 and softer than the previous week\u2019s 1.711.\u00a0<\/p>\n\n\n\n
Artificial Intelligence Generates Optimism<\/strong><\/h2>\n\n\n\n
The labor market isn\u2019t the only portion of the economy to shrug off the Fed\u2019s aggressive monetary policy tightening with Nvidia this morning providing a strong forecast for artificial intelligence semiconductors that is fueling optimism about the potential for the technology to grow rapidly and support the overall computing industry. The retail sector, however, is continuing to illustrate that consumers are focused on finding bargains as inflation increases their living expenses. The following points illustrate these themes:<\/p>\n\n\n\n
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- Nvidia yesterday said it anticipates sales in its quarter ending in October to reach $16 billion, while analysts had forecasted $12.5 billion. Nvidia Chief Executive Officer Jensen Huang believes a new era in computing has started as the growing use of chatbots and other AI services is creating strong demand for powerful semiconductors. Revenue during for Nvidia\u2019s quarter ended July 30 doubled to $13.5 billion, supporting an earnings per share (EPS) of $2.70 while the analyst consensus prediction was for $11 billion in revenues and an EPS of $2.07. <\/li>\n\n\n\n
- Dollar Tree and Burlington Stores said they have benefited from inflation-weary consumers seeking bargains at off-price retailers. While Dollar Tree\u2019s guidance disappointed investors, its Dollar Tree branded same-store sales climbed 7.8% and its Family Dollar store sales climbed 5.8%. The company said it is capturing market share as consumers stung by higher living expenses turn to off-price retailers. Burlington Stores reported same-store sales growth of 4% while its total sales climbed 9% for the second quarter. It forecasted total sales to increase between 13% and 15% year-over-year during the third quarter while comparable same store sales will climb between 5% and 7%.<\/li>\n<\/ul>\n\n\n\n
Meanwhile, weak orders for aircraft in today\u2019s Durable Goods data were accompanied by another glitch with Boeing\u2019s 737 airliner that will delay deliveries of the aircraft. Fastener holes in aft pressure bulkheads on certain planes were drilled incorrectly, an issue which Boeing maintains does not impact aircraft airworthiness. Inspections and reworking of planes that have the issue will delay final deliveries. The 737 Max has a turbulent history with the aircraft\u2019s Maneuvering Characteristics Augmentation System causing two crashes by automatically sending aircraft into nosedives. In response to the 737 Max design issue, the Federal Aviation Administration had previously grounded the aircraft for 20 months.<\/p>\n\n\n\n
Investors Hope to Avoid Repeat of Jackson Hole 2022<\/strong><\/h2>\n\n\n\n
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Market players are cautiously awaiting tomorrow\u2019s Jackson Hole presentation while praying that the event doesn\u2019t serve as a d\u00e9j\u00e0 vu by sparking volatility.<\/strong><\/p>\n<\/blockquote>\n\n\n\n
Market players are cautiously awaiting tomorrow\u2019s Jackson Hole presentation while praying that the event doesn\u2019t serve as a d\u00e9j\u00e0 vu by sparking volatility. During last year\u2019s Jackson Hole meeting, Powell increased his emphasis on fighting inflation and opined that below trend economic growth is needed to curtail price gains. The presentation is clearly on everyone\u2019s mind, with equities pulling a green to red reversal this morning. Excitement about Nvidia\u2019s earnings quickly tilted to a focus on the potential of a hawkish Powell with the Nasdaq Composite Index going from up 1% to down 1%. Tech and semiconductors more specifically are leading the decline amidst a broad move lower. Meanwhile, materials, financials, utilities and real estate are the only sectors higher. Bond yields and the dollar are higher, with this morning\u2019s labor data supporting a firm Fed. The 2- and 10-year Treasury maturities are up 2 basis points (bps) each to 5.0% and 4.22% while the Dollar Index is up 32 bps to 103.69. Energy markets are softer this morning on reports that the U.S. is approaching a softening of Venezuelan sanctions which would bring more supply online. WTI crude is down 0.1% or $0.8 cents a barrel to $78.40. <\/p>\n\n\n\n
Fed is Likely to Send Hawkish Message<\/strong><\/h2>\n\n\n\n
Powell and his fellow policymakers are unlikely to be satisfied with the underlying price and labor pressures in the current economy. Powell has previously emphasized that reaching the Fed\u2019s 2% inflation target will likely require the resilient and tight job market to soften via the job opening channel. The Fed, however, is facing a business community that is willing to accept lower margins in exchange for continuing to generate revenues, which means companies are fighting the central bank by holding on to employees, which is supporting tight labor conditions. As we have seen throughout the Fed\u2019s battle against price increases, inflation\u2019s strength has frequently alternated between strong, moderate and weak while even modestly dovish commentary by Powell have caused the central bank to lose ground. Additionally, services inflation is strong and commodities prices are volatile on a month-to-month basis. With those points in mind, Powell is likely to warn of additional rate hikes or a long pause even as goods experience deflation.<\/p>\n\n\n\n