Markets Focused on Washington as September Begins
Weekly Investment Update | By Brian Schreiner
In the week ending August 29th, stocks and bonds were flat; commodities and gold were up; bitcoin was down.
Historically, September is the stock market's most challenging month, combining the worst average performance with increased volatility. It is the only month to average a loss over the last 75 years. This pattern of negative returns, combined with a pickup in price swings after the calmer summer months, is why investors traditionally view September with caution.
The U.S. Federal Reserve’s preferred gauge for tracking inflation edged upward to the highest level in five months. Friday’s report on the Personal Consumption Expenditures Index found that core inflation rose at a 2.9% annual rate in July, excluding typically volatile energy and food costs. Factoring in those categories, the annual rate was a more modest 2.6%.
The price of gold futures rose for the second week in a row and reached a record high of as much as $3,518 per ounce in Friday afternoon trading—up more than 31% year to date. Much of the week’s gain came after a Friday morning release of inflation data.
Nvidia announced second-quarter results last week and the stock is selling off, down 4% after reporting sales are still growing strongly. The 4% loss, translated into dollar terms represents a market cap larger than Pfizer Inc. at current valuations. Nvidia’s market cap has overtaken the total valuations of the main stock indexes in the UK, France and Germany. It’s also overtaken the entire S&P 500 energy sector, to whose members will fall the task of powering the machines that use Nvidia chips.
President Trump fired Federal Reserve Governor Lisa Cook for "cause" after she was publicly accused of mortgage fraud. Cook, who has not been charged with any crime, has sued the President, alleging her termination is illegal. The legal grounds for the firing are shaky, as the "for cause" standard for removing a Fed governor is generally understood to require proven malfeasance, not just an accusation. Allowing a President to fire a governor based on a mere allegation sets a dangerous precedent, creating a political tool to oust officials under a thin pretext of wrongdoing.
Given the legal weakness of the President's case, the firing appears to be less about justice and more about political pressure. The administration isn't challenging the constitutionality of the "for cause" law itself, as that would be seen as a direct assault on the Federal Reserve's independence and would likely fail in court. Instead, this firing is best understood as another battle in a war of attrition against the Fed. The ultimate goal is to intimidate the institution and bully it into complying with the President's demand to lower interest rates.
Intel agreed to give the U.S. government a 10% equity stake in exchange for funding from the 2022 CHIPS Act. This sets a significant and unfortunate precedent, last seen when the government took a temporary stake in General Motors during the 2008 financial crisis bailout. Commerce Secretary Howard Lutnick has indicated the administration intends to pursue more such deals, which raises serious concerns for advocates of free markets.
Senator Bernie Sanders praised the government stake in Intel while Republicans, who would have blown a gasket over this move under Biden, have remained silent for President Trump. Conservatives should consider the long term implications of a future Democratic administration using government power to intervene in markets to steer policy toward a progressive agenda.
A monthly labor market report due out on Friday will show whether a recent weakening trend for the labor market extended into August. In July, the economy generated 73,000 jobs, and initial estimates for the previous two months’ gains were revised downward by a combined 258,000. As a result, totals for April and May were just 19,000 and 14,000, respectively. α
Interesting things I came across this week…
A War on Central Bank Independence? (CNBC)
Is the U.S. underestimating China’s next-gen AI threat? (CNBC)
Passive Investing Is Fueling the Rise of Mega-Firms (Morningstar)
How Silver is Made (History of Simple Things)
Download our Quarterly Investment Outlook
Alpha Rock offers a compelling alternative to traditional buy-and-hold investing by offering active, risk-managed portfolio management services focused on liquid alternative investments and risk management.
To learn more about how we are investing for clients and for our current views on the global investment landscape, download our Quarterly Investment Outlook.
We’d love to hear from you!
Your thoughts are important to us, so don’t hesitate to share them. They give us great motivation and encouragement.
IMPORTANT DISCLOSURE INFORMATION
This commentary reflects the personal opinions, viewpoints and analyses of the Alpha Rock Investments, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Alpha Rock Investments, LLC or performance returns of any Alpha Rock Investments, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Alpha Rock Investments, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading. Note: Investors cannot invest directly in an index. These unmanaged indices do not reflect management fees and transaction costs that are associated with most investments.
Alpha Rock Investments, LLC provides links for your convenience to websites produced by other providers of industry related material. Accessing websites through links directs you away from our website. Alpha Rock Investments, LLC is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.
