August Thoughts from the Beach

$nue $eqt $amzn $envx $lfg $run

Let’s begin with last week we described the stock market right now as Newton’s law of inertia whereas an object in motion tends to stay in motion unless acted upon by an unbalanced force.  Did Friday’s sell-off represent the unbalanced force to change the market direction or is the market merely “flagging” and working off its overbought condition?  We aren’t quite sure of the answer at this moment.  It is quite possible the bigger picture is:  1) interest rates are “just” normalizing 2) the economy is going back to its 2-3% long term growth and 3) inflation is on the verge of 0.2% month to month increases, annualizing to the 2-3% range once we pass the tough comps early 2023.  This would likely make the market a continued buy the dips mentality and perhaps even a stock pickers market, something we have not seen in ages (versus today’s red or black daily risk on or off).  Equally, the Fed seems confused as to the effect of the hikes they have already done to slow growth and inflation versus what is needed ahead to ensure a hard inflation landing.  Regardless, the bond market seems priced to their current path, while prices paid stats in all the economic reports has shown a collapse which is quite welcome. 

So where does this leave us?  First, let’s see that marble mouth Jerome Powell says the end of next week at the Jackson Hole Symposium.  He is the king of “on the one hand, on the other hand” but claiming to feel badly that average Americans are suffering from higher prices.  The bar seems to be he will maintain hawkish stance and then some, no pivot.  Also, he has a few more data points before they need to decide how close to done they are before the September meeting.  All that said, we think there is stuff to do both sides in the markets right now.

We have been building a long position in $UBER given the Company has hit its EBITDA inflection point with a very believable ramp to $5 billion cash flow in 2024.