Call it the little market that ... couldn't.

The S&P 500 fell 4.2% and the Nasdaq Composite shed 4.6% as we closed the books on August earlier this week, and then stocks tried to rally as we entered the final month of this quarter. But, even after Friday's jobs report, which was mostly in line with expectations, the market couldn't muster the strength.

Stocks finished the week lower, once again.

And the data that flowed in this week showed headwinds are still blowing in: Prices are still high and the economy appears strong enough to withstand the Fed's efforts to return inflation back to its 2% target level. Several Fed officials echoed Fed Chair Jerome Powell's Jackson Hole comments from a week ago. We also continued to learn of new layoffs. Shopify shed 70 employees in August after purging almost 1,000 in July. Bed Bath & Beyond will close about 150 stores and slash its workforce by about 20%. Snap is wiping out about a fifth of its staff and Gannet let go 400 employees. These are on top of recent cuts at PayPal, Carvana, Klarna, and Robinhood. While the Fed may see this as adding some slack to the tight labor market, given the disparity between the number of job openings and the number of hires reported in the July Job Openings and Labor Turnover Survey report -- 11.2 million vs. 6.4 million -- our concern is for consumer spending in a slowing economy that continues to contend with higher inflation.

Outside the U.S., inflation continues to run hot, especially in Europe, and that led to talk of a larger than previously expected rate hike by the European Central Bank next week. To the extent it goes bigger than expected with a half to three quarters percentage point rate hike vs. its previous lift of a quarter percentage point, we'll by eyeing the dollar rather closely. The graph below depicts rather well the currency headwinds we've been discussing with members.

Odds are even if the ECB lifts rates more than expected, only a modest dent in the dollar's year-over-year move is likely to result. Given the continued climb in the dollar even just since the end of the June quarter, it's another reason to think companies are likely to warn about the impact of currency once again in the upcoming wave of investor conferences during the next few weeks.

Those dollar headwinds are one of the factors that lead us to think we could see more companies trim back revenue and earnings per share expectations for the balance of the year. Other factors include continued inflation pressures, the impact of higher borrowing costs, and slowing spending from both consumers and businesses. Looking ahead to next week, a number of investor conferences set:

  • Barclays CEO Energy-Power Conference
  • Barclays Global Consumer Staple Conference
  • Citi's 2022 Global Technology Conference
  • Evercore ISI 2nd Annual Technology, Media, and Telecom Conference
  • 2022 Wells Fargo Healthcare Conference
  • BofA Securities 2022 Media, Communications & Entertainment Conference
  • Goldman Sachs 29th Annual Global Retailing Conference

Following those events next week, there will be a rash of additional conferences the week of Sept. 12 and a handful the week of Sept. 19. As these events are held, we will be listening for comments about the tone of business during back half of the current quarter and on watch for downward guidance revisions.

While we could see a market bounce in the coming days, we are still in a bear market. As such, we'll remain on the cautious path, but as members saw this week, when need be, we will act decisively to preserve profits and capital even as we look for new portfolio opportunities.

The AAP Portfolio

As we touched on above, this week closed the books on August, a month that was painful for the stock market as it erased a good amount of its July gains. While the AAP Portfolio felt that pain as well, it was blunted by our inverse exchange-traded funds and cash position as well as positive moves in seven holdings, including meaningful gains in the shares of ChargePoint (CHPT) , Deere & Co. (DE) , and Ford Motor (F) . The weak September start for the market left its touch on much of the portfolio. Once again, however, our inverse ETFs and cash position blunted the worst of the market's rocky September start.

In terms of activity in the portfolio during the week, following the unexpected news that the U.S. government has imposed a new license requirement on Nvidia  (NVDA)  shares for any future exports to China and Russia for certain products, adding another layer of revenue uncertainty, we sold the last slug of NVDA shares in the portfolio. This locked in a return of more than 170%. As we made that move, we recognized that given the news, shares of AMD (AMD)  will be in a "show me" position, which led us to downgrade them to a "Two" from "One" rating. Considering the Biden administration's new efforts to crack down on China and given our position in Applied Materials (AMAT) , we will be on watch to see if these efforts extend to a new licensing requirement for semiconductor capital equipment as well.

With the cash we made on the NVDA trade, we dug into First Trust Nasdaq Cybersecurity ETF (CIBR) , PepsiCo (PEP) , and Vulcan Materials (VMC) . We built the portfolio's exposure to cybersecurity as well as infrastructure spending while bulking up on the beverage and snack business at PepsiCo. The moves with CIBR and VMC are in keeping with our strategy to use pullbacks to grow position sizes at favorable prices, while adding to PEP also increases the portfolio's dividend stream that much more.

Also during the week, we made a new addition to the Bullpen with the shares of Clear Secure (YOU) , a potential play on our Data Privacy & Digital Identity investing theme.

Ahead of Apple's (AAPL)  special event on Sept. 7, data from Counterpoint Research says Apple has surpassed Google's (GOOGL)  Android to account for more than half of all smartphones being used in the U.S. vs. 45% in 2021. We'd remind members that in recent years AAPL shares haven't exploded higher following the company's annual iPhone unveiling. During the event we'll be focused on price points associated with these new models as well as when they are slated to hit shelves. Based on what we learn, we could see some upward revenue and EPS revisions for both the current quarter and the December one.

Key Global Economic Readings

(Note: T is the most recent period, T-1 is the prior period's reading and T-2 is two periods back, the intent being to illustrate any trends)


During the week, there were several key pieces of economic data that we get as we kick off a new month. With several but not all those pieces in hand, on Thursday the Atlanta Fed's GDP Model upped its view on GDP for the current quarter to 2.6% from 1.6% on Aug. 26. The two inputs that led to that upward revisions were July Construction Spending Data and ISM's August Manufacturing Index. While we wait for the Atlanta Fed's next GDPNow update on Sept. 7, let's break down the week's key economic data.

The August ISM Manufacturing Index was unchanged from July's 52.8 reading, beating the consensus forecast of 52.0. On a positive note, the New Orders Index rebounded back into growth territory with a reading of 51.3 vs. July's shrinking figure of 48.0. Further progress was found on the inflation front as the August Prices Index fell to 52.6 from 60.0 -- for context, the May reading was 82.2. And while that is indeed progress, let's remember than a reading over 50 signals "growth" so prices are still rising just nowhere near the pace of a few months ago. August New Export Activity slipped into contraction mode with a reading of 49.4 vs. 52.6 in July. Finally, the August Employment Index rose to 54.2 from 49.9 the prior month.

Summing up the August ISM Manufacturing report, the economy continued to grow albeit at a slow pace and inflation pressures continued to moderate, signaling we are likely to see further progress in forthcoming inflation data. However, until we see demonstrative sign of improvement that signal, we are on approach to the Fed's 2% inflation target, we do not see the Fed backing off its fight.

Turing to the July Construction Spending report, total construction fell 0.4% month-over-month but was up 8.5% on year-over-year basis. Digging into the report, the data reflects the continued downturn in residential construction spending, which included a 4.0% decline in new single-family construction. Not surprising given comments in recent weeks from homebuilders or the deteriorating in mortgage applications as those rates have moved higher crimping affordability for prospective buyers. But there were positives inside the report including the year-over-year increases in nonresidential spending that were led by gains in commercial nonresidential construction and highway and street spending. Those gains and other aspects of nonresidential construction activity bode rather well for our shares of Vulcan Materials, United Rentals ( (URI)  and Nucor (NUE) . We continue to see more ahead as the flow of funds tied to the Biden Infrastructure Law accelerates.

Ahead of Friday's August Employment Report, on Wednesday ADP published its revamped ADP Employment Change report that contained not only its findings for August but its revised methodology and restated data. The August report showed 132K jobs created during the month, well below the expected 288K, and down from the 270K ADP data shows were created in July. This August report also indicated annual pay was up 7.6% year over year, little changed over the last few months for what it calls "Job-Stayers" but up 16.1% for "Job-Changers." This suggests that employers continued to pay up to attract new hires but were also using higher pay to retain employees where they could.

By comparison, the August Employment Report showed 315K jobs added during March, down from 528K in July but slightly better than the expected 295K. Average hourly earnings rose 5.2% in August, unchanged vs. July, and we saw downward revisions in the number of jobs created in June and July to the of 107K jobs.

Taking stock of those two perspectives on August job creation and wages and other data reported during the week, our view is the Fed will take the data in stride, keeping it on its path to return inflation to its 2% target. Adding credence to that view, during the week, Federal Reserve Bank of Atlanta President Raphael Bostic said the Fed's campaign to cool inflation was still not complete. Per Bloomberg, Bostic said, "We have got to figure out how fast we are going to move our policy to try to arrest that inflation and to wrestle it back down to 2%." On Friday, the CME FedWatch Tool still indicated a greater probability for a 75-basis point rate hike at the Fed's September meeting and the likelihood we exit 2022 with Fed funds rate between 3.5%-4.0% vs. its current level of 2.25%-2.50%. Should the increase in rates match that expected cadence, something we see as likely, it's a natural headwind to the economy and business spending.

Now let's turn to some of the other economic data had this week that re-affirms the slowing picture for the global economy, continued inflation pressures and further interest rate increases ahead from other central bankers but especially the European Central Bank.

  • The au Jibun Bank Japan Manufacturing PMI was revised higher to 51.5 for August compared with a preliminary figure of 51, and after a final 52.1 in July. While marking the 19th month of expansion in the sector, the latest figure was the lowest since September 2021.
  • The Caixin China General Manufacturing PMI unexpectedly declined to 49.5 in August from July's of 50.4, missing market forecasts of 50.2, and pointing to the first contraction in the sector since May. Output grew at the softest pace in three months, both new orders and buying levels fell for the first time since May.
  • The S&P Global Eurozone Manufacturing PMI's final reading in August was revised slightly lower to 49.6 from an initial estimate of 49.7 as compared with July's final 49.8.
  • The S&P Global/CIPS UK Manufacturing PMI was revised higher to 47.3 for August vs. the preliminary reading of 46, but even so the August figure marked the first contraction in factory activity since May of 2020.
  • Annual producer inflation in the Euro Area increased to a fresh record high of 37.9% in July, up from June's 36% reading and the consensus forecast of 35.8%. One of the major culprits behind that figure was the 97.2% year over year jump in energy prices during the month. On a month over month basis, July Producer Prices jumped 4% was significantly higher than the expected 2.5% increase and marked the biggest rise in four months.

Energy prices traded off this week, even though supplies remain tight. Weighing on oil prices were concerns over China's latest lockdown, the European Central Bank's next rate hike and the slowing global economy. We'd remind members that in the coming weeks, we are likely to see the last of the one million barrels being released from the U.S.' Strategic Petroleum Reserve between March and September. That means we could see further declines in the U.S. national average gas price, which reached $3.809 per gallon on Friday vs. $4.189 a month ago and $5.016 per gallon in mid-June. But given the EPA's waiver for the summer gasoline blend this year, we won't see that usual post-Labor Day move lower in gas prices that we've seen in previous years.

And while folks are likely feeling better at the gas pump, natural gas prices closed the week modestly lower but still at levels that are considerably higher that those for most of July. We expect that to lead to some eye rolling when consumers get their August energy bills, thanks to the heat. Next week we'll see if Russia opts to reopen the Nord Stream 1 pipeline, one of the main supply routes to Europe, after scrapping expectations for it to reopen on Saturday, due to ongoing maintenance issues.

Following word of new Covid-related lockdown in the Chinese city of Chengdu, which is responsible for approximately 1.7% of China's gross domestic product, on Friday Reuters reported rising Covid-19 cases are raising concerns that citizens in China's technology hub of Shenzhen could face their second city-wide lockdown this year. In addition to potential supply chain issues, these lockdowns could curb demand for goods and services as well.

Chart of the Week: The Russell 2000 Looks Rough

The Russell 2000 is a leading index, whether we like to believe it or not; 2000 names can care a lot of weight in the markets, and certainly leadership comes from the heavy weighting. Notice the daily chart, which can be seen here, is showing signs of weakness, the index falling below the 50 day moving average for the past couple of sessions, this daily chart also shows the indicators are bearish.

The SAR, or stop and reversal system (dots on the price chart) turned bearish a couple weeks ago, and KST, or Know Sure Thing indicator, on the bottom also screams bearish. There is nothing to like here on this chart, a test of the June could certainly be in the works, around $165 or so. Resistance ahead with the candles about ready to go purple (NO GO).

The Coming Week

When we return from the Labor Day holiday long weekend, we will once again be staring down a compressed week for the stock market. Fortunately, following this past week's economic data dump, next week brings only a few key pieces of data and a modicum of quarterly earnings reports. Those include August data on the Services economy for the U.S., but also the Eurozone and other key international markets. With the clock ticking until the Fed's September monetary policy meeting, the latest iteration of the Fed Beige Book will be required reading.

As we discussed earlier in this edition of the Roundup, we have a sea of investor conferences next week and amid them Apple will hold its latest iPhone event on Wednesday, Sept. 7. Also, that day at noon ET is the September AAP Members Only Call -- mark your calendars, and we'll see you there. Here's a closer look at the economic data coming at us next week:


Tuesday, Sept. 6

  • S&P Global Services and Composite PMI - August (9:45 AM ET)
  • ISM Non-Manufacturing Index - August (10:00 AM ET)

Wednesday, Sept. 7

  • Weekly MBA Mortgage Applications (7:00 AM ET)
  • Fed Beige Book (2 PM ET)

Thursday, Sept. 8

  • Weekly Initial & Continuing Jobless Claims (8:30 AM ET)
  • Weekly EIA Natural Gas Inventories (10:30 AM ET)
  • Weekly EIA Crude Oil Inventories (11:00 AM ET)
  • Consumer Credit - July (3 PM ET)

Friday, Sept. 9

  • Wholesale Inventories - July (10:00 AM ET)


Monday, Sept. 5

  • Japan: Nikkei Services PMI - August
  • Eurozone: S&P Global Services and Composite PMI (Final)- August
  • UK: Services and Composite PMI (Final) - August
  • Eurozone: Retail Sales - July

Tuesday, Sept. 6

  • Japan: Household Spending - July
  • Germany: Factory Orders - July

Wednesday, Sept. 7

  • China: Import/Export Data - August
  • Eurozone: Employment Change, GDP - 2Q 2022

Thursday, Sept. 8

  • Japan: GDP - 2Q 2022
  • Japan: Economy Watchers Current Index - August
  • Eurozone: European Central Bank Rate Decision and Press Conference

Friday, Sept. 9

  • China: Consumer Price Index, Producer Price Index - August
  • Japan: Machine Tool Orders - August

Following up on our comments above, there are a modest number of companies reporting their latest quarterly result next week. Among them, we'll be focused on what new insight is to come about business spending prospects for the balance of 2022, retail inventories and discounting leading up to the holiday shopping season, food inflation and to what extent consumers are not only trading down but eating increasingly at home.

Here's a closer look at the earnings reports coming at us next week:

Tuesday, Sept. 6

  • Open: Kingsoft Cloud (KC)
  • Close: Coupa Software (COUP), Guidewire Software (GWRE)

Wednesday, Sept. 7

  • Open: Nio (NIO)
  • Close: AeroVironment (AVAV), American Eagle (AEO), Dave & Buster's (PLAY), GameStop (GME), RH (RH).

Thursday, Sept. 8

  • Open: Korn/Ferry (KFY)
  • Close: DocuSign (DOCU), Mission Produce (AVO), Zscaler (ZS).

Friday, Sept. 9

  • Open: Kroger (KR)

The AAP is long CHPT, AMD, DE, F, AMAT, CIBR, PEP, VMC, AAPL, GOOGL, URI, NUE and all the other stocks in the portfolio.