Daily Rundown: July 21

J.D. DURKIN: A very good Friday morning, subscribers. One and only, Mr. Bob Lang joins me now for a look at the technicals ahead of yet another consequential week for the market. Bob, thanks as always for being here. So a lot of attention was paid to the Dow this week. It marked its longest winning streak since at least September of 2019. As we're having this conversation, it's actually even a bit longer, nine consecutive days in the green there. What stood out to you?

BOB LANG: Yeah, nine days in a row is a solid win streak for the industrials, JD. But they're simply playing catch up to the rest of the market. Now, the Dow Industrials are now up about 6.4% through yesterday's close, much lower than the S&P 500 and the NASDAQ. I'm sure S&P 500 up near about 19% for 2023, NASDAQ up over 44% for 2023. So as we move our way through earnings season, JD, we might see some tech names fall back a little bit as we witnessed this past week with Tesla and Netflix, while industrials step up as they share some optimism for the remainder of 2023.

J.D. DURKIN: So a lot of focus has been paid to the Magnificent Seven. That's the phrase everyone's using the stocks when it comes to this last leg a bit higher. Too much optimism being put behind some of those best businesses in the world. What do you think? We do talk a lot about them.

BOB LANG: Well, I was thinking about something, JD. And I'm glad they coined this name the Magnificent Seven instead of the dwarfs, right? 7 dwarfs? It could have been-- that could have been the name of these names in the NASDAQ. But certainly, it's endless talk of this group. But let's face it, if you've had money in these names in 2023, you're doing pretty well, exceptionally well, as a matter of fact. Fortunately, though, in the AAP portfolio, we have four of these names, not all seven, of course, not Tesla, Meta, or Nvidia. These stocks have been running hot for months. And at some point in time, they will cool down. For the long term, though, these firms are solid. They're dominant in their field. But no doubt, we'll see money rotating out of this group. And it may start Monday with NASDAQ 100's rebalance.

J.D. DURKIN: Absolutely. We're closely following that rebalance there for the NASDAQ 100. Bob, you've been clear you think the earliest time to call a bull market will come in the month of September. It'll be here before you know it. Any change to that thinking, I wonder, as the market digests what's become a bit of a mixed bag of an earnings season. But certainly, a strong start from the banks and some strong names we've had report since then.

BOB LANG: Yeah, as you stated very clearly, a solid earnings season that started with the banks last week kicking off some positive vibes for the markets. And yet, as we come into the heavy part of earnings season over the next couple of 2 and a 1/2, 3 weeks, we have to wonder if strong earnings are already priced in to some of these stock prices. Big moves up in technology as we've seen and talked about endlessly for the past six months. It might be vulnerable unless a company delivers a perfect report and raises guidance significantly above expectations.

J.D. DURKIN: All right. Let's talk about the levels you're watching for the S&P. You had an eye on the 4,500 level. What are you watching now as we've continued to go a little bit higher here, Bob?

BOB LANG: Well, I'll tell you what, Marcus did not take the news from Tesla and Netflix too well. But still, you know what, still remain rather resilient, that 4,500, 5,000 level is an area that I've been watching very, very closely. And hopefully, we'll get some good movement off of that number. 4,600 is the next level that I'm looking at, JD, for some resistance. And above there, it's only about 3 and 1/2%, 4% back up to an all-time high.

J.D. DURKIN: All right. So next week, of course, we'll have the Fed's meeting. We get that decision on the 26th. The Streets essentially already penciled in another hike of 25 basis points. But Powell always seems to make several headlines when he talks. What type of sentiment are you expecting from the Fed Chair given the data of the last several weeks. We know they like to say they're data-dependent. And I also-- I'm also going to ask you a follow up in the same question. Is there anything you think Powell could say that would disrupt the markets a little bit, anything we're not expecting that the Chairman may say?

BOB LANG: Well, if the Fed Chair doesn't believe that the inflation numbers lately have been too enticing to get the Fed to pause or possibly even cut rates next year in 2024, the market is going to turn around and consider that bad news. I mean, I certainly think that the Fed is worried about inflation, as they should be. We've seen the numbers starting to come down, but they're coming down very, very slowly. And core inflation is not where the Fed wants it to be.

We saw the PCE number actually a little bit hotter than the prior month. And that's a concern for the Fed. And if Powell drops a bomb like he did a few months ago and saying that, listen, we're going to raise rates regardless of what any expectations are for the Fed funds futures, and that's just going to be it. And I think certainly, the expectations of the market are that the Fed is going to be a little bit more sanguine towards inflation and interest rate hikes. But if he decides to go a different direction, the markets are not going to like it.

J.D. DURKIN: And it's specifically core PCE we know they're following more so than others. Are there still elements of that particular metric that maybe are a bit too deeply entrenched for the liking of Mr. Powell and his colleagues perhaps?

BOB LANG: Yeah, I certainly think that core number is something that the Fed really needs to pay attention to. Of course, the core number doesn't include food and energy, which are two volatile elements of prices in the economy. So I certainly think that when you take a look at numbers from rents and other aspects that are strong weightings in the CPI chain and also the PPI. These numbers start coming down much faster. The Fed is going to have no choice but to acknowledge that. And obviously, they're going to have to change policy, monetary policy in kind with those changes.

So I certainly think that the Fed has been talking about it for a little while. We've heard a couple of Fed governors out recently saying that, well, listen, you know what, I still don't have my mind made up for July. However, the Fed funds futures have pretty much made up their minds for them, at a 99% probability now of a rate hike coming up next week. But some of these Fed-- some of these Fed governors are hedging their bets right now about where they're going to be voting for for policy next week.

J.D. DURKIN: Now, that's July. Can I get your sense on what September might hold? Because most people I talk to say, OK, well, July's already baked in. But for September, for sure, they're going to go back to a pause. Are you in that camp?

BOB LANG: Yeah, I certainly-- I think September is a pause. I think November is on the table. We have three Fed meetings remaining in 2023, JD. We have a September 1, we have a November 1, and a December meeting. I think that pause is coming in September. And again, there's about a 35%, 40% probability of a rate hike in November to bring it up to 5 and 1/2% to 5 and 3/4% on the Fed funds rate. December, likely going to be a pause.

But if that rate hike doesn't come in November, it could be coming into December. And I think that that's it for the rate hikes for this cycle, certainly, if the data starts coming in better than we've had for the past couple of months. And again, those inflation ratings actually weren't too bad last week. If the data starts coming in a little bit better, we'll see, potentially pricing in rate cuts in 2024.

J.D. DURKIN: Yeah, and I wonder how much of the overall market optimism we've had as of late is based on the fact that now some Fed heads, as Chris Versace likes to call them, have communicated that cuts will be here sooner rather than later. One quick question on Jackson Hole, what do you look for specifically there? And should we expect different type of comments from Mr. Powell than we get at either the regular press conferences or the occasional Brookings Institute event that he does in Washington?

BOB LANG: So we have to go back a year and remember what the markets did after Powell parsed out some comments about Fed policy and about the economy in August of 2022. The markets did not like it. They've dropped about 4% that day. It was a stunning move down, a big huge reversal. And are we expecting something like that to happen? Of course, we don't expect that, especially we are a year later and we are-- inflation is down. And the tools that the Fed uses to fight inflation, obviously Fed funds-- Fed funds rate actually have become quite effective in reducing prices across the economy.

So I don't expect too much fire-- too many fireworks from the Jackson Hole conference, which is in Wyoming. And it's hosted by the Kansas City Fed. But I do expect to hear some comments from some other central bankers from Europe and from Japan, also contributing to the conversation about how their efforts to control prices and inflation are working for their economies as well too. But I certainly think that Powell doesn't really need to drop a bomb. But we never know if he wakes up on the wrong side of the bed, JD. He may feel like he has to.

J.D. DURKIN: Let's hope that he doesn't. And we'll be watching those comments very closely. Going to Jackson Hole sounds nice this time of year, by the way. All right, let's conclude here in our newest addition to the bullpen, Bob. What does the chart tell you about Mickey D's, McDonald's that is. What are you following?

BOB LANG: JD, we're loving it. I'm sorry. That's terrible.

J.D. DURKIN: Nice. I knew you were going to work that in.

BOB LANG: So we like the chart of McDonald's here. It's very constructive, near an all-time high. And what was notable to me yesterday, and I talked with Chris about this, was that the stock had run up sharply in the spring before the rest of the industrials. It had a really nice move back in March and April on some really heavy volume. And that wasn't just triggered by earnings. Of course, earnings came out later in April from the first quarter.

We have seen more recently, the stock has peaked and kind of consolidating over here. But we think the stock has got-- is poised for a move to get above 300. If it pulls back a little bit, that could be a really good opportunity to add some shares of Mickey D's to the portfolio. But we do like this name. It's going to be-- it's a strong name. It's in the Dow industrials. And of course, this last 10 days or so, we've been seeing the strength in the Dow Industrials pushing the markets forward. So we do like Mickey D's and don't-- probably won't be too long before we see this name added to the portfolio.

J.D. DURKIN: Bob, real quick. What do you order at McDonald's?

BOB LANG: I'm not a Happy Meal guy I used to be when I was little. But Big Macs, of course, are great and love the fries, JD. Fries are incredible. There's something in those French fries that's really addicting that makes you order two or three fries, believe it or not. And at one sitting, you could probably down those things quite quickly.

J.D. DURKIN: I'm a journalist who asked the hard questions. Bob Lang, thanks for taking the time. As always, appreciate the insight.

BOB LANG: Have a great weekend, JD. Great to be with you.

J.D. DURKIN: You as well, my man. All right, Chris and I we'll be back on Monday to get you ready for the week ahead. Until then, have a wonderful weekend, maybe a trip to Mickey D's. And we'll see you next week.