Daily Rundown: September 1

J.D. DURKIN: Good Friday morning, subscribers, one and all. Before we head out for Labor Day, AAP team member, Bob Lang, joins me now to discuss a busy beginning to the holiday weekend. Bob, good morning. I do want to kick things off with a look at this morning's jobs report.

Nonfarm payrolls rising by 187,000 for the month of August. Unemployment rate ticking up from 3 and 1/2$ to 3.8%, the highest level we've seen since February of 2022. What is the impact on today's trading and the week ahead, Bob?

BOB LANG: Well, obviously, the Fed is going to be very pleased with this report. This was one of those do no harm reports. Good solid gains in the nonfarm payroll, a bump up in the unemployment rate, which implies what the JOLTS report did earlier this week, is that there's going to-- there's some slack building in the jobs market, which is something that the Fed has been after for the past four to five months.

So they're finally getting the results that they're-- that they're seeking. And this may be, J.D. , the final piece for the Fed to start considering holding back on rate hikes. Now, it doesn't necessarily mean that they're going to be cutting rates anytime soon. And in fact, I don't believe that the first rate cut will be coming in until June at the earliest of 2024. So that's a good 10 months away from now.

But be it as it may, this was a good report. And most people are obviously jumping all over it today. We're seeing a good strong surge in the markets. And of course, we've had that all week long since last Friday.

So five days in a row we had a strong markets. Monday was actually kind of wonky, but we came down and we actually finished near the highs of the day. And of course, Wednesday was a real strong day. So I think this is a positive all the way-- all the way around.

J.D. DURKIN: So, Bob, it sounds like your base case is a cut for sometime in the summer of 2024. What are your thoughts on the remaining three meetings between now and the end of this year?

BOB LANG: Yeah. So, I think the-- the consensus is looking for at least one more rate hike before the end of the year. And I'm-- I'm kind of-- I've been in the camp of maybe two more rate hikes, just to make-- make sure that they put the nail in the coffin of inflation. But now I'm kind of, after this report, and then, of course, we have a inflation reports coming up in a couple of weeks after Labor Day, CPI and PPI coming out, we did see an easing in personal consumption expenditures today, as well, too.

You know, I'm thinking that with strong productivity, I think we're only we're only going to be maybe seeing one more rate hike before the end of the year. I don't know if it's going to be coming in September. We have a big meeting coming up then towards the end of this month. And I think maybe November, if the readings of inflation are a little bit too hot for the-- for the members, we'll see another rate hike in November. But I think that'll be it.

J.D. DURKIN: CME Group's FedWatch Tool, overwhelming consensus for a skip, at least for September. It's at 93% last time I checked about an hour ago or so. So aside from the top headline print, obviously, we have 187,000.

We also have downward revisions in this jobs report, which is always important to keep in mind, that you kind of net net, maybe it kind of balances out, some revisions for June and July. I wonder if, Bob, from where you're situated, is there anything in this report today, we might be missing or not talking enough about?

BOB LANG: Yea. So there's a huge lag in the jobs data relative to what's happening in the markets, right? So-- we-- it's probably stunning for some people to say to see that still such a strong robust jobs market, even under 200,000 jobs created. But we did see a-- a pretty good sizable tick up in the unemployment rate from 3.5% to 3.8%.

So what people are missing right now, is there's going to be a huge lag period between where the jobs numbers are at today versus where they're going to be at in about four to five months. And I think today's number, especially with the unemployment rate and some of the data that we had earlier this week, are portraying that the economy from a jobs perspective, is starting to slow down.

Now we don't see that in GDP numbers, especially with the Atlanta Fed's GDP now number came down from about 5.9% to about 5.6% for this current quarter. We have one more month left, of course, in quarter number three, and then that's book is closed. But I think that most people are missing out on the fact that there is going to be a lag.

And I think when we get up to about January, February, J.D. , of March of next year, don't be surprised to start seeing some negative numbers on the jobs creation front. And we're going to be seeing a retreat from that and from the jobs growth picture that we have right now. Unemployment rate probably ticking up north of 4% if that trend starts to continue in that direction.

J.D. DURKIN: That is a really good note of context, given the trend lines we've already started to see, and where the destination is that those trends may bring us to. Going back to yesterday's PCE index, Bob, how are you feeling about the state of inflation and the broader economy as of this Friday morning?

BOB LANG: Well, I think there are a couple of things here, J.D. , that are-- that the, again, the Fed is going to be pleased on. And again, remember something. Every data point has got to be scrutinized as-- as much as possible, because every single data point is important to the Fed. Now the PCE number that came in yesterday, a little hot on some fronts, and a little bit more in line on other fronts.

But I think the trend and the momentum for inflation is starting to head down. We're seeing-- and one of the reasons why the markets were up yesterday, J.D. , is the fact that consumption expenditures were up, even though income was-- was slightly down, maybe to flat. So that means people are still spending.

I don't know what they're using to spend. Obviously, credit card debt has reached peak levels, and all-time highs and so forth, so maybe people are just pulling out the credit card or possibly selling their home and using money from a home sale or whatever. But I think that when you see the numbers that came out from Walmart, for instance, the Lululemon last night, and some of the other bigger retailers, even Williams-Sonoma, so we're seeing a lot of people coming in and still buying stuff.

So that's going to put a nice put option underneath the markets, underneath the economy, as well, too. But-- but I think as far as that PCE number is concerned, J.D. , not too much to worry about. But again, I think we have good productivity. We've had good job growth, it's starting to slow down a little bit.

We've had-- we're having good growth in other segments of the economy. Manufacturing not so great, but we did have a better PMI number yesterday. So I think all in all, that inflation number is-- is an important reading, and it's starting to head in the right direction for the Fed.

J.D. DURKIN: Well, perhaps luckily for the Fed, there are only nine shows left for Taylor Swift's Eras Tour, after which maybe consumer spending levels begins to level out a bit. A lot of attention here paid the last few days, of course, to Jay Powell's hawkish tone last week in Wyoming.

We've also heard from a series of other Fed speakers the last few days. What did those Fed speakers have to say that you followed, Bob? And do you expect as a result, any shift in tone as we head into that September rates decision?

BOB LANG: Great question, J.D. . So-- so I think that the Fed doesn't lose much in the markets for being a little bit hawkish. However, they do give up a lot by tipping their hand and saying, hey, listen, you know what, maybe we need to step back a little bit on the hawkishness, on the aggressive side.

So I think having that tough talk, even in the face of better inflation numbers, is still going to be the apropos thing to do for the status quo, for the Fed members leading into the end of this year. And I-- I certainly think that again, they're recognizing that the data is going into their direction. But I still think they have to have a cautious tone here, especially in the wake of-- of a strong stock market, which we've had over the past eight months.

J.D. DURKIN: And a strong stock market we've had even over the course of the last few days. Outside of the headlines, Bob, is there anything else we should be watching a little more closely when it comes to inflation and the central bank?

BOB LANG: Yeah. So September is notoriously one of the worst months of the year, J.D. , and I think that we have to be cautious of that. We did have a down month in August. It was a lot down-- we were down a lot worse a week ago. But we made up a lot of ground, but still printed a negative number in August.

And according to my metrics, J.D. , what I look at is, I look at the monthly charts. And I want to see where the trends are on a monthly basis, because it really indicates whether we're in a bull market or a bear market.

So as of yesterday, with the close yesterday, when I see a couple of closes above the crossovers on the MACD, on the monthly chart, it signals to me that we're in a bull market. So I'm pulling out the bull playbook today starting-- starting today, over the next several months until we get a crossover in the other direction on the MACD.

So the bear-- the bull playbook a little bit different than the bear playbook, obviously. But I think that that's-- that's a way for-- for-- that's a change here that we've seen over the past character of the market over the past couple weeks. And even though the market was down in August, that certainly-- that certainly means that the bull market is up based on the metrics that I look at.

But again, be careful with September. Remember something. In 2008, we had that Lehman Brothers happen on September 15. And that led to a huge drop in September and lead-- leading into October. And then let's just reference October for a second. October has been the month where we've had market crashes. I'm not saying the market's going to crash here.

But it has also been the month that has signaled bear market bottoms, or where-- where markets have bottomed out and started rallying back. 1987, and in obviously 1929, and then more recently, in 2009. So we'll-- we'll have to see if those trends continue. But I think that be cautious here in September, especially with volatility so low right now, 13%, something that we all have to be mindful of.

J.D. DURKIN: Bob, I do want to ask you a follow up on the so-called September effect, because I think we probably do have a lot of members that know of this seasonality that this-- this trend we hit in August, September.

But I wonder how much of it is just basic market psychology-driven versus some old school thought that says, all right, maybe a lot of investors, it's kind of back to school season. They come back from summer vacation, they're trying to lock in some gains or some tax losses. Or is this just kind of, we go into September, we think it's going to be bad, and therefore, it is bad?

BOB LANG: As traders, J.D. , or-- and I'm a technician, but I also trade the markets, we all also have to have some sort of a degree in psychology. We have to understand people's thinking and how they-- and how their minds work and how their brains work. And oftentimes, we're-- we're led astray by market conditions and behave-- by behavior, by fear and greed and that sort of thing.

So I think you're right. I think when it comes to September, people are-- are nervous and are worried. But they have to pay attention to the price action. They have to pay attention to the trends. They have to pay attention to market volatility and volume and all these other factors, variable factors that can change from day to day.

But when they show some momentum and they show some trend that puts you in the right direction, then you have to jump on that direction. What is the right direction? It's either up, when everything, when all these indicators are looking bullish, and it's down when all the indicators are looking bearish. So you have to identify those things.

Put the emotions aside. Put the-- the calendar aside for a little while, and realize something. Hey, listen, September could be a bad month. But if it is not, then I have to continue to proceed as if it was another month like July or March or January.

J.D. DURKIN: We will see what Virgo season brings for traders everywhere. Now finally here, earlier this week, you shared a chart of the Russell 2000 with members, Bob. As we mark the first day of trading this month, do you still think small caps could lead the way lower?

BOB LANG: Well, you know, the-- J.D. , the Russell 2000 is often a leader to the upside or the downside, right? And it's a broad measure that has about as much-- funny thing here, about as much market cap in the full-- full 2000 stocks in the Russell as Apple does as one single stock. Imagine that. It's just an army of one, which is Apple versus an army of 2000 on the Russell 2000. It's just about equal.

But you know, it supports-- if support holds on a recent test of the 100 and the 200-day moving average, call it about 181 or 180 bucks, the Russell 2000 may lead the markets upwards. It's been taking off the last four or five days.

It's hitting some resistance at about the 185 level. If you get through that level, J.D. , we think it can make a run up towards 190, 195 over the next couple months. And of course, if it's moving higher, it's probably going to be pulling all the other indices up along with it.

J.D. DURKIN: That's the great, Bob Lang. Bob, thanks so much for the insight, as always, nice to have you.

BOB LANG: Always great to be with you, J.D. .

J.D. DURKIN: All right, members, the market, of course, will be closed on Monday for Labor Day, but Chris Versace will be back bright and early first thing Tuesday morning to get you ready for another week ahead. And it will be a busy one, indeed. We've got our next members call kicking live at 12:00 o'clock Eastern on Wednesday of next week. Have a fantastic long weekend. We'll see you again soon.