Need to Know: Ready to cash out some gains on this stock market run? An exit path is about to emerge, says this strategist

On Wall Street, meanwhile, increasing investor bets on a soft economic landing and a less aggressive Fed pushed the S&P 500
SPX,
-0.24%
and Nasdaq
COMP,
-0.16%
to their best run of weekly wins since November 2021. That’s as inflation obediently dropped, albeit to a still nosebleedish 8.5% in July for consumer prices.

So what if you’re an investor harboring doubts about stocks continuing this winning run and looking to cash out, at least for now? Our call of the day from Michael O’Rourke, chief market strategist at JonesTrading, says a window of opportunity is about to open.

“For the next two weeks, the Federal Reserve should be preparing markets for a reminder from the Fed Chairman at Jackson Hole that the FOMC needs to get to a positive real policy rate, which means rates will be higher for longer,” O’Rourke told clients in a note.

“That messaging will start in a meaningful way this Wednesday with the FOMC minutes. The Cold War with China is escalating, thus inflation will be more stubborn than hoped for. If there are investors who are looking for a second chance to exit this equity market, this is it,” said O’Rourke.

In five weeks, he expects the fed-funds rate will be at its highest level of 14 years, and continue to rise, while the balance sheet continues to shrink. “There were parts of the equity market that realized this last week as value – led by energy and financials – outperformed growth,” said the strategist.

Read: Inflation surge cools in July. Should you still play defense with your portfolio?

O’Rourke also notes that while the S&P 500 is down 10% year to date, it has surged 18% in the past two months, and is trading more than 20 times trailing earnings. “According to Standard & Poor’s, earnings growth is now forecast to be 1%, and that will likely wind up in negative territory,” he said.

Also warning of a hawkish Jackson Hole gathering is Tim Duy chief economist at SGH Macro Advisors.

“I don’t know who is really thinking this, but Federal Reserve Chair Jerome Powell is not going to take a victory lap on inflation based on a single data point,” Duy said in a note. He said investors should expect a “dirt dull policy speech” that doesn’t allow for any dovish takeaways.

Some are harking back to a June interview with 68-year-old investing titan Stanley Druckenmiller, who said when inflation gets to 5%, “it’s never gone down without a recession,” or the fed-funds rate exceeding the CPI.

Druckenmiller also said a soft landing bet was “a real long shot” going against “decades of history.” (Here’s a full recap of that interview with John Collison, co-founder of Stripe).

The markets

Stocks
DJIA,
-0.10%

SPX,
-0.24%

COMP,
-0.16%
are struggling for traction, but have pared some losses from the premarket since Empire State data was released. Crude oil
CL.1,
-4.15%

BRN00,
-3.99%
remains out in front with a 4%-plus tumble on China gloom. Bond yields
TMUBMUSD10Y,
2.781%

TMUBMUSD02Y,
3.178%
are also falling, while the dollar
DXY,
+0.57%
is climbing. Elsewhere, bitcoin
BTCUSD,
-0.89%
topped $25,000 for the first time since June.

The buzz

New York’s Empire State manufacturing index plunged deep into negative territory — negative 31.3 and the second largest decline on record. The National Association of Home Builders index fell under the break-even measure of 50 for the first time since May 2020.

The rest of the week will see retail sales and the minutes of the latest Fed meeting in the spotlight for Wednesday, and home sales later in the week.

China’s central bank unexpectedly cut a key interest rate on the heels of data showing a rebound sputtering, with sluggish factory output and retail sales.

Wells Fargo
WFC,
-1.18%
is reportedly planning to reduce its mortgage activities.

Elon Musk says Tesla
TSLA,
+1.63%
has produced more than three million cars, a third built in China.

It’s a big week for retail earnings, with Walmart
WMT,
+0.57%
and Home Depot
HD,
-0.42%
due to report Tuesday, followed by Target
TGT,
-0.05%,
Lowe’s
LOW,
+0.17%
and TJX
TJX,
+0.57%
on Wednesday, along with tech giant Cisco
CSCO,
-0.87%,
then farm equipment maker Deere
DE,
-1.35%
on Friday.

Energy giant Saudi Aramco posted a record $48.4 billion profit, earning more in the first two quarters than Apple
AAPL,
-0.06%
has earned in three.

Hear from Carl Icahn at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The legendary trader will reveal his view on this year’s wild market ride.

Best of the web

Another “Big One”. The catastrophic megastorm that awaits California.

Henry Kissinger warns U.S. is at “edge of war” with Russia, China.

How a powerful gold trader was taken down.

The chart

Our chart of the day from Callum Thomas, head of research at Topdown Charts, reveals a global collapse in consumer confidence “nearly matching the drops seen during the global financial crisis and pandemic panic.” But note the big gap between the consumer and business side, with some worried about what comes next.

“Indeed, pattern-recognizers might notice that consumer confidence was the first to collapse in 2008, only to be followed by business confidence shortly after,” wrote Thomas.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:

Random reads

New York declares war —- on the lanternfly

It’s 6:30 a.m. and hotel guests are racing for poolside loungers in Spain’s Canary Islands.

Norway criticized for killing Freya, a 2,000-pound walrus.

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