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Well, the odds that the Federal Reserve is going to cut interest rates are plummeting. We have gone from over a 100% chance that we're going to get a 25 basis point cut, basically a normal cut from the Federal Reserve on September 17th, down to just a 75% chance right now, which is a really big adjustment by markets.
It's one of the reasons why markets have been a little tenuous this week. though. Is it possible that some of that, you know, trimming and hedging is now over because we actually got some really sexy and delicious data that suggests maybe the economy is doing quite well. One of the things we said to course members this morning in the alpha is if we get good data here, we could be bullish and nice recovery on the cues today and actually end up solidly green even before Jackson Hole tomorrow.
It's usually what happens. People start hedging and panicking on a Monday, Tuesday, Wednesday. Then the day before they're like, "Ah, we're fully hedged." Then they look at data sets and they're like, "Oh, this isn't that bad." And they go into buy. Now, not always, but it's worth knowing what positive data we got this morning.
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So, if you want to rent uh renovate a property at some point in the future, we're adding new lectures in the section because I'm working with Lauren on our new design sheets, which are great. Like, you get that included. You might not even know you needed that. You know, people who truly want to learn sales are going through the sales courses.
They're like, "Wow, these lectures are gold. How come nobody talks about this on YouTube?" That's in addition to the trade alerts, uh the next 10 buys for the next 10 years, the eight courses, every alpha report every morning. So, things to pay attention to. So, what happened with data this morning?
We got good data this morning. Why did we get good data this morning? Well, it's not bullish for a rate cut, but it has to do with our S&P numbers. Look at this S&P global flash PMIs. Now, these are nationwide. These contrast with your Philly Fed numbers. Uh the Philadelphia Fed numbers came out this morning as well.
They weren't as ideal as those S&P numbers. both of them by the way flashing problems uh in price as in inflation. Now, this really begs the question of what is the Federal Reserve going to do when they get stuck between a rock and a hard place of falling unemployment or falling employment uh and rising prices.
It's basically stagflation, right? Quick note, the uh uh Fed business outlook survey this morning came in negative at.3 versus the 6.5 on expectations. Part of that because of tariff impacts. A lot of people don't like talking about tariff impacts because they see it as anti-Trump, but the reality is the data is what the data is.
Uh so let's go look at the Philly uh or sorry the um S&P Flash PMI number so you can see what's happening here. Growth in hiring accelerated in August while selling prices hit a three-year high. By the way, Walmart reported earnings. What you'll notice with Walmart is that their net sales increased 4.8%.
But they missed on the bottom line somewhere by about 8 cents on EPS. Now, why would the top line go up and the bottom line go down? Well, usually it's because companies are able to pass on the cost of tariffs. So, they increase their revenue. Their margin, their gross margin didn't actually change on profitability for their merchandise because they're basically passing on the cost to the consumers, but their bottom line came in lower than expectations because they have higher costs in their operating side.
Higher cost for employees, higher expenses for employee health insurance, higher cost for payroll, you name it. Inflation is not just a matter of those goods at the top line. It is a flowth through of everything. And that's why Walmart was getting beat up today. Oh, wow. Look, the Q's are almost green just like we expected this morning.
We'll see how that goes. Now, we're not always right. Uh Walmart down about 4 and a half%. We're not always right this week. We've been killing it with our predictions. We've been talking about Tesla going back down to 318. It has. We've been talking about opportunities in the real estate sector, but we've also been talking about the timing of when to pull the trigger on some of those opportunities, including actually buying real estate and updates for the House Act and what's going on with the cues.
That said, let's go to this S&P PMI sheet here. Look at this. US business activity grew the fastest rate recorded so far this year in August. Hiring also picked up. Job creation reached one of the highest rates seen over the past three years as companies reported the largest buildup of uncompleted work since May of 22.
This is extremely bullish. Like I you can't really be bearish on this report. Now it's a survey. So sometimes these surveys are not accurate. Sometimes these surveys have problems in them. They're not necessarily foolproof uh in terms of hey what's actually going on in the economy? And generally you end up seeing people like Powell say, "Eh, we're going to, you know, take survey data with a grain of salt.
We're going to wait for actual things to show up in data." But when you actually look at estimates of what's going on in the economy, GDP now is indicating that GDP right now is growing at 5 point sorry five gez uh is growing at 2.3%. Which is bullish. Uh now what does the Philly Fed survey say about a 2.3% GDP growth?
Well, they happen to give you an an exact answer to that. A strong flash PMI reading for August adds to science that US businesses have enjoyed a strong third quarter so far. The data are consistent with an economy expanding at a 2.5% GDP annualized rate, up from the average of just 1.3% over the first two quarters of the year.
In other words, both the Atlanta Fed numbers and the S&P manufacturing services composite, so altogether uh reports are telling us that GDP is actually doing really well right now. Now, does that mean the labor market can't still roll over? Oh, of course, labor market could totally still roll over. We could still run into a stagflation situation, but so far, this is bullish the economy.
I mean, I look at just like one of our Segways broke. Uh, you know, those like standup Segways right here. One of these broke. And so, what we did is, you know, we we were looking at uh how much the self-balancing scooter is right now. It's $599. And what I found was remarkable was that Amazon does not actually have it.
They just don't carry it right now. The Segue 9bot S2, which is weird. They carry a bunch of scooters, but they don't carry the self-balancing scooter or or um Segway other than this refurbished one right here. Now, why is that? Well, part of that, I think, is because pricing has picked up so much people don't even want to have them stored on Amazon warehouses right now.
Take a look at this. $5.99 for the self-balancing scooter. If you go into the way back machine, which I have right here, December 20th, 2024, this same scooter. It always looks like crap. The Wayback Machine, like how how the quality looks over here. If I can find the darn thing. Look at this. $499.
So that's a $150 increase in the Segue 9bot S2. No change in quality, no change in the product. Yes, I know the way back machine always breaks how websites are formatted, but these are signs that companies are saying, "Hey, Trump wants tariffs on China. No problem. Consumers going to pay for it. You'll have less optionality for these especially heavier items like a Segway on Amazon.
And if you really want it, you're going to have to pay for it." That's what Walmart's doing. Their gross profit moved zero. their bottom line got hit, but it's a sign that they're moving prices to the consumer. Now, they brag about how they're reducing prices. In fact, if you look at CNBC, they have a great argument here because they say that they're looking to do more roll backs.
And here, we're trying to keep prices low, including speeding up imports from overseas and stepping up the number of roll backs or limited time discounts we're doing. But CNBC did a great job here. They actually fact checked them with a basket of about 50 goods. Uh there it is. According to an analysis by CNBC of about 50 items, some of those price increases have already hit shelves.
Items uh that rose in price at Walmart over the summer include various things like certain clothing items, car seats, frying pans, blah blah blah. So CNBC in their article is basically arguing, hey, you guys are talking about cutting prices, which is great marketing, but are you really? According to your gross margin, you're not.
And according to our basket, you guys are raising prices on things, passing these on to the consumer. This is exactly what we're seeing in the flash PMI reads as well. Take a look at this. Business confidence. Uh what do we got here? Business confidence. Uh let's see. Job creation reached the highest rate of the past three years, which is very bullish.
Business confidence up, though not as high as earlier in the year. Note, we did get slightly higher unemployment claim numbers this morning. Those unemployment claim numbers are so lagging. I I I really don't like paying attention to the unemployment claim numbers. Uh you know, once they turn, it's already over.
But take a look at this on inflation. The resulting rise in selling prices for goods and services suggests that consumer price inflation will rise further above the Federal Reserve's 2% target in the coming months. Ah crap when I apparently when I change the zoom my little highlighting goes away. Uh that's okay.
So it should come back here just but anyway take a look at this. Uh above the Fed's 2% target. Indeed, the combined upturn in business activity and hiring and the rising prices signal rate hiking rather than rate cutting. This is where I think that Jerome Powell is probably going to take Boston's lead and set up for a oneandone.
In other words, he probably will condition a 25 basis point cut in September based on weaker data data in August. If the data comes in stronger, the Fed might actually set up for a rate hike, not a rate reduction. PMIs right now really question even the need for a one-time rate reduction. Even though you do have the minutes suggesting that, you know, rates are modestly above neutral right now.
You have Schmid saying we're modestly restrictive over at the Fed. You also have Bostic saying more clarity will come, but we're really only setting up for one rate cut this year. New order inflows picked up in August, highest level since 2020 uh February of 2024. Problem though, that we have now reported the steepest increase in input prices since May and the second largest increase in prices since January of 2023.
But it's not just the good side, it's also services prices. Services sector price inflation has now increased at the sharpest rate since August of 2022 with job creation hitting the highest level since January. This is a sign of not an economy that's stagnating. This is actually this PMI report is a sign of almost an overheating economy.
This read right here is one of the reasons why we saw another 10% chance cut off of the odds of us seeing a rate cut. Uh so not great. Uh but I mean you can see here look at what the track trajectory is over here on the right. These are manufacturing input prices, manufacturing output prices, all of them over here rising in 2025.
You can see the same thing on services input and output prices all of them rising. Like people make this argument that oh but Kevin, you know, rental inflation isn't going up yet and that makes up a core component, you know, a big part of CPI. Who cares? the underlying items that people spend money on, whether they're hiring companies to do services or they're buying things, those prices are rising.
When those prices rise, the Fed risk screwing with our inflation psychology, and that's the worst, especially since the minutes. If you read the minutes, they talk about elevated asset valuations. Now, that doesn't mean the market is going to fall. In fact, the Fed has regularly talked about elevated asset valuations.
But when you talk about regular or these these elevated asset valuations, the reason it matters is because the Fed's basically saying financial conditions are loose. And when financial conditions are loose, they they actually feel like they have to raise rates rather than reduce rates because the economy is doing well, booming, so to speak.
So future sentiment by the way here uh dipped a little bit from July and again this is just a sentiment kind of survey of what businesses are saying. Uh you know it's not necessarily hard data. This is a soft data report but this report really signals look at this a renewed improvement in factory business conditions after a brief deterioration in July.
Highest read since May of 22. Productions rising. factory employment rebounded after a decline in July. Go to the Philly one. Here's the Philly manufacturing outlook. This again, you know, you got this is just for the Philadelphia region. So, you had a little bit of mixed info here. One place we know that we have uh a uh you know, correlation between these two surveys is that firms were asked for a forecast of price increases and the median forecast was a 4.1% increase in prices.
So you're seeing that inflationary impetus and despite this, you're still expecting growth. This is a regional survey that in the Philadelphia area did weaken. So it does soften some of what you're seeing here on that Philly Fed number or sorry on on the um S&P, you know, global for the entire United States number.
Even though it's called global, that's the nature of the series because they do them for each country. This was the US nationwide one. And Philly did see a little bit of a weakening again though. these survey indicators up and down. The one thing that's clear though is an increase in pricing. So, not good.
So, so again, you know, JPAL really has to confront what right now appears to be a pretty strong economy. GDP growing at 2.4 uh 2.3%. The S&P data reiterating this. The S&P data, by the way, for the first time in years, saying maybe we should be hiking rates instead of lowering rates, contributing to now a decline in uh that uh that classic, you know, uh uh rate cut odds for set for September.
By the way, literally, you know, as a note at the bottom of my alpha report this morning, I gave a heads up. Hey, if we get strong PMIs this morning, we're going green and we're going towards a certain place on the cues. That's exactly what's happening right here. In fact, you could look at the timing as to when this survey came out and it just aligns with our expectations.
Uh so hopefully this continues because it signals a rebound going into uh Jackson Hole and it really signals that hey, you know what, maybe we're overblowing Jackson Hole. Maybe we don't have to worry so much about Jhole. Maybe what we need to worry about is, hey, nothing. The economy is doing fine.
At least that's what the surveys are suggesting right now. Could there still be an unemployment boogeyman? Absolutely. And that's why it's important for us to pay attention to this jobs report that comes up. I mean, just like you've got over here, you've got Bostic telling you, you know, if you search for Jhole, you see that even Bostic says, "Hey, make sure to take advantage of me Kevin's coupon code." Okay, that coupon code.
The price goes up bigly tomorrow and you get lifetime access. You pay once for that meet Kevin membership. You get my setups on strategy not just for the day but for the weeks. You get my guidance on what I think is going to be the next sector. I don't like, you know, chasing trends. I like being ahead of the trends.
And you want to get that alpha and be there before other people are there. But anyway, take a look at this. Bostic telling you that the labor market trajectory is still potentially troubling. And then he uses the word bears. Bears watching. Uh yeah. Uh this is definitely something to keep an eye on.
Uh so that though not until September 5th. Jackson Hole might end up being one of those like forget it meetings where we end up getting J-Hold then we forget about Jhole. Nobody cares. Like it comes and goes. JPAL says be data dependent and then we'll decide. And so what are the next data sets? Next data set, September 5th.
If you have not marked your calendar for September 5th, please, please, please be here September 5th. I will be covering it live just like I'll be covering JHole tomorrow. And I want you to be there cuz September 5th at 5:30 in the morning. It's going to be an early early stream. Uh especially uh for those of us with the alpha report.
you want to uh you know get get your trading ready for potentially a rebound in the jobs market data. If we get another bad jobs report, that's bad. That'll guarantee our 25 basis point cut. But ironically, that 25 BP cut will be bearish. It'll be a bearish cut. If we get a strong jobs report, we might look past the last three months of weakness and go straight back to all-time highs.
So, if I look at the economic data estimates now for November 5th, I'm going to pull them for us. November or sorry, November September 5, we are looking Whoa, they just revised it up again. 90,000. So, I think after this PMI report came out this morning, they actually revised up how many jobs we think we're going to get uh next month or or you know, in August here.
So, reported next month revised up to 90K. the unemployment rate to hold steady at 4.2%. I mean, you got to hand it uh to the US economy. That is bullish. Just can't bet against Train America. No CPI or PPI estimates yet for next month. Though, we do have PCE numbers that come out on the 29th, which will be uh at the end of next week.
nothing exciting to really consider now especially since the sorry PCE numbers are uh calculatable from PPI and CPI which we already have. So really nothing to pay attention to there. Uh so broadly I have to say bullish on the data sign. Uh PMI only puts growth in line with Atlanta Fed GDP. Here's what the doomers are saying.
Yields after ignoring PMIs for much of the past couple years seem to be taking the rise in the flash estimate for August more seriously. rising a couple of basis points since the release. Uh let's see. This brings the survey in line with the Atlanta Fed and their expectations. They actually write here the S&P PMI shatter expectations.
Whoa. They wrote this S&P PMI shattered expectations particularly on the manufacturing side returning to growth. raise this this report raises the question of the urgency of monetary easing employment new orders output in prices all up. So a bump in yields at the moment looking justified. Yeah, no kidding.
So uh yeah, there you go. Somebody here in the chat writes, "When is a cut bullish?" Um, the only way a rate cut would really be typically bullish is when you have the economy booming and you have inflation turning negative, which frankly inflation would be turning negative if it weren't for all these tariffs.
People think when I say that I'm trying to be like bearish Trump. I'm just telling you fact. I'm telling you reality here. Reality is inflation was trending down. Uh, and we were probably going to go negative on inflation reads. Unfortunately, tariffs have pushed that up to now where we're averaging 2%.
It's going to be much more than that. We're probably going to be three or 4% inflation. We're gonna have a whole second wave of inflation thanks to this uh tariff crap. So, it sucks, but as we said back in April, it's going to take until July and August to actually start seeing the inflation. And look, sure enough, that's exactly what's happening.
Anyway, uh so there you have what's going on in the economy today. Hopefully, that's a good catchup for you. .
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