August 20th Market Overview

Happy Wednesday

Treasury started buying back its own long bonds yesterday, rates fell, stocks liked it. Twenty four hours later rates were back where they started, and the Walmart CFO saying shoppers are counting pennies at the pump didn't help.

Jobless claims are still low and Philly factory activity had its best month since 2021, so I'm not reading this as an economy problem. It's a rates problem, and those get sorted out.

Let’s dig in...

Today's Big Picture

1. Treasury's Bond Relief Lasted One Day

Treasury said yesterday it would at least double the amount of long-dated debt it buys back, and yields dropped. By this morning they were back up.

Buying back old bonds doesn't reduce the new debt Treasury has to sell every month, and that supply is what's pushing rates up. It matters outside Wall Street too. Mortgage and auto loan rates are priced off the 10-year, so when it climbs, so does the cost of a house or a car.

2. Oil Higher As Trump Tightens Iran Sanctions

Brent traded above $93 and US crude above $86 after Trump promised the toughest economic campaign ever aimed at a single country. The United Arab Emirates suspended trade with Tehran, and Bessent said the sanctions coming will be the strongest on record. The Strait of Hormuz is still the piece that matters most, because it decides how much crude actually reaches buyers.

3. Walmart Beat, And Shoppers Got Choosier

Walmart $WMT came in ahead on revenue and earnings, then had its worst day since May 2022 on its slowest US store sales growth in more than six years. Finance chief John David Rainey said customers were making "choices between necessities" because of where gas prices are. Target reported improving sales that same week. The money is still getting spent, it's just landing in fewer places.

Market Overview

Index Performance

Stock spotlight

Moderna $MRNA ( ▼ 22.76% )  
gave back a chunk of yesterdays record gain, which was the biggest one-day move in the S&P 500 in 25 years. Short sellers covering made Wednesday larger than the trial data alone justified, and UBS said its clients sold a record $44 million of the stock that session.

SpaceX $SPCX ( ▼ 4.96% )  
slipped below its June IPO price after Elon Musk said catching the Starship with the tower is probably a few months out, later than he suggested on this month's earnings call. The third straight down day came as 319 million early-investor shares became tradable.

Advance Auto Parts $AAP ( ▼ 25.92% )  
dropped hard after same-store and net sales both fell. Management said fewer people are taking on their own car repairs, which is its own quiet read on the consumer.

Big name updates

Alibaba $BABA ( ▲ 0.54% )  
spent nearly $10 billion in the June quarter, most of it on AI, and profit took the hit. US-listed shares ended close to flat, so investors are treating the bill as an investment rather than a mistake.

Analog Devices $ADI ( ▼ 0.81% )  
earned $3.45 a share on revenue of $4.02 billion, ahead on both lines. JPMorgan kept its overweight rating and said data center growth should run past current forecasts.

Broadcom $AVGO ( ▲ 0.32% )  
picked up another overweight call from JPMorgan, which thinks the market underrates its lead in custom AI chips. The bank counts 14 advanced designs built for Google over 12 years.

Merck $MRK ( ▼ 1.98% )  
stayed a hold at TD Cowen despite this week's cancer vaccine win. The firm's $137 target sits below Wednesday's close of $152.20.

Other notable company news

Home Depot $HD ( ▼ 2.86% )  
said shoppers replace the dishwasher when it breaks but skip the big renovation, and Lowe's $LOW reported almost no comparable sales growth.

SK Hynix $SKHY ( ▲ 4.61% )  
is speeding up a 40 trillion won buyback, about $28.7 billion, and the stock climbed in Seoul.

Blue Chips
MarketBeat names and lists “7 Blue-Chip Stocks to Add To Your Forever Portfolio”

Coty $COTY ( ▼ 9.41% ) reported a wider loss and guided sales lower for the current quarter.

Coinbase $COIN ( ▲ 7.38% )  
and Strategy $MSTR both climbed with bitcoin after Wednesday's White House meeting.

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Sector Watch

Bond market

Yields gave back nearly all of Wednesday's drop, with the 30-year near 5.24 and the 10-year near 4.70. Gold slipped as yields rose.

Bessent said Thursday the buybacks could run past $4 billion per operation, starting September 9.

Policy watch

Fed

• Philadelphia factory activity hit its strongest reading since April 2021, and the employment gauge in that survey was the best since April 2022.

• Prices paid and received both came in at their softest since February.

Apollo's Torsten Sløk made the point of the day. AI and data center spending barely reacts to the cost of money, so higher rates aren't slowing this economy through the channel they usually work. Bessent's bond buying also cuts against Chair Kevin Warsh, who wanted the market to handle some of the tightening for him.

Fiscal and trade

The national debt crossed $40 trillion this week, about four and a half years after it passed $30 trillion. Bessent's answer is that there's nothing magic about the number and the country can grow its way out. He said tariff refunds are temporarily widening the deficit and that business tax incentives pay off later.

Treasury also proposed rules for the new Trump Accounts for kids. The money goes into low-fee index funds weighted toward US companies, and funds that screen for environmental and social policies are excluded.

International

The United Arab Emirates suspended trade with Tehran after reporting missile fire in its direction, and no talks with Iran are scheduled. That keeps the Strait of Hormuz at the center of every energy forecast for the rest of the year.

What to Watch

The AI Infrastructure's Backbone
10 Stocks Powering the AI Buildout

Ross Stores After The Close

Ross Stores $ROST reports tonight, after Thursday's close. If shoppers really are trading down the way Walmart described, off-price retail is where that shows up first.

Treasury's First Bigger Buyback

On September 9 Treasury starts buying back at least $4 billion of long-term bonds per operation, up from $2 billion. Buying pushes bond prices up and yields down, which is the whole point. If rates don't fall when the actual money hits, Bessent has lost his best tool for talking them lower.

Thanks for reading - you are now the more informed 🙂

- John

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