Market Recovers Strongly, Despite a Disappointing Debate

Most major stock market indexes rose 4% or more last week, reaching break-even status for the first half of September. We’re seeing that good, fundamentally superior stocks typically bounce back quickly, like “fresh tennis balls,” while bad, fundamentally inferior stocks typically don’t bounce at all, like rocks. I expect that this robust rebound will continue this week since the market remains grossly oversold.
Tuesday’s presidential debate was closer than I had anticipated. Candidate Trump talked with greater passion about the border chaos and endless wars around the world due to a lack of American leadership. Fracking and U.S. energy policy was also brought up. It seems like both candidates were “sucking up” to Pennsylvania voters since, in my opinion, the candidate that wins energy-rich Pennsylvania will win the electoral college and also the Presidency.
There is a serious risk of World War III, which Trump mentioned several times, but Kamala Harris didn’t seem interested in pursuing, instead focusing on “who will win” the Ukrainian conflict. Clearly, nobody is winning, and millions could die if we keep pursuing “total victory” over Russia. This is a threat we must all face before it becomes too late.
Here are the most important market news items and what this news means:
– The big news this week was that the Commerce Department reported that retail sales rose 0.1% in August, which was better than economists’ consensus estimate of a 0.2% decline. Excluding vehicle sales and gas stations, retail sales rose 0.2% in August, below economists’ consensus estimate of a 0.3% increase. Online sales rose 1.4% in August and accounted for much of the improvement in retail sales. Only 5 of the 13 categories surveyed rose in August, so this was not an impressive retail sales report.
– Next up will be the Federal Open Market Committee (FOMC) statement on Wednesday. We will also get an updated “dot plot” survey of the FOMC members’ interest rate forecasts, which will likely forecast 3 key interest rate cuts in 2024 and another 3 in 2025. Treasury yields have collapsed in the past month on 2-year notes to 3.58% (from 4.06%) and 10-year bonds to 3.63% (from 3.91%) due to weak economic news. In theory, if Treasury yields continue to plunge, then a 0.5% Fed key interest rate cut may be forthcoming on Wednesday.

– Nvidia CEO, Jensen Huang, told a Goldman Sachs conference that demand for its Blackwell chips is so high that some of its customers are getting “emotional.” Oracle announced it is taking orders for the first “Zettascale” AI supercomputer, which will be powered by up to 131,072 Nvidia Blackwell chips. Between Google’s $10 billion order, Meta, Microsoft, and now Oracle’s demand for Blackwell chips, Nvidia should post record sales and earnings well into 2025.
– Due to the AI boom that is fueling new cloud computing centers, Bloomberg had a great article highlighting how new natural gas-fired power plants will be necessary to power AI data centers. Most of the new natural gas power plants are in Texas, Oklahoma Kentucky and Missouri, but seven other states also have major natural gas power plants under development. Bloomberg pointed out that the Sierra Club is furious about these new natural gas power plants and is warning of methane emissions and other objections. The fact of the matter remains that natural gas remains very cheap in the U.S., so it appears that many utilities are willing to fight any opposition, since natural gas is much cleaner than other fossil fuels.
– British Prime Minister, Keir Starmer, was in talks with President Biden about approving the use of NATO weapons against targets in Russia. Russian President Vladimir Putin warned NATO that if they lift the restrictions on long-range missiles for Ukraine such action will be considered an “act of war.” Obviously, we are now dangerously close to World War III as Ukraine strives to mount more attacks deeper into Russia. So far, there is no news on what President Biden and Prime Minister Starmer were willing to approve, so I suspect that they took Putin’s warning seriously.
– Mario Draghi’s report to the European Union said, “The EU should aim to move closer to the U.S. example in terms of productivity growth and innovation.” Draghi’s report also cited that no EU company has a market capitalization valued at more than 100 billion euros ($111 billion), while America has many companies with trillion-dollar market capitalizations, like Alphabet, Apple, Meta, Microsoft and Nvidia. Draghi said almost all of the U.S. productivity outperformance versus the EU over the past 20 years is attributable to the technology sector and then went on to argue that “Europe cannot afford to remain stuck” in old industries. Obviously, the Draghi report is very controversial in the EU, but sometimes the truth hurts.
– The German economic sentiment plunged to 3.6 in September, down from 15.6 in August according to the ZEW Economic Sentiment survey, so the EU might want to reconsider how it does things since its largest economy is sputtering.
Overall, stocks continue to demonstrate quick resilience from any short-term selloffs. While there are some troubling numbers under the headlines about job growth and a stretched consumer, as we enter the Fed easing cycle, we will see relief in business loan rates and mortgage rates which will support hiring and construction. The market trend remains positive, and it’s likely that any near-term corrections will be seen as buying opportunities.