Performance anxiety on Wall Street

“I remain in the camp that we are toppy – which only means I’m more cautious on where I allocate. Doing nothing is a decision. Remember – you don’t have to do something all the time…”.

So, the question is: has that pullback I’ve been warning about for weeks finally begun? We’re now at the end of August and about to enter September — always an “interesting” month for markets.

Let’s rewind. Over the summer, the Nasdaq kept powering to new highs while the broader indexes just churned. A handful of names gave the illusion of a “healthy” market — new high after new high — but beneath the surface, the story wasn’t nearly as pretty. Even the S&P’s incremental gains were driven by those same heavyweights. Remember: the S&P is market-cap weighted, so the big boys call the tune.

While the Nasdaq chart looked shiny, the S&P, the Equal-Weight S&P, and the Dow were flashing caution. And now, that caution is showing up.

Yesterday’s tape tells the story:

• Dow +10 pts.
• S&P -38 pts (-0.6%).
• Nasdaq -315 pts (-1.5%).
• Russell -18 pts (-0.8%).
• Transports +226 pts (+1.5%).
• Equal-Weight S&P +34 pts (+0.5%).
• Mag 7 -502 pts (-1.7%).

The damage? Squarely in the Nasdaq and the Mag 7.

Now, you might say, “Down 1.7% isn’t a big deal.” Fair. But pull back the sheets and it gets more interesting:

• PLTR -9.5% yesterday, now -17% off summer highs.
• NVDA -3.5%.
• META -2% yesterday, -5% off the high, with a July 31st gap at $707 still waiting to be filled — another -6% from here.
• MSFT -1.5% yesterday, -7.25% off its August 1st surge.
• AMD -5.4% yesterday, -11% in four days.
• GOOG -3% in two days.
• CRWV - 4% and down 40% this month.

And it’s not just individual names. Sector ETFs confirm it:

• XLK (Tech ETF) -3.1%.
• Semis -3%.
• ARKK (Disruptive Tech) -6%.
• IGM (Expanded Tech) -3.25%.
  …all just this week.

Suddenly, traders and algos (notice I didn’t say investors — because investors define investing differently) are paring back positions, worried the rally’s gone too far, too fast. Déjà vu, anyone?

Part of this pullback comes from the realization that those 100 bps of rate cuts priced in for 2025 were always a pipe dream. Mixed economic data — labor, housing, manufacturing, sentiment, inflation expectations, durable goods — all suggest a slowing economy (not failing, just slowing, so no reason to light your hair on fire). Then came the latest PPI report, showing producer prices aren’t just simmering — they may be starting to boil.

Look at the UK for a cautionary tale. Ever since the BoE’s rate-cutting bonanza (125 bps in 12 months), inflation has flared up. July’s UK inflation ran 3.8% . While the UK is struggling with services and food, they also face labor and policy-driven pressures. That’s exactly what JJ is worried about.

For those not around in ’79/’80 — trust me, you’d prefer JJ stay cautious. Back then, the Fed cut too soon, declared victory, and the monster came roaring back. By 1980, inflation spiked to 13%, Fed funds hit 21%, mortgage rates pushed 18%, and housing collapsed (for the record, that’s how I was able to buy a home in 1985).

On the geopolitical front: There’s finally some good news. Word is Vlad and Volodymyr may sit down with Donny refereeing — whispers suggest the war could be wrapped up by Labor Day.

At home: It’s a different story. Political uncertainty (think NYC, Texas, DC, California) is adding to the anxiety. And now, all eyes turn to Jackson Hole — the annual central bankers’ boondoggle — where JJ is set to speak.

I don’t expect him to hijack it with a surprise FOMC press conference, but markets are bracing for even the faintest hint on the path of rates. Remember - this is JJ’s last Jackson Hole meeting….his term ends in May 2026. Will he hint at multiple cuts? Probably not. And that nervous energy “under the sheets” — call it performance anxiety. (And no, the little blue pill won’t fix this one.)

But don’t despair — opportunity still exists. While Tech (-1.75%) and Communications (-0.6%) got punched in the face, we saw strength in some sectors and that only confirms why you have a balanced portfolio.

• Utilities +1%.
• Consumer Staples +1%.
• Real Estate +1.8%.
• Healthcare +0.6%.
• Basic Materials +0.6%.
• Homebuilders +1.5%.
• Big Pharma +0.8%.

And check this out: PSQ (Nasdaq short ETF) +1.4%, NAIL (3x Homebuilders ETF) +5%, SH (S&P short) +0.6%, VIXY +2% (the VIX itself +3.9%). So, there are always places to play if you want to play — you just have to look.

Bonds: rallied. TLT +0.6%, TLH +0.45%. The 10-yr yield is 4.29%, down from 4.34% resistance. The 30-yr at 4.88%, off 4.95% but sitting at support.

Oil: up $0.65 at $63/barrel, still below all three trendlines. A Russia/Ukraine deal likely means even lower oil.

Gold: broke below support at $3,378, closing $3,358. This morning it’s bouncing — +$11 at $3,369. If peace talks stick, gold could test $3,325 and if we get any other good news we could see gold test $3,200.

The VIX was all over the place — up 3.5% in the pre-dawn hours, now +1.7% at 15.86. Still below resistance at 16.98. A breakout above that? Expect a spike in volatility and swift equity weakness. If not, markets likely grind lower into JJ’s Friday 10 a.m. speech.

This morning’s futures: Dow -42, S&P -5, Nasdaq -12, Russell -4. TGT plunges -7.5% after a pile of ugly headlines: sales declines, transactions down, margins shrinking, same-store sales negative, and a new CEO to boot. Not a great look.

Bottom line: investors are preparing for a slower economy with sticky prices. Indexes are near record highs, so traders and algos are taking money off the table — it makes sense. They pulled the same stunt back in April, as they tried to panic markets….(how’d that work out?)

If you’re a long-term investor and if you are diversified and balanced, you welcome pullbacks as chances to put money to work.

European markets this morning: mixed to lower.

The S&P closed yesterday at 6411 (-38 pts). The market is frothy, valuations are rich, retailers are mixed, and now we wait for JJ. If he is too hawkish, Markets will correct. Neutral? We still get a healthy pullback. There is plenty of money on the sidelines ready to pounce when stocks go on sale….we are starting to see (there is most likely more to come) that sale in the ‘sexy growth’ names….(see above).

Again — I remain in the camp that we are toppy. Which only means I’m more cautious about allocation. Doing nothing is a decision. Let your portfolio do the work. And brace yourself for a volatile September.

Steak pizzaiola

You will need a couple of things: A nice rib eye, or T-bone - (about 3/4" thick), Olive oil, Oregano, garlic, onions, red and green bell peppers, can of crushed tomatoes (not puree), some red wine, salt and pepper....**crushed red pepper flakes (optional).

In a sauce pan - heat olive oil and add crushed/sliced garlic and move it around for a couple of mins until it is nice and golden....add a sliced white onion and julienned bell peppers - turn heat to medium and cover.

When the onions and peppers are soft (about 5 mins) add the crushed tomatoes, oregano and *red pepper flakes. Turn heat up and bring to a quick boil then reduce heat to medium. Add red wine (about 1/2 cup) salt and pepper and let simmer and thicken up....about 10 / 12 mins.

Next - rub steaks with olive oil, salt and pepper - do not drown the steak in oil - just enough to massage the steaks and prepare them for the grill.

Sear the steaks on the grill and cook for about 4 mins per side - now remove and add the steaks to the Peppers/Onions and Tomato sauce. Cover and turn heat to simmer and cook for another 5 mins.

This should give you a nice medium steak (depending on thickness) - If you prefer, you can let simmer longer for more well done.

When done - remove steaks from the pan - slice into thick strips and arrange on plate. This should be enough to feed 4 adults. Next - stir the sauce in the skillet pan to deglaze - making sure to scrap the pan for any bits left behind.

Spoon sauce over the steak and serve immediately. Present this meal with a large mixed salad of Arugula, Boston Bib & Romaine topped with tomatoes, red onions, cucumbers - dressed in a red wine vinaigrette. For wine - You can keep it simple and go with a Chianti.