Storm brewing: Oil punches $97, Bonds force higher yields, and will Today’s 30-year

Good morning. Well, the temperature continues to rise and that means it’s getting HOT in here…

WTI surged, closing at $96/barrel and Brent punched through $100/barrel, bond yields pushed higher, the 10-yr closed with a yield of 4.847% - UP from Friday’s 4.80% and stocks fell for the third straight day.

The Dow down 0.8%, the S&P down 0.5%, the Nasdaq down 0.6%, the Russell lost 1.3% (think higher yields – because SMIDs are so much more dependent on the cost of money and when that cost goes UP, SMIDS go DOWN), the Transports gave up 1.1% (think higher oil and diesel – we discussed that in length yesterday), the Equal Weight S&P lost 1% while the Mag 7 bucked the trend and rose 56 pts…. (and that makes some sense – since it is the worst performing of these indexes for the year, only up 5.6%)

And as discussed yesterday – all eyes were on the bond market to see how well or note the $39 bill auction was going….. Remember when I told you the bond market was going to speak at 1 pm?

Well, it spoke — and apparently 4.80% was NOT enough. You see the auction settled at 4.834%, up from Friday’s 4.80%, yes demand was solid and dealers were left holding a smaller-than-normal share. But don’t misunderstand the message.

They had to offer higher yields (lower prices) to stimulate demand. In fact, prior to the auction the 10-yr yielded as much as 4.86% as investors tested the market and now they are patting themselves on the back – because the yield settled below the high of the day!

And THAT is the story. It’s all semantics…. who is kidding who – it was lower prices and higher yields that brought the buyers to the table. Think about like this – you’re trying to buy a house – it’s offered at $1 million – it’s overpriced for the neighborhood – it just sits there, not selling, but when the seller decides they need to get out, they CUT the price to $900k and suddenly there is a bidding frenzy – buyers tripping over each other to buy the house and ultimately the selling price is $950k – the seller gets to say, the sale price was $50k ‘more’ the offering price….See how that works…yes, it’s true, but it is also $50k LESS than his original price – so which is the more ‘bullish’ story? And you can argue all day long about how it was overpriced to begin with – but remember – it’s all about what the market will bear….2 yrs ago that same house would have sold for $1.2 million – because the environment was DIFFERENT and that is the story of the markets…. What is the environment like right now?

Today we find out whether they’re willing to do it again when Treasury sells $22 billion of 30-year paper. Now on Friday 30 yr yields were 5.24% - this morning the same yield is now 5.30% - that’s up 6 bps in 3 days…. Let’s see how this ends up….and remember – 5.33% was the high on Augst 18^th….

And if that wasn’t enough — Scotty Bessent came out and did what???? He announced that Treasury TRIPLED the planned buyback of 10-to-20-year debt — from $2 billion to as much as $6 billion. And what does that tell you?

They’re clearly trying to improve liquidity, calm the long end and prevent an orderly selloff from becoming a disorderly one. And that’s fine — that’s part of Treasury’s job.

But here’s the point: Scotty can influence the plumbing, he cannot dictate the market-clearing price. As my friend David Kudla — CEO & CIO at Mainstay Capital Management — pointed out in his X post yesterday: “One can manipulate markets over the short-term. However, over the longer term, after the shenanigans, markets will seek true price discovery.” Exactly. Which is why I said yesterday — Strap in!

Yes, they can try to temporarily improve liquidity and slow any disorderly move, but he can’t control what happens at the long end of the curve for long.

As my friend David Kudla – CEO & CIO at Mainstay Capital Management - pointed out in his X post yesterday – “One can manipulate markets over the short-term. However, over the longer term, after the shenanigans, markets will seek true price discovery.” So, like I said yesterday – ‘Strap in’!

And the oil story only adds to the drama…..This morning WTI is up 1.6% or $1.5 at $97.60…and let’s be honest – this isn’t about just oil anymore…. It’s an inflation story. It’s a Fed story. It’s a bond-market story. And ultimately, it’s a stock-market story. Kind of feels like a storm is brewing…. doesn’t it?

And today we get the August PPI – and we discussed that yesterday too….it is gonna come in HOT, HOT, HOT…. both m/m and y/y figures up over last month – the question now is, will it be even HOTTER than the expectation? If it is, it is not good, if it isn’t that’s better, but not great. Tomorrow is all about the CPI and that is expected to be benign – which I said is a bit curious – but we’ll see….and then next week is the FOMC announcement – and as you know – the market is expecting a rate hike – I am not – and I can feel the sweat already rolling down my back…..Oh boy….

And then there was Apple. Johnny Ternus came out with a BANG….

Yesterday at the ‘Surprise & Shine’ event - he unveiled their newest iPhone 18 Pro lineup and, finally, its first foldable phone — the iPhone Duo. The Duo starts at a hefty $1,999, while the 18 Pro starts at $1,199 — $100 more than last year’s premium model as rising memory and component costs get passed along to the consumer. Under the hood, the new A20 Pro chip is designed to deliver more power, better battery life and, importantly, more on-device AI capability. And THAT is the story.

The foldable phone will get all the headlines — and at $2,000 it better fold my laundry too and do the dishes - but for investors, the bigger question is whether Apple can finally turn all of this AI talk into something consumers actually use, want and ultimately PAY for. Pre-orders start Saturday, with the phones hitting shelves September 18. Yesterday, AAPL closed at $315.24 down 89 cts…this morning it is quoted UP by $3 at $318.70/$318.90.

Gold close up $46 at $4,402. This morning it is down $7 at $4,395. It remains trapped in the $4,340/$4,530 trading range…. Let’s see how today’s PPI and 30 yr bond auction goes – because that will help determine where gold goes.

Remember - The FED is in ‘blackout mode’ and the whole group has gone dark….so look to Goldmany or Nicky T (WSJ) to spill the beans if there are any to spill – and by spill the beans, I mean – announce an FOMC move (if it is different than what the market expects) ahead of the Wednesday formal announcement – that’s if someone ‘leaks’ and my guess is, if it happens, it wasn’t Kevy….

US futures are mixed – Dow futures up 102 pts, S&P’s up 8, Nasdaq down 46 while the Russell is up 3 pts.

European markets are lower…. Today is the ECB announcement – a rate hike is on the table – but the bets go both ways……Will they or won’t they? Sit tight – we’re about to find out.

Remember – September is historically one of the most difficult months of the year for stocks, but that does not mean you bail on your portfolio…. But you should be comfortable in what you own and are able to ride out any storm that comes and remember – a pullback in high-quality names is a longer-term opportunity.

Currently – the S&P is down 2.5% off their high, the Nasdaq is down 3.6% off their highs….and yes, we could see more pressure if the data doesn’t cooperate…a 10 – 12% pullback would not be out of the question…and yes, some sectors are more sensitive and may get hit harder – which speaks to knowing what you own and why you own it. But for now, the economy remains strong, there is nothing weak about it. Keep that in mind….and remember – there is always an opportunity.