A Bullish Mood

The S&P 500 slumped to its worst weekly showing since February, with a significant pull-back Friday. Concerns about a volatile fall ahead are giving investors the jitters. As stocks have climbed steadily all summer, and still remain close to their record highs, investors are closely watching the Federal Reserve’s plan to slow bond purchases later this year. As the central bank scales down the easy-going money policy that drove the S&P 500 to more than 50 first highs this year, the reality is beginning to set in. After a mega earnings summer and a speedy economic recovery this year, some analysts have commented that the ‘peak economic growth,’ may have passed. The latest jobs report showed that U.S. hiring slowed sharply in August as the surging Delta variant hampered the economic recovery. “There are good reasons to make investors a little bit nervous,” said Lane Foley, head of foreign exchange strategy at Rabobank. Major indices wavered for most of the holiday week, before heading lower late in Friday’s trading session. As mentioned, the S&P 500 dropped 74 points, or 1.69% to 4458 for the fifth consecutive session, its longest losing streak since February. Finishing the week, the Dow Jones Industrial Average slid 271 points or 2.15%. The technology-focused Nasdaq Composite dropped 243 points or 1.67% to close at 15115. “Looking at the index level is a little misleading,” said Kari Montanus, a senior portfolio manager at Columbia Threadneedle. “We’re just seen big swings back and forth” between different corners of the market. On the economic front, the U.S. producer-price index rose 0.7% in August, down from a 1% jump in July. Investors did receive some good news this week. Metal prices rallied after a phone call between President Biden and Xi Jinping (China) raised hopes of a ‘cooling’ in tensions and the potential reduction in tariffs between the U.S. and China.

Nuclear energy has moved back into the spotlight, with climate change, an increasing worry for a world ravaged by floods, droughts, and extreme weather. “As there is growing momentum to achieve net-zero (carbon emissions), governments will soon realize that nuclear is currently overlooked,” says Bruno Brunetti, head of Global Power Planning Analytics, S&P Global Platts. The World Nuclear Association said the globe’s roughly 440 nuclear reactors require some 79,500 metric tons of uranium oxide concentrate each year, forecasting a 26% increase in uranium demand from 2020 to 2030. Weekly spot uranium prices stood at $39 a pound as of September 6, the highest in over six years, up 30% a year to date, according to UxC data. Demand from nuclear reactors is expected to increase by a few percentage points per year as new reactors come online. There’s also strong demand from non-utility buyers, with some uranium developers recently raising equity capital and “parking the proceeds into physical uranium,” says John Ciampaglia, CEO of Sprott Asset Management. That’s a significant sign that prices will keep rising, “potentially quite rapidly in the coming weeks” he says.

Aluminum, The Dull Metal…And A Coup. Aluminum prices surged Monday, to their highest level in ten years, after a military coup in Guinea threatened to snarl the metal’s supply chain. As of noon Monday, three-month aluminum forward contracts on the London Metal Exchange rose 1.3% to $2,768 a metric ton, their highest level since early 2011. Shares of mining companies and aluminum producers also jumped. A faction of Guinea’s military on Sunday said it had suspended the country’s constitution and detained President Alpha Conde. The West African Nation is a major global supplier of bauxite-critical for the manufacturing of aluminum- and iron ore. Guinea exported 82.4 million tons of bauxite in 2020, making it the world’s largest exporter, according to metal brokerage Marex. The army quickly reopened the country’s land and air borders later Monday after closing them abruptly after the coup. The Coup’s leaders fully realized that closure for any time would threaten the global bauxite supply chains, said John Meyer, a mining analyst at SF Angel. “Guinea’s coup is expected to add further supply pressures to the aluminum market, although new Chinese supply in the pipeline is anticipated to soften prices,” Mr. Meyer said. The disposed leader, duly elected in 2010, Mr. Conde has since centralized power around his personal authority and cracked down on opposition. Last year he deployed the military to push through controversial constitutional amendments that would have enabled him to stay in power until 2032–when he would be 94 years old! The coup could pose problems for Chinese aluminum makers, as Guinea accounts for more than half of China’s bauxite imports. A sense of stabilization is setting in….lets hope so.


Tony Bedikian, head of global markets at Citizens Bank, WSJ “The virus is still weighing heavily on the U.S. jobs recovery,” he said. “But we may also be seeing tectonic shifts in the workforce as the number of reported job openings remain high.”

Mike Wilson, Morgan Stanley strategist, Barron’s Wilson suspects that Jerome Powell and company could start the process (tapering), by winter, and when it does, interest rates would rise, stock valuations would fall, and the market would drop 10%, even though financial shares could benefit. “Bottom line, this fall we still expect out the midcycle transition to end with a 10% + S&P 500 correction, but a narrative of either fire or ice will determine the leadership,” Wilson writes. “As such, our recommendation is a barbell of defensive quality with financials to participate and protect in either scenario which appears equally likely to occur.”

Lori Calvasina, RBC Capital Markets, Barron’s “We’re going to have a ‘hot’ economy this year and next. When GDP growth is above average, value beats growth and cyclicals beat defensives.”

Paul Zemsky, CIO of multiasset Strategies and Solutions, Voya Investment Management, WSJ “Its never been about inflation getting out of control. It’s always been about how much damage the Fed would have to do to keep inflation under control.”