Fed Hiking Rates In September? Nahhh

1.) MMM – This note isn’t so much about one company - 3M - but rather about economic activity. 3M gets a window into all kinds of economic activity. 3M isn’t making one hot product that everyone suddenly wants. It sells thousands of different products to thousands of different customers all over the world. You could probably walk through every single company in the S&P 500 and find something made by 3M somewhere along the way. So when a company like this is hitting new highs, it tells us something about a lot more than just 3M. This points to the economic strength underneath the stock market. It’s not just the biggest technology companies anymore. We’re seeing strength from banks, industrial companies, small companies, and stocks all over the world. That’s important because healthy bull markets are supposed to look like this. You want more companies going up, not fewer. And you especially want to see strength from companies that are tied to so many different parts of the economy. 3M near highs is not what I would expect to see if everything underneath the surface was falling apart.

2.) RATES – In my opinion, if investors think the Fed is going to raise rates in September, they’re nuts. 1.) There’s really no data to support a rate hike. 2.) The 2 YR Yield is decelerating. 3.) The Fed chair is a Trump appointee. In case investors have forgotten...Trump has railed against high rates. Does a President always get what he wants? No, but in this case, the data doesn't support a rate hike. On the data front, using more real-time shelter data, CPI and core CPI drop to 2.5% and 1.5% YoY, respectively.

3.) BUYBACKS – I commented on this issue on Aug 5. While share buybacks don’t guarantee a market that moves higher, they do bring one of the larger share-buying catalysts back into the market. The corporate buyback window reopens this week with more than $1 trillion of announced authorizations, the largest amount on record at this point in the calendar. Based on the available data, buybacks should exceed equity issuance and continue to absorb supply.