Markets Fall, Treasuries Soar – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Monday kicked off another upcoming earning-packet week, catching ‘its breath’ as companies are getting ready to unload quarterly reports. If reporting follows the pattern of previous weeks, and according to market ‘gurus,’ expectations are for better numbers overall. As the month ended (July 31) the Dow Jones Industrial Average soared…up 1,069.79 points, or up 3.1%, the biggest two month increase since 2022, November, according to Dow Jones Data.

The first trading day in August saw a see-sawed market nearly all day with the Dow Jones up and the Nasdaq Composite, and S&P 500 falling slightly. Asian exchanges were hesitant, but held their ground, thanks to the strong representation in the U.S. markets since 2023. Stocks were weak again at Wednesday’s opening, reflecting an uneasiness over the Fitch Agency scathing report in downgrading the U.S.’s credit rating. Their concerns were; instability in the political arena and financial woes threatening a closure of the government due to lack of funds. Mr. Biden and his administration were angry, referring to the downgrade as a ‘political glitch,’ exposing many unimportant issues-not influenced by the true financial condition. Janet Yellon chimed in, that it was “arbitrary and based on outdated data.” Wednesday’s market saw stocks tumble to its worst session in several months, as all three indexes were negative, with Dow Jones off 348 points or 1%. The spillover from yesterday’s Fitch Agency’s report on the downgrade of U.S. debt, assessed the financial condition of the U.S. and the political spending, and the government’s inability to show positive signs of a somewhat fiscally situated government.

Stocks opened lower Thursday, as treasuries were significantly stronger as investors and traders were taking advantage of the higher Treasury rates. The 10-year yield hit 4.17% Thursday, closing at 4.188%, the highest since November 7, 2022. Currently oil is strong, near $81.00 dollars a barrel, moving up 15% in July. Along with higher oil, gasoline trended higher, up 29 cents a gallon to a U.S. average of $3.82 a gallon. Also on Thursday the Saudis reiterated that they will cut production 1 million barrels a day thru September, hoping to solidify oil prices.

That Sweet Tooth just got more costly…Cocoa prices are exploding, approaching their highest level in nearly 40 years, driving fear in candy makers. Blame it on terrible weather, (El Nino) in West Africa. The two biggest producers, Ghana and Ivory Coast, produced 60% of the world’s cocoa beans last year. The weather events have played havoc, either too dry or too wet. Cocoa futures have surged 32% the year alone, out pacing all other commodities. Candy prices are up 20% across the board and trending higher every month. Cocoa futures accelerated from 1800 euros a metric ton in 2021, reaching now above 2800 euros a metric ton. According to Jovier Lastanio, a senior trader at London based Quantum Commodities, “Everyone is really nervous, especially buyers,” he said. With this price situation we are conservative with buying.” Add in another impediment, that of the European Union refusing to buy cocoa beans if harvested from land that was previously rain forest. Even with the loss of European buyers, the cocoa bean is in short supply… and getting pricier. Those candy-kisses are like ‘golden drops.’

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Jay Barry, J.P. Morgan’s head of U.S. rate study, Barron’s “We’re at an interesting crossroads here,” Barry continues, “Depending on where you are along the yield curve, Treasuries are at their highest levels in 10 to 15 years. If we’re right and the Fed is very close to finishing up its hiking cycle, this should make risk-free assets more attractive, particularly if inflation moderates in the coming months.”

Laura Geritz, manager of the Rondure New World Fund, Barron’s “If i had one place in the world with the highest conviction in growth, India would be it,” said Ms. Geritz.

Erik Lundh, a principal economist at the Conference Board, WSJ “In part, it is this tightening in the labor market that should probably prevent the economy from falling into a more acute longer-lasting recession,” Lundh said.

Ethan Karp, chief executive of Magnet, a non-profit providing technical assistance to manufacturers in Northeast Ohio, WSJ “The mindset a number of years ago was laying people off was painful and they knew it was going to be painful getting them to come back”, said Ethan Karp. “Now there’s a lot of sentiment that it’s painful to lay them off and darn near impossible to replace them,” he added.

Erik Ristuben, chief investment strategist at Russell Investments, WSJ “The fact that earnings are actually turning out not to be as bad as feared is also supporting the market.”