JACK FARLEY: Welcome to the Real Vision Daily Briefing. I'm Jack Farley, joined by the great Tony Greer. Today is the last day of the month. And for the seventh month in a row, the S&P 500 is ending the month up. The S&P ending on August, up 3%. We're hovering around all-time highs that were made just yesterday.
Meanwhile, we had an incredibly bullish housing number, talking about the Case-Shiller. And meanwhile, copper and oil and other commodities are holding on to the gains that they made, post last week's Jackson Hole meeting. For all this and more, we're joined by Tony Greer of TG Macro. Tony, how are you doing?
TONY GREER: Great, Jack. Good to have you on, man. How are you doing?
JACK FARLEY: I'm doing great. Ash is on vacation, and I feel very lucky because I get to speak to you. I've watched a lot of--
TONY GREER: Ash is on vacation?
JACK FARLEY: I know. Yeah, his first vacation in about six years. But he deserves it. So Tony--
TONY GREER: --working hard. Yes. Talk to me.
JACK FARLEY: Yes, we were talking copper and oil and other commodities. Really, we've seen new life breathed into them by a lot of different factors. Tell us what you're seeing on the tape for copper and oil?
TONY GREER: Yeah. OK. So the copper and oil markets are holding together. I think it's important that coming out of last week, as you said, when Jerome Powell kicked the can for a rate hike well down the road again, we're socializing the idea of tapering, without defining exactly what tapering is. But we had no less than five or six Fed officials come out and mention tapering last week, before Jerome Powell came out of Jackson Hole.
I feel like they were continuing to just get that across the tape, so that anything Jerome Powell said would be perceived as dovish. And that's exactly what they did when he came out and said that the tapering would not have an effect on rate hikes. So what that did to, in my opinion, it looks like it turned the dollar back south and as you said, breathed life back into the commodity complex.
The Bloomberg Commodities Index rallied 6% last week. That's a really big week. The dollar giving back a percent last week, which is a percentage gain the prior week. And it puts the mojo back in that commodity trade, right? The underlying tightness tends to shine through.
For example, we had Brent spreads blow out quite a bit into backwardation this week. I think it speaks to a little bit of the turmoil in the Middle East. I think they're probably just trying to get their hands on some front-month supply there as quickly as they can, just to secure it.
And then we look over the copper market, and it's consolidating below $10k, which is about the all-time high. What's most important to me about base metals, though, is you've got aluminum just consistently making a new all-time high, Jack. So this is the part to me that-- in the power curve of the base metals rally, which is responding to all of the debt and all of the Fed balance sheet that we're throwing on the pile right here to fight this pandemic.
So now that we've got aluminum on the run, we've got a couple of really positive factors because the demand for aluminum is there from the restart and the recovery, et cetera. You've got one of the major provinces is China, trying to clamp down on carbon emissions, which is raising the price of aluminum there. And so then you've got the bottlenecks and all these supply constraints from all the supply lines being held up and cut off and bottlenecked, et cetera.
So there's one-way traffic in the aluminum market right now, making new highs. You look over at copper, and copper just had a great bounce off its 200-day moving average. I look up at my leaderboard today, and I see aluminum and nickel right at the top of it, with major magnitude moves to new highs. And the dollar on its butt again.
So to me, this is very reminiscent of that cyclical rotation, getting back in gear. Right? It's driving the S&P. The S&P has now carved a new high in 15 consecutive weeks. And the record is 16 consecutive weeks, going back to 1985. We know what the market did after that 16 consecutive week rally in 1985. It kept going higher, eventually.
But I think to point to really latch on to here is that that underlying tightness in the commodity markets continues to show its face. The metals markets, including gold now, which has made a nice comeback from $1,650 or so to $1,800 again. And so with the commodity trade on the run, we start to get into that-- now we're in the middle of the third quarter.
August is ending. And we start to get into that race for the winning sector of the year. And that's when it gets exciting to me, Jack, because this is the time of the year that I feel like the direction and the modus operandi of the S&P has revealed itself. It is now going to be responding to news. We've got commodity tailwinds. We've got dollar weakness tailwinds. And it feels like we are in the power curve of the equity trade again.
So I'm looking across sectors now to see where I should be for the end of the year. And what's amazing to me is that even though you've got still retail in the lead, up 48%, you've got oil and gas-- XOP I'm talking about-- behind that, up about 40%. But all of a sudden, you've got broker dealers in the mix after the last rally that they've had. And they're up 37%.
You've got financials in the mix all of a sudden. They're up 30%. They're the sixth strongest sector that I'm following, a little bit selfishly. But within that lead now, you've got home builders, metals and mining, and FANG stocks and financials all duking it out for their place in the lead of the stock market. And when I look at those sectors now, to me, it looks like home builders and financials have just begun to rally after long periods of consolidation.
And so with those kind of tailwinds, with Apple breaking out and having large magnitude moves to a new high that we saw this week, it is really hard to get bearish, the stock market, right? So we're going into the power curve of that. There is no alternative trade. We've been looking for it. And so now the right-- the only thing that I can do is try to be in the right sectors and make sure I'm big enough in the right places, is the only thing I can do right now, Jack.
JACK FARLEY: Yeah, that's fascinating. You note that retail is leading the charge, up the most, up 48%. And then it's the oil and gas exploration. That's XOP. What's interesting to me, Tony, is that what I think retail, I don't believe companies like Walmart, which are more consumer staple, more safe names, are in there. So that means that Dick's Sporting Goods and the things that really need the economy to run super hot, perhaps one could call them cyclical, for them to do well.
So the fact that-- and likewise, exploration, that's a pretty risky business. So we've had a year of enormous economic growth, which has just lit a flame under these somewhat quote, "risky" stocks. What's interesting to me is you note at the bottom, is FANG stocks, big tech, up only about 22%, 25% this year, a phenomenal year, by any means, of course, but compared to 48% of retail.
So what are you thinking in terms of rotation? It has been Apple and other stocks, as you say, that have caught a bid over the past two months. How are you thinking of the rotation trade going forward?
TONY GREER: Really, really, well thought out, Jack. We just saw-- I know that you're remembering the FANG performances from last year, right? And they were like 70%, 80%, and the numbers were astronomical. And so this speaks to generations and generations now, literally across this decade, where investors have been programmed to prepare for deflation.
And now with the commodity sector starting to show up and the cyclical sectors starting to show up, commodities take-- I mean, excuse me-- technology taking a little bit of the back seat to where it was when we were in that lockdown rotation, where everybody was locked at home and we were on our phones all day long, et cetera, et cetera, that horrible time in American history.
But I think speaks to what's coming out in the wash, is that there is going to be demand for these hard assets as the Federal Reserve continues on this plan of, OK, they may be tapering, but they don't say anything about taking down the balance sheet. Right? In my mind, tapering is-- they're going to go from $120 billion a month in purchases-- I don't know-- to $119 billion a month in purchases.
I mean, I don't know. What do you think they're going to do, cut them off at once? Not at all. So I think this is going to be a very slow tiptoe. I'm not a bond market expert, but the way the narrative is going, I would imagine that it's going to be a very slow tiptoe into a very slight taper.
And that allows the S&P to continue to do its thing, as long as the bond market allows it. And with bond yields just, in my mind, bobbling between 1.25%, 1.40% in the 10-year right now, the curves are consolidating, break evens are consolidating. All of that is green light go for the S&P. Right?
As long as the curve isn't breaking down, it seems like-- I don't know that yields are going to spike higher anymore, but as long as the S&P is perceiving a tame bond market that's not going to dislocate lower with a big spike in yields, I mean, where else are you going to go with the S&P? And now that we've logged 15 higher highs in a row, consecutively in 15 weeks-- this is evidence-based investing now. This isn't finger in the wind stuff. I mean, we know what's going on here.
The Fed is inflating assets. And if you have them, you're going to be OK. So always scary as to when we're going to have one of those volatility events, where there's a slip in confidence and stocks sell off for a couple of days. But that formula has been tried and true for us that we've seen in the pullbacks, right?
We see one or two negative days. The S&P grazes a moving average, gets back on its feet. And which sector will it be now that leads us to a new high? And what's interesting, that coming out of the last dip that we had to the S&P, it feels like home builders and financials got spun really sharply out of that last dip.
So I'm trying to see if those are the sectors now. We've got some positive data that you mentioned. We beat an existing and new home sales last week. Homebuilders were shining on the week, up over 3%. They're hanging in there this week now. So that might be a good place to pivot going forward. And we're just going to see how it all shakes out and try to be in the right places by the end of the year.
But it's very interesting rotation. It's hard assets first now, technology second. And that is even with Apple making all-time highs. Semiconductors, there's a shortage there. And they're making all-time highs and NVIDIA soaring, performance-wise, energy first. Right?
And that's a really, really important-- well, retail first, but hard assets first. Energy, metals, and mining is in there, home builders. It's really a lot of industrial stuff making this comeback right now, Jack.
JACK FARLEY: Yeah, home builders, that ETF (XHB) showing no signs of slowing down, especially on the news today from the Case-Shiller, that housing prices increased 19% year over year, which is, I believe, it's the 13th month in a row that the yearly change has actually accelerated. So it's not just the first derivative is positive, the second derivative is positive. It's growing, and the rate of it at which it is growing is growing higher.
A lot of people, Tony, you referenced were getting bearish on these cyclical assets, whether it's materials, home builders, or energy, about three months ago, when they started to roll over. But now that we've seen these new life being breathed into them, that narrative is being questioned. Can you make sense of the rollover that we saw starting in, oh, I don't know, May or June? Was that just something that, in a bull market, is bound to happen?
Because even though the S&P 500 is remarkably steady-- we're almost a year where without the S&P making a 5% correction from all-time highs, which is truly historic. But within those cyclical sectors, even though the total returns have been phenomenal, there have been some pretty steady pullbacks. How would you make sense of the pullback that we've had since May?
TONY GREER: Yeah, all right. So look, going back to May, Jack, if my memory serves me correctly, we have had a couple of risk episodes, right? In May, I remember that we had the first big headline, Inflation Beat CPI, where there was just a huge-- all of a sudden, everybody woke up and said, whoa, CPI can actually go up. What the hell was that?
So the tape said, whoa, there is marquee headline inflation now. What is that going to mean for the consumer, right? Because these are the consumer with retail on top. You can tell the consumer is alive and kicking, even though he's been locked at home more of the time. But let's go back into this now.
The Case-Shiller comes out with home prices rising to the highest levels at the fastest pace. And what does that do? Gives the consumer a little bit of a cushion now. Right? He's looking at his house value versus everything else. And he's like, well, worst-case scenario, my house is up xyz percent this month. I can afford to shift some assets around. I can be in the markets now. I can loosen my belt.
And what is that? The Federal Reserve inflating assets. And those are the collateral signs of how this actually does work out, despite all of the people throwing rocks at the equity rally along the way.
So let's go back and talk about what the market-- as you say, we've had several VIX events, we can call it, dips in the tape to the 50-day moving average. So back in May after the headline inflation dipped to the 50-day, which, by the way, was two or three down days in a row, big tick index extremes on the lows, and then a red to green day at the bottom to reverse it.
Coming out of that, we had the big Bitcoin crash, when Bitcoin crashed through $40k down to $30k, and everybody thought it was going to zero. And there was a big de-risking on that, two weeks after the headline inflation number in May.
What'd the S&P do? Same as it ever was, man, two or three negative days, big tick index prints on the lows, saying that people were whacking bids in equities to take profits, a graze of the moving averages, red to green, and rally out of the hole. Then in June, we had Jackson Hole-- excuse me-- Fed minutes come out, very much a sell-the-fact event on how easy the Fed was going to continue to be.
Minutes come out, two or three big negative days-- go ahead, finish the sentence for me-- big tick index prints on the extremes, red to green day on the bottom. And where are we now? Testing 4,500.
JACK FARLEY: We are--
TONY GREER: Excuse me, through 4,500 now.
JACK FARLEY: Yeah.
TONY GREER: So these are the dynamics that persist, Jack. And I feel like it's getting to the point where we're getting into this formula. We're getting into a bit of a new rotation. And I'm more concerned that stocks are going to melt up into the end of the year, rather than break down now. So it just looks like it's better set up for a rally from August to December.
I feel like that maybe we were set up this year from January to February for a rally, which we were able to rally through, anyway. So there's a lot of really positive conditions on the tape. You mentioned the tests that we saw in the S&P over the last two months, and then we had another one this month.
But overall, the S&P is passing the tests, coming out with flying colors, getting behind the new sector, rallying with commodity tailwinds, a weaker dollar, a sideways bond market, sanguine market-based inflation expectations that are sideways to higher, but not setting off any fire alarms. I mean, get me in the S&P ring every morning on the top step, and I'll be looking to buy contracts. I mean, that's just the way this market looks to me right now.
JACK FARLEY: Wow. Tony, I remember in January, you made that exact same argument about, the Fed is inflating assets. You've really got to go where the Fed is going. And of course, you were absolutely right about that. I don't know exactly what the year-to-date returns of the S&P are, but very healthy, 16%, 18%, something like that, with almost no drawdowns, from all-time highs, I should say.
Tony, so sounds like you're making that same argument. And you're saying that the same logic that fueled this rally is going to continue to fuel it. My question is, what about the expiration date of the expansion of the Fed's balance sheet and raising rates? We learned, very dovish sentiment, of course, you're absolutely right, from Fed Chair Powell, that just because we're going to taper, doesn't mean we're going to raise rates.
But aren't markets supposed to be forward looking? Aren't they going to sniff out something around the corner? It sounds like you were just as bullish as you were in January. Is that true? Or are you very bullish, but just less bullish?
TONY GREER: No, I'm still bullish. I'm still under the-- I've still got the post-it up on the top right hand corner of my screen that says, the Fed is inflating assets. If you have assets, you're going to be OK. Right? And I'm still going with that plan because I don't think anything has changed. It's interesting to hear you mention, is the clock ticking on the Fed balance sheet expansion.
And when you look at how they've addressed everything in the pandemic and how we're moving forward to have the Federal Reserve-- if you notice, now that coming out of the pandemic, the Federal Reserve has got a climate change officer. And they're going to start using that for room and reason to continue to build the Fed balance sheet. Trust me. Right?
So we're going to see them say, for health emergencies, Federal Reserve, going to have to keep piling up the balance sheet. For climate emergencies, Federal Reserve, they're are guy, continue to pile up