THE DEAN’S LIST: Markets Are More Resilient Than You Imagine.

Last Friday was the twenty-fifth anniversary of September 11. It was also the day this market decided it had heard enough bad news for one week. Oil punched through $100 for the first time since May, gasoline did more than a third of the work in the August inflation report, and by the afternoon the market had moved to an 86% chance of a Fed rate hike this Wednesday. Stocks still finished the four-day week down less than 1%. I wrote something below about where I was that morning in 2001. Read that part first. Then look at the numbers, and at the Single-Digit Millionaire portfolio, which I have not touched and which still carries cash, gold, and a little bitcoin and ethereum, each doing a different job.

Dean’s note:
Last week I told you the long end of the bond market had probably overplayed its hand and was done until we heard from the Fed. It was not done. On Tuesday and Wednesday, the 10-year and the 30-year both pushed to fresh 52-week highs. It finished Friday at 4.96%. The 30-year finished at 5.36%. 

By the time Friday’s August consumer price report came, yields were done moving up. Prices rose 0.4% for the month, the most in three months, and the annual rate held at 3.4%. Gasoline jumped 3.9% after falling 2.9% in July, and the BLS said gasoline alone accounted for over one-third of the monthly all-items increase. Pump prices are up 27.4% from a year ago. Core inflation, which strips out food and energy, rose 0.3% against a 0.2% consensus, the fastest monthly pace since April. And yet the annual core rate eased to 2.4%, the lowest in five years. Both of those things are true at the same time. One of them is about a shipping lane. The other one is about the underlying economy, and the underlying one keeps getting better.

The market read it and moved. Odds of a 25 basis point hike at the September 15-16 meeting went from 72% on Thursday to about 86% after the print, according to CME FedWatch. Be careful with what that means. A hike getting priced is not a hiking cycle getting announced. The target range sits at 3.50% to 3.75% right now, and one quarter point takes it to 3.75% to 4.00%. That is not a regime change. It is one step. And the step is not the part I care about. Wednesday is a Summary of Economic Projections meeting, so Chairman Warsh has to publish the dots alongside whatever the committee does. The dots tell you whether this is one insurance move against an energy shock or the front end of something longer. The quarter point is the headline. The dot plot is the story.

Use the right word for what happened, because the word changes the answer. A tariff is a tax on imports. What hit the pump in August was a supply shock. The Fed cannot drill a well, refill a pipeline, or reopen a shipping lane. What it can do is lean on demand hard enough that a $100 barrel stops setting the price of everything else, and keep an energy spike from leaking into wages and expectations. That is a real job. It is just a slow and expensive way to answer somebody else’s war. Warsh has been clear since June that restoring the Fed’s credibility on 2% inflation is the assignment, and a 3.4% headline with crude at $100 does not let him look away.

Now look at what stocks actually did with all of that. The S&P 500 fell 0.8% over four trading days. The Nasdaq fell 0.7%. The Russell 2000 dropped 2.4%, gold fell about 2.8%, and bitcoin lost roughly 5%, which is what tends to happen to assets that pay you nothing to hold them when the 30-year Treasury is yielding 5.36%. That is a discount-rate story, not a verdict on any of the three, and discount-rate stories reverse when rates do. The VIX closed Friday at 15.84, down 11.2% on the day. My read is that a market genuinely braced for a rate hike, a $100 barrel, and a shooting conflict in the Gulf does not leave expected volatility in the mid-teens. The crowd priced the scary version weeks ago and spent this week working out how much of it is real. That is money changing seats, not money leaving the building.

And Friday afternoon finally put a date on the thing I have been telling you to wait for since August. Iranian state media said Tehran will sit down with Gulf states in Oman. Top diplomats from the six-member Gulf Cooperation Council are meeting their Iranian counterpart today to discuss a temporary arrangement for managing shipping through the Strait of Hormuz. Our base case is still that a brokered arrangement on the strait arrives before the November midterms, because the political cost of $6 diesel into an election is higher than the political cost of a deal. The honest argument against us is that escalation hardens positions and takes the room for a deal off the table, and this week gave that argument fresh ammunition. A meeting is not an agreement. Watch the ships, not the statements.

Four trading days, one holiday, and more news than most full weeks carry.

Monday (September 7): Labor Day. U.S. stock markets were closed. The Middle East was not. Reports of attacks on vessels in the Persian Gulf piled up through the holiday, which set the tone for everything that followed on Tuesday.

Tuesday (September 8): The reopen was ugly. The S&P 500 fell 0.58% to 7,673.52. WTI tested $100 a barrel for the first time since May and the 10-year yield closed in on a two-decade high. Nothing broke. Everything just repriced at once.

Wednesday (September 9): Worse. The S&P 500 lost 0.48% to 7,636.36, and the Nasdaq fell 0.64% to 26,253.34. WTI surged 4.2% to $100.10 and Brent jumped 3.6% to $105.37 after Iran said it had attacked more than a dozen ships trying to transit Hormuz without its permission. A UK Navy agency reported several vessels on fire. Apple held its first product launch under new chief executive John Ternus the same day, and the tape barely blinked.

Thursday (September 10): A fourth straight down session. The S&P 500 lost 0.59%, the Nasdaq fell 0.97%, and the Russell 2000 gave up 1.32%. Brent hit its highest level since July. After the close, Oracle reported a quarter that spent $28.5 billion on capital expenditure and produced negative $5.4 billion of free cash flow, which turned out to be very good news for a long list of other companies.

Friday (September 11): The turn, and the twenty-fifth anniversary. August CPI landed in line on the headline, oil backed off, and stocks snapped the losing streak. The S&P 500 rose 0.9% to 7,656.98 and the Nasdaq added 1.0% to 26,333.04. Dell rose 11.3% and Hewlett Packard Enterprise rose 9.1% on the read-through from Oracle’s spending. Rate-hike odds climbed to about 86% anyway. Separately, Houthi forces seized Mayun Island in the Bab al-Mandeb.

Monday (September 14, yesterday): Gulf foreign ministers are meeting Iran’s counterpart in Oman as I write this. Crude is the number to watch, not the communique. The Fed meets Tuesday and Wednesday and announces Wednesday afternoon with a fresh dot plot. Everything else this week is noise around those two rooms.

I am standing in front of the television set in my bedroom in the Portside building in San Francisco. I am 22. It's an impressive one-bedroom between the Giants ballpark and the Ferry Building along the Embarcadero. All thanks to my first job out of school, working for Ken Fisher on top of a mountain south of the city. As I tied my tie just before 6 am, the CNBC hosts still had no idea what happened. I heard them say something about a small plane possibly, and you could see a lot of smoke.

I am pretty sure I went down to the garage for my drive to work before the second plane hit. By the time I walked into the office just before 6:30 am, two TV carts were set up in the library. A bunch of us huddled in there and watched. The only thing I remember from that day is watching the towers fall. Those images are etched in my mind.

The irony of that moment was that nobody panicked. Client portfolios had been positioned to profit from falling stock prices for months. We were in the throes of the dot-com bubble bursting. Everyone knew that our clients would profit from this tragedy, as terrible as it was.

Looking back 25 years later, that moment brings out a lot of emotions. Many have nothing to do with terrorism or how it changed the world we live in today. First of all, we must always remember the heroes who stepped up that day inside those buildings and on the doomed flights.

But we must also remember the lessons of 9/11 for investors. Even 35- and 40-year-olds today were only 10 or 15 when this tragedy happened. They didn't have a 401(k) yet or watch CNBC. 9/11 sparked a massive war that would last two decades, and never-ending threats of terror at home. All while the economy was already in recession.

Dean’s note:
Markets are always more resilient than you imagine. It is only evident in hindsight. Seemingly horrific and long-lasting events run their course in the stock market in the blink of an eye. That’s how amazing the stock market is. All the losses from the deadliest terrorist attack on American soil were recouped in a single month. The bear market lasted less than 12 months after the attacks. The big takeaway is terrible things happen, but their effect wears off faster than our brains can accept.

Headline CPI rose 0.4% in August, the most in three months, and the annual rate held at 3.4%. Gasoline rose 3.9% on the month and is 27.4% higher than a year ago. The Bureau of Labor Statistics said gasoline alone accounted for over one third of the monthly all-items increase. Food was quiet. Grocery prices were unchanged, and restaurant prices rose 0.3% for a second straight month.

Core CPI, which strips out food and energy, rose 0.3% against a 0.2% consensus. That is the hot part of the report, and it is fair to call it hot. But the annual core rate eased to 2.4%, the lowest reading in five years. So the trend in the part of inflation monetary policy influences most directly is still improving, while the part driven by a barrel of crude just blew a hole in the headline.

Dean’s note:
This is where people get it backwards, so slow down here. An oil-price move is a supply shock. It lands in a price index that was never built to tell you where it came from. The right question is not whether 3.4% is too high. It obviously is. The right question is what that number looks like if crude goes back to $80, because gasoline rolls out of the year-over-year math within a couple of quarters. We still think underlying inflation cools in the back half of the year. The caveat a sharp analyst would add has to do with second-order effects. If a $100 barrel starts showing up in wage demands and in what people expect prices to do next year, it stops being an energy story and becomes an inflation story. Watch that, not the headline.

The Federal Open Market Committee meets Tuesday and Wednesday and announces Wednesday afternoon. The target range for the federal funds rate is 3.50% to 3.75%. Market-implied odds of a 25 basis point hike jumped from 72% on Thursday to about 86% after Friday's inflation report, per CME FedWatch, and those probabilities move all session long.

This is also a Summary of Economic Projections meeting, which means Chairman Kevin Warsh publishes an updated set of rate projections alongside the decision. It will be his third meeting as chair. He has already shortened the Fed's statement considerably and removed the language that implied a bias toward future cuts, and he has been direct that restoring credibility on the 2% target is the job.

Dean’s note:
An 86% probability of a hike is not the same as a hiking cycle. One quarter point takes the range to 3.75% to 4.00% and leaves policy roughly where it sat last spring. What would actually change the picture is a dot plot showing two or three more, and that is what I will be reading at two o'clock Wednesday. We think this is more likely an insurance move against an energy shock than the start of a long campaign. The argument against us is simple and serious. If crude sits above $100 into October, this committee may well decide one move was not enough.

WTI settled around $100.05 on Friday and Brent around $104.61, up 9.7% and about 9% for the week. Diesel hit a record national average of $6.05 a gallon, according to AAA. Saudi Arabia shut its East-West crude pipeline as a precaution after multiple attacks. Iran said it attacked more than a dozen vessels transiting Hormuz without permission, a claim that had not been independently confirmed as of this morning. And on Friday, Houthi forces seized Mayun Island, also called Perim, which sits in the middle of the Bab al-Mandeb and splits it into two channels.

Then the other side of the ledger showed up all at once. The International Energy Agency cut its 2026 global demand outlook to a contraction of 2.5 million barrels a day, the largest annual decline since the pandemic. OPEC cut its own demand-growth forecast for a fifth straight time. The EIA raised its 2027 U.S. production forecast to 14.3 million barrels a day. And Iranian state media said Tehran would meet Gulf states in Oman. Crude fell about 3% on Friday with all of that in the mix.

Dean’s note:
Keep the two chokepoints straight, because the headlines mash them together and they are not the same problem. Hormuz is the door out of the Persian Gulf. Bab al-Mandeb is the door into the Red Sea and on to Suez. Talks in Oman address the first one. A militia sitting on an island in the second one is a separate bill that nobody is negotiating today. Here is the part I want you to hold onto anyway. A price that climbs 9% in a week on a supply scare can give a chunk of it back on a single diplomatic headline, and Friday's roughly 3% retreat was the preview. Meanwhile, the IEA just told you demand is contracting at the fastest rate since Covid. That is a bearish setup wearing a bullish tape. So watch the ships, not the statements. Strait transit counts, war-risk insurance premiums, and confirmed export volumes will tell you whether today’s meeting was real, weeks before any communique does.

Oracle posted fiscal first-quarter adjusted earnings of $1.92 a share, up 30%, on revenue of $19.35 billion against a $19.14 billion consensus. Cloud infrastructure revenue rose 121% to $7.4 billion. Remaining performance obligations, which are contracted work not yet delivered, swelled by $209 billion year over year to $664 billion. Full-year revenue guidance moved up to at least $90 billion, and capital spending guidance was left unchanged at $90 billion to $95 billion.

The cash statement is the part worth reading twice. Capital expenditure in the quarter alone hit $28.5 billion, against $8.5 billion for all of the prior year, and free cash flow came in at negative $5.4 billion. The stock went nowhere on Friday. The suppliers did not. Dell rose 11.3%, Hewlett Packard Enterprise rose 9.1% after posting record quarterly revenue of $12.2 billion, and Super Micro rose 6.1%.

Dean’s note:
A great company and a great stock are not the same thing, and Oracle just gave you the cleanest example of the year. It beat on revenue, grew cloud infrastructure 121%, and carries a backlog bigger than the annual output of most countries. The stock sat still, because $28.5 billion of capital spending in ninety days is money out the door now for revenue that shows up later. The companies receiving that money went up double digits the same session. That is not a mystery. That is arithmetic, and it is the same arithmetic every buildout in history has run on. It also fits a thesis I keep repeating, which is that AI can lift corporate profits without adding much labor. I think that is what is happening. I will call it a strong hypothesis rather than a proven one, and the better evidence sits in capex-to-headcount disclosures, not in any single jobs report.

Stay invested. Stay selective. This week the market graded two exams, then Sunday night handed it a third.

Stay invested. Stay selective. And stop trying to trade the headline.

A four-day week gave us a $100 barrel, a record diesel price, a hot core inflation print, a five-year low in annual core inflation, an 86% chance of a Fed hike, and a peace meeting. The S&P 500 finished down 0.8%. Here is what I am carrying into Wednesday.

• The latest acceleration in headline inflation is concentrated in energy. Gasoline did more than a third of the August increase, and annual core CPI is at a five-year low of 2.4%. Those two facts belong in the same sentence every time somebody quotes you 3.4%.

• An 86% chance of a hike is not a hiking cycle. One quarter point takes the range to 3.75% to 4.00%. Read the dot plot Wednesday afternoon before you decide what this Fed intends to do next.

• The long end is the tell, and it is still the adult in the room. A 30-year at 5.36% is what pressured small caps, gold, and crypto this week, far more than anything any Fed official said.

• Watch the ships, not the statements. Gulf diplomats are meeting Iran in Oman today. Transit counts, war-risk insurance premiums, and confirmed export volumes are the confirmation. A photo op is not. And keep Hormuz and Bab al-Mandeb in separate columns, because only one of them is on the agenda.

• Oracle’s cash statement was the most useful document of the week, and it barely moved Oracle. It moved Dell, HPE, and Super Micro instead. Watch the price you pay, not just the logo on the door.

• Where your plan, your cash flow, and your emergency reserves support it, a jumpy week is not, on its own, a reason to stop contributing to your 401(k). The 2026 elective deferral limit is $24,500. A super catch-up of $11,250 takes the total to $35,750, but only if you turn 60, 61, 62, or 63 during 2026 and only if your plan permits catch-up contributions. If your prior-year wages from that employer topped $150,000, your catch-up generally has to go in on a Roth basis where the plan offers it. Check with your plan administrator, not with me.

• Volatility closed the week at 15.84. Keep in mind the VIX measures expected S&P 500 volatility over about the next month and nothing else. It is not telling you anything about oil, credit, or the Persian Gulf.

The headlines this week were loud, and the tape was quiet. That gap is usually the most useful information a market gives you. Twenty-five years ago I watched a far louder week from an office on top of a mountain south of San Francisco, and I wrote down what it taught me in the first deep dive above. I am not going to repeat it here. I will only say that the equal-weighted S&P 500, the Russell 2000, and foreign stocks have all contributed this year, despite every headline about a handful of giant stocks running the show. Diversification is doing its job. So is patience.

- Dean

P.S. One number from Friday to keep in your pocket. Annual core CPI, which is the cleanest read we get on underlying inflation, came in at 2.4%. That is the lowest in five years. It printed on the same morning that rate-hike odds jumped from 72% to about 86%. One release, two opposite signals, and both of them honest. If you want a single line explaining why this Fed is hard to read right now, that is it. The pressure monetary policy influences most directly is easing. The pressure coming off a barrel of crude is not. Note that the Fed’s formal 2% target is defined on PCE, not CPI, so Friday’s number is a strong clue and not the scorecard.

And one more thought. Diesel hit a record $6.05 a gallon on Friday. Diesel moves freight, farm equipment, and construction, so higher fuel costs eventually work their way into the price of a wide range of goods. How much and how fast is not something anybody can hand you as a rule, because pass-through depends on contract structure, margins, and pricing power, and those vary enormously by industry. That is exactly why it is worth watching. The October and November earnings calls will separate the businesses with real pricing power from the ones that only looked like they had it when energy was cheap. Listen for who talks about surcharges and who talks about absorbing costs. That distinction tends to decide which stocks work over the following year.

👉 If you want to see how I am positioned for a Fed meeting, an oil shock, and a peace negotiation all landing in the same week, the full Single-Digit Millionaire portfolio is laid out in the open at my site. Go to my name plus dot com. You will find the cash, the gold, and the small crypto sleeve, along with the reasoning behind each one. You will also find the risks, because they are real, and this week I put two of them on display. Gold has long, ugly drawdowns and just had a bad one. Crypto can halve. Cash costs you return when stocks run. Nothing in there is a guarantee, and none of it is built around any single week. It is free to read, and it is written the same way this letter is.

This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Consult with a qualified financial advisor before making any investment decisions.