Fed Governor Waller leaning to "hold" pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect "Sup"-tember, a contrarian bullish month.

Tom Lee, CFA

Video: Fed Governor Waller indicated his inclination to hold in Sept, and his rationale focused on the fact that disinflationary forces are underway.  This helped drop the odds of a Sept hike down to 51%.  The key is today’s August jobs and August CPI next Friday.  Also 4 of the top 20 best performing stocks since June 30th are crypto.  Hence, we think there will be FOMO into crypto in Sept.

Please click here to view our Macro Minute (duration: 5:28).

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

The S&P 500 rallied again yesterday, taking month-to-date gains to ~1%. Earlier this week, September started off with two consecutive days of declines and many pundits warned that September would be a down month. But as our clients are aware, we took a contrarian take and gave 5 reasons we expected Sept to be a “strong up month.”

  • Fed Governor Waller spoke with Reuters yesterday and he signaled his support for a “hold” in September. Previously, he was viewed as leaning towards a hike, so this was a surprise to markets. His rationale basically is that disinflation forces are underway, so there did not seem to be a rationale to hike.
  • The odds of a Sept hike in the Fed Funds Futures market fell to 51% from 70% shortly after Warsh’s Jackson Hole speech and we continue to expect this to trend to zero. In fact, we think the deciding factor will be next week’s August CPI report which is released Friday.
  • Our analysis suggests that if August Core CPI comes in at 0.23% or lower, the YoY will drop to 2.35% and Waller noted he expected Core PCE to be revised downwards as well. Additionally, we have previously pointed out that “flash memory” is 33% of the excess inflation in core PCE.
  • A 2.35% Core CPI YoY is hardly a reason for the Fed to hike rates in 2026. Thus, we see the odds dropping towards zero.
  • Friday (today) is August jobs and the Street is looking for 55k, and unless this report shows demonstrably higher job gains, this will not sway odds around a Fed hike. Our take is the labor market is not adding to inflationary pressures in general.
  • So, if this is Waller’s take (to hold), it does raise the question why Fed Chair Kevin Warsh sounded hawkish. And we wonder if this could be explained by:
    – Warsh wants to establish Fed credibility, but can later point to softer CPI as reasons to hold
    – Warsh is trying to establish independence from White House, and can later be on hold
    – Warsh is ceding to the “inflation derangement syndrome” of markets
  • September is the final month of 3Q26 and it is important to consider the FOMO factor. That is, the assets that outperformed and are not owned by institutional investors:
    – the best performing macro asset since June 30th is Ethereum ETH -2.00% +56% (vs S&P 500), followed by Solana SOL -2.88% +39%, Bitcoin BTC -2.11% +36%.
  • In our multiple conversations with fund managers in the past few weeks, we found few have any position in these assets. But we are two months into 3Q26 and there is this “underperformance” to consider:
    – of the top 20 best performing stocks in the Russell 1000 since June 30
    – 4 of the top 20 are crypto:
    – Bitmine BMNR +99%, #4 overall
    – Strategy MSTR +67%
    – Circle CRCL +65%
    – Bullish BLSH +55%
  • Bitmine is the only one of these with a high correlation to Ethereum. The 30-day correlation is 91%. Thus, if a macro investor wants to get exposure to ETH via an equity, Bitmine is the only major crypto stock (>$2 billion market cap) with this high correlation.
  • We have written in the past about the 4 tailwinds for crypto into YE, but to recap:
    1. Potential passage of CLARITY Act
    2. Korean investors (40% of crypto volume) rotating out of AI back into crypto
    – by the way, same happening in USA market
    3. 4-year cycle bottoms in late-Sept, which means many start of view crypto as BTD (buy the dip)
    4. FOMO as Crypto is the strongest performing asset in third quarter to date and they will chase
  • Thus, we expect crypto to have significant tailwinds in the final 4 months of 2026. Thus, we would recommend crypto equities with correlation to crypto.
  • This week, we have August Non-farm Payrolls on Friday and ISM PMIs:
    – 8/31 Mon 10:30 AM ET: Aug Dallas Fed Manuf. Activity Survey    11.6 vs 2e
    – 9/1 Tue 9:45 AM ET: Aug F S&P Global Manufacturing PMI    53.9 vs 53.4e
    – 9/1 Tue 10:00 AM ET: Aug ISM Manufacturing PMI    54.6 vs 55.2e
    – 9/1 Tue 10:00 AM ET: Jul JOLTS Job Openings    7271k vs 7313ke
    – 9/2 Wed 10:00 AM ET: Jul F Durable Goods Orders MoM    1.1% vs 1.1%e
    – 9/2 Wed 2:00 PM ET: Sep Fed Releases Beige Book   
    – 9/3 Thu 8:30 AM ET: 2Q F Nonfarm Productivity QoQ    1.4% vs 1.4%e
    – 9/3 Thu 8:30 AM ET: Jul Trade Balance    –89b vs -90be
    – 9/3 Thu 8:30 AM ET: 2Q F Unit Labor Costs    1.2% vs 1.3%e
    – 9/3 Thu 9:45 AM ET: Aug F S&P Global Services PMI    56.5 vs 56.8e
    – 9/3 Thu 10:00 AM ET: Aug ISM Services PMI    55.4 vs 54.1e
    – 9/4 Fri 8:30 AM ET: Aug Non-farm Payrolls    55ke
  • Next Week There are important inflation releases with the PPI on Thursday and the CPI on Friday:
    – 9/7 Mon: Labor Day (Market closed)
    – 9/8 Tue 6:00 AM ET: Aug Small Business Optimism Survey   
    – 9/8 Tue 11:00 AM ET: Aug NYFed 1yr Inf Exp   
    – 9/10 Thu 8:30 AM ET: Aug Core PPI MoM    0.30%e
    – 9/10 Thu 10:00 AM ET: Aug Existing Home Sales    4me
    – 9/11 Fri 8:30 AM ET: Aug Core CPI MoM    0.23%e
    – 9/11 Fri 10:00 AM ET: Sep P U. Mich. 1yr Inf Exp

BOTTOM LINE: Crypto, MAG7, Software, Small-caps lead since Iran War

We continue to see a 3-phase market in 2026. We believe we are still in this rising phase, and our original aspirational target was 7,300. Now we see closer to 7,900-8,000 first. We are not yet cautious, as we still see impressive market resilience, this week being an example. While oil and rates are near highs, equities are still managing to show resilience.

We continue to favor the following sectors:

  • MAG7 & Bitcoin & Ethereum MAGS IBIT ETHA SMH DRAM
  • Industrials -> “bullet makers” XLI
  • Financials: Large-cap and regional banks XLF KRE
  • Small-caps IWM
  • Energy/Basic Materials XLE XLB
Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.
Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.
Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Part I: 46 Large-cap Core Ideas: Updated list is below

Large-Cap Core Stock Ideas are large-cap stocks that appear in multiple of our investment strategies.

  • Consider these stocks our top stock picks and thus, the higher quality ideas.
Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.
Source: Fundstrat, Bloomberg

The Current Large-cap Core List as of 8/21/2026 is as follows:

Communication Services: ECHO, GOOGL, NFLX
Consumer Discretionary: AMZN, TJX, TSLA
Consumer Staples: COST, MNST, PM, WMT
Energy: OKE
Financials: BNY, GS, HOOD, JPM
Health Care: LLY, MRK, UNH
Industrials: CAT, DE, ETN, GE, GEV, LMT, PWR, SPCX, TT, UNP, VRT
Information Technology: AAPL, AMD, ANET, CDNS, INTC, KLAC, MSFT, MSTR, MU, NOW, NVDA, ORCL, PLTR
Materials: CF, FCX, PKG
Utilities: VST

Part II: 65 SMID Core Ideas: Updated list is below

SMID Core Ideas are small and mid-cap stocks that appear in multiple of our investment strategies.

  • We believe SMID Core List could benefit from the multiple themes and secular tailwinds.
Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.
Source: Fundstrat, Bloomberg

The Current SMID Core List as of 8/21/2026 is as follows:

Communication Services: ECHO, RDDT, TIGO
Consumer Discretionary: DKS, SGI, SN
Consumer Staples: BG
Energy: CCJ, DINO, DTM
Financials: ALLY, CFR, EWBC, GLXY, SOFI, WAL
Health Care: EXEL, HALO, NTRA, PGEN
Industrials: ALNT, AVAV, BE, BWXT, CRS, CW, DY, ENS, FIX, HII, IESC, KTOS, MLI, MOD, NVT, NXT, QXO, RKLB, STRL, VICR, VMI, WTS
Information Technology: AMKR, CRDO, FORM, FN, FSLR, IONQ, LITE, LSCC, MDB, MKSI, NBIS, P, PATH, RIOT, RMBS, SANM, TTMI, ZETA, ZM
Materials: ALB, MP, RGLD
Utilities: TLN

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Key Incoming Data September:

  • 9/1 9:45 AM ET: Aug F S&P Global Manufacturing PMI Tame
  • 9/1 10:00 AM ET: Jul JOLTS Job Openings Tame
  • 9/1 10:00 AM ET: Aug ISM Manufacturing PMI Tame
  • 9/2 10:00 AM ET: Jul F Durable Goods Orders Tame
  • 9/3 8:30 AM ET: 2Q F Unit Labor Costs Tame
  • 9/3 8:30 AM ET: 2Q F Non-Farm Productivity Tame
  • 9/3 8:30 AM ET: Jul Trade Balance Tame
  • 9/3 9:45 AM ET: Aug F S&P Global Services PMI Tame
  • 9/3 10:00 AM ET: Aug ISM Services PMI Tame
  • 9/4 8:30 AM ET: Aug Non-Farm Payrolls
  • 9/8 6:00 AM ET: Aug Small Business Optimism Survey
  • 9/8 11:00 AM ET: Aug NY Fed 1yr Inf Exp
  • 9/10 8:30 AM ET: Aug PPI
  • 9/10 10:00 AM ET: Aug Existing Home Sales
  • 9/11 8:30 AM ET: Aug CPI
  • 9/11 10:00 AM ET: Sep P U. Mich. Sentiment and Inflation Expectation
  • 9/15 8:30 AM ET: Sep Empire Manufacturing Survey
  • 9/16 8:30 AM ET: Aug Retail Sales Data
  • 9/16 10:00 AM ET: Sep NAHB Housing Market Index
  • 9/16 2:00 PM ET: Sep FOMC Decision
  • 9/16 4:00 PM ET: Jul Net TIC Flows
  • 9/17 8:30 AM ET: Sep Philly Fed Business Outlook
  • 9/21 8:30 AM ET: Aug Chicago Fed Nat Activity Index
  • 9/22 10:00 AM ET: Sep Richmond Fed Manufacturing Survey
  • 9/23 9:45 AM ET: Sep P S&P Global Services PMI
  • 9/23 9:45 AM ET: Sep P S&P Global Manufacturing PMI
  • 9/24 10:00 AM ET: Aug New Home Sales
  • 9/24 11:00 AM ET: Sep Kansas City Fed Manufacturing Survey
  • 9/25 8:30 AM ET: Aug P Durable Goods Orders
  • 9/25 10:00 AM ET: Sep F U. Mich. Sentiment and Inflation Expectation
  • 9/28 10:30 AM ET: Sep Dallas Fed Manuf. Activity Survey
  • 9/29 9:00 AM ET: Jul S&P Cotality CS 20-City MoM SA
  • 9/29 10:00 AM ET: Aug JOLTS Job Openings
  • 9/29 10:00 AM ET: Sep Conference Board Consumer Confidence
  • 9/30 8:30 AM ET: 2Q T GDP
  • 9/30 8:30 AM ET: Aug PCE Deflator

Economic Data Performance Tracker 2026:

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Economic Data Performance Tracker 2025:

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Economic Data Performance Tracker 2024:

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

Economic Data Performance Tracker 2023:

Fed Governor Waller leaning to hold pushes odds of a Sep hike down to 50% (on way to zero, in our view). We still expect Sup-tember, a contrarian bullish month.

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