Investors are anxious to see earnings from top retailers this week, which will mostly wrap up US Q2 2023 results. About 87% of S&P 500 companies have now reported and are on track for an earnings decline of just over -5%, yet, the S&P 500 is still up +13% and the Nasdaq up +33% year-to-date.

Bulls believe Q2 will be the trough of quarterly losses this year and expect growth to return in the second half. Retail results will be critical for cementing that sentiment as the strength of the US consumer has been the driving force of economic growth this year, as well as the key reason most economist now think the US will avoid recession.

Wall Street bulls actually have high hopes for the "consumer discretionary" sector thanks to cost cutting measures and improved inventory levels, both of which have been big drags in recent quarters.

Retail highlights this week include July Retail Sales on Tuesday, along with earnings results from Home Depot on Tuesday, Target and TJX on Wednesday, and Ross Stores and Walmart on Thursday. Suncor Energy is today's key earnings release.

There is no major economic data today and the calendar is actually pretty light all week. The "minutes" from the Federal Reserve's July 25-26 meeting will be released on Wednesday and seem to be the big highlight. Bulls will be looking for signs of growing divisions among Fed officials in regard to whether hiking rates any further poses too much risk to the economy. The Fed most recently indicated that another +25 basis-point hikes could be made this year.

The odds seem to have the Fed "pausing" at the September meeting and perhaps hiking again at the November meeting, depending on how the economic data unfolds. Bulls will also be looking for indications of when officials think it might be appropriate to begin cutting rates.

New York Fed President John Williams said in an interview last week that the central bank may need to lower rates in 2024 or 2025 if inflation keeps falling in order to ensure real interest rates don’t rise any further. Bulls have been assuming that rate cuts will be in the cards sometime in 2024 and take Williams' remarks as a welcome sign that the central bank won't wait until the economy is showing signs of trouble before loosening monetary policy.

Bears warn that it is too early to celebrate the end of inflation, pointing to food and energy prices once again rising. While the Fed prefers inflation gauges that strip out volatile food and energy, higher prices in those categories can still have inflationary impacts in other areas. That's particularly true of "wages" as the categories are also two of the biggest consumer expenses outside of housing. Rising pump prices also tend to raise consumer inflation expectations, a measure the Fed watches very closely. That's because if consumers anticipate even higher living expenses ahead, they tend to tighten their belts and cut discretionary spending, which can in turn dent economy growth.

Higher inflation expectations can also put upward pressure on wages, which is something the Fed is very keen to avoid.

Just remember, the economy is not the stock market and the stock market is not the economy.

Oil Prices Poised To Soar As Global Demand Hits Record High: Global oil demand reached record levels in June and is poised to peak again in August, the International Energy Agency said on Friday, warning that price hikes could be on the horizon as slowing outputs from major suppliers like Saudi Arabia tighten supply. World oil demand hit a record 103 million barrels a day in June, the IEA said. The agency said demand could rise further in August and demand for 2023 as a whole is expected to reach 102.2 million barrels a day. The figure, an increase of around 2.2 million barrels a day from the year before, would mark the highest ever annual level, the agency said. China is responsible for the lion’s share of this growth, accounting for more than 70% of the uptick, the IEA said, adding that demand there was “stronger than expected” and reached new highs “despite persistent concerns over the health of the economy.” Strong summer air travel and the increased use of oil in power generation also contributed to increased demand, the IEA said. The IEA forecast continued, albeit slower, growth for oil demand in 2024, pointing to “lackluster economic conditions,” new electric vehicles and the “post-pandemic rebound running out of steam.” Source Forbes

Apple's Buybacks in the Last Decade Are Worth More Than Visa, JPMorgan, or Exxon: Apple has spent upwards of $500 billion on stock buybacks over the last decade, and the repurchases made since 2012 are worth more than the entire market capitalization of Visa at $489 billion, JPMorgan at $446 billion, or Exxon Mobil at $441 billion. Only eight companies in the S&P 500 are worth more than Apple's outlay on buybacks to date. Indeed, Apple has spent north of $50 billion a year buying its own stock since 2018, splurged $90 billion on buybacks in its last financial year, and repurchased $56 billion worth of its shares in the nine months to July 1. Apple's striking buyback habit was flagged in a tweet this week by Charlie Bilello, Creative Planning's chief market strategist. Bilello also noted the iPhone maker's repurchases have slashed its number of outstanding shares by more than a third, from roughly 25 billion to fewer than 16 billion. Notably, Warren Buffett, a longtime champion of prudent buybacks, has been a cheerleader for Apple's repurchases. His Berkshire Hathaway empire owns nearly 6% of Apple, and the position accounts for almost half of its roughly $350 billion stock portfolio. When Apple buys back shares, it boosts Berkshire's ownership at no cost to the conglomerate. Source Business insider

Bank Repossessions Rise, But Fewer Homeowners Receiving Foreclosure Notices: Just over 3,300 properties were repossessed by lenders in July, according to a recent report from ATTOM, a real estate data company. That was a +4% increase from June and a +9% jump from a year earlier. However, the number of completed foreclosures might not rise too high as the number of property owners receiving a foreclosure notice has fallen. In July, there were nearly 32,000 properties across the country with a foreclosure filing, roughly 1 in every 4,380 housing units. That was down -12% from June and -2% from a year earlier. Homeowners who aren’t able to make their mortgage payments may still decide to sell their properties and avoid going through a foreclosure. Since home prices are so high, many are likely pocketing a profit from the sale. That’s the opposite of what happened during the Great Recession when home prices crashed, foreclosures surged, and many homeowners learned they owed more than what their homes were worth. Before anyone panics, it’s worth noting that the uptick is partly due to the federal moratorium suspending foreclosures during the COVID-19 pandemic. Now that these moratoriums have been lifted, lenders can proceed with foreclosures that have been pending for years. Source

America Keeps Buying Less From China: A deepening confrontation between the U.S. and China is eroding trade ties between the world’s two largest economies, with goods from China accounting for 13.3% of U.S. goods imports during the first six months of this year. The current level is the lowest since 12.1% for the year in 2003 and below a peak of 21.6% for all of 2017. The shift started in 2018 as the Trump administration imposed tariffs on a range of Chinese products. During the pandemic, shortages of products prompted companies to rethink their supply chains. This year, some companies cut their reliance on China amid an intensifying bilateral fight over advanced technology. President Biden dialed up the heat last week with an executive order banning U.S. investments in certain Chinese advanced semiconductors and quantum computing. China’s loss of share in U.S. imports isn’t the result of a dramatic change in imports from any one product or country. Instead, slow-moving supply chain shifts across dozens of industries and nations are driving the trend. One factor has been a shift of production to other Asian nations, namely in Southeast Asia and India. Starting in early 2019, China’s share of U.S. imports fell below the total share from a basket of 25 other Asian nations including India, Thailand, and Vietnam. That group of nations accounted for 24.6% of U.S. imports in the 12 months ending in June, compared with 14.9% for China, according to census data. Meanwhile, Mexico’s share of U.S. imports matched China’s in June. Source WSJ

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Texas Sues Shell Over Massive Fire at Houston Chemical Plant: The state of Texas sued British oil giant Shell and the other owner of a petrochemical and refinery complex near Houston that caught fire in May over alleged environmental damage. The Texas attorney general alleged in court documents that the massive fire caused “mass quantities” of airborne contaminants and illegal flows of wastewater into nearby waterways. The civil lawsuit, filed Aug. 7 in state district court in Travis County, Texas, on behalf of the Texas Commission on Environmental Quality, seeks unspecified monetary damages of more than $1 million and other relief tied to alleged environmental violations at the Deer Park site. According to the state, days of firefighting using “vast quantities of water” to cool parts of Shell’s sprawling chemical facility resulted in at least 68.7 million gallons of wastewater being unlawfully discharged into a storm-water pond and into the nearby Houston Ship Channel. Source WSJ

Alphabet’s $118 Billion Cash Pile Poses a New Problem: Alphabet Inc. is facing a new and, by most accounts, welcome problem — how to spend its rapidly expanding pile of cash. The Google owner generated nearly $29 billion in cash in the second quarter after cutting thousands of jobs and efforts to stanch losses in its various moonshot projects. That left Alphabet with cash and short-term marketable securities of about $118 billion, more than any other company in the Nasdaq 100 Stock Index aside from Apple Inc.’s total of about $167 billion. However, unlike Apple, which aims to give back most of its cash to shareholders via stock buybacks and dividends, Alphabet has a less clearly-defined capital return strategy, leaving investors seeking more detail on its plans. Generally, investors aren’t fond of companies sitting on large amounts of cash and expect the money to be invested for better returns or given back to shareholders. The top three cash generators in the Nasdaq 100 — Alphabet, Apple and Microsoft Corp. — brought in a combined $84 billion in the last quarter, the biggest haul for any such non-holiday period in history, according to data compiled by Bloomberg. Source Bloomberg

DraftKings and Other Sports Gambling Apps Are Hitting the Jackpot With ‘Parlay’ Bets: Americans have found a creative new way of losing money at sports betting. They’re losing with such regularity that they’re catapulting gambling apps to profitability well ahead of schedule. Parlay bets, which allow people to wager on several things happening together, have taken off in popularity this year. Instead of simply gambling on the winner of a game, bettors can wrap predictions for every game on the schedule into one bet, or create custom wagers. In Illinois, which releases the most specific data about betting activity, parlays now account for more than 60% of the total number of online sports bets that people make each month and more than 27% of the money wagered, up from 20% two years ago. That shift is no small matter to the two biggest sports gambling companies, DraftKings and Flutter Entertainment (PDYPY), the owner of FanDuel. Parlays have allowed them to make much more on each wager. The companies don’t regularly release details on just how profitable parlays can be, but a Barron’s analysis of data released by state gambling regulators shows that the companies’ average “win margin”—the amount they keep from bets—is about 20% on those bets, versus 5% for a standard bet on a single outcome in baseball or football. Source Barrons

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