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Bulls believe the slowdown in the labor market is just a return to pre-pandemic norms that is keeping pace with other areas of the economy that also continue to normalize, ie. consumers spending patterns, commodity prices, supply chains.
Bulls also point out that even though unemployment has steadily increased the last few months, it still remains low by historical standards.
Other data this week also showed that job openings are holding steady and corporate lay-offs have been trending down. Bulls also remind that the Fed has a lot of room to step in and boost the job market via interest rate cuts if needed. Bears are pointing to historical data that shows labor market pullbacks usually happen when the economy is in or near recession and tend to start slowly then rapidly accelerate. They also argue that the job market is primarily being propped up by just two industries - health care and government - which is masking weakness elsewhere, including the manufacturing sector that has been shedding jobs most of the year.
Earnings this week have put a spotlight on big tech, which has delivered mixed results. Investors were disappointed by Amazon’s earnings, released after the market close yesterday. The company missed Wall Street expectations on Q2 2024 revenue and, more importantly, Q3 2024 guidance. Amazon’s Web Services cloud unit, which includes its AI offerings, topped expectations but it still marked a slowdown in growth. At the same time, capital expenditures soared nearly +60% amid heavy spending on AI services.
Also reporting yesterday was Apple, which modestly topped expectations but as with many other tech companies’ results, Wall Street does not seem impressed. The problem is not that big tech is doing poorly but rather profits are not growing as fast as many investors had hoped.
Mostly there seems to be a lot of impatience for companies’ massive AI investments to start showing signs of paying off. Overall, it makes it tough to justify pushing these companies’ stocks any higher on the back of “promising demand” for AI uptake that has been slow to materialize.
Looking to next week, the earnings highlights include Carlyle Group, CSX, Palantir, Siemens, Simon Property Group, and Tyson Foods on Monday; Airbnb, Amgen, Caterpillar, Duke Energy, GlobalFoundries, Marathon Petroleum, Uber, Vulcan Materials, Yum Brands, and Zoetis on Tuesday; CVS, Disney, Hilton Worldwide, Monster Beverage, Novo Nordisk, Occidental Petroleum, Shopify, and Warner Bros. Discovery on Wednesday; and Eli Lilly, Gilead Sciences, an Restaurant Brands International on Thursday.
Things will be pretty slow on the economic data front next week with ISM Non-Manufacturing on Monday and Consumer Credit on Thursday the only major releases.
It feels to me like the market is starting to sniff out a more worrisome economy as Treasury yields get hit and the trade is given much higher odds on a -50 basis point rate cut happening at some point this year.
Keep in mind, in the past several decades, the only time the Fed has cut rates by -50 basis points or more is when it believes we are in or headed for a recession, and some on Wall Street are arguing that might be the case. Remember, however, August is typically the most volatile month for the stock market and this years upcoming presidential election looks as if it's only going to add to that volatility.
East-West Prisoner Swap: It’s the largest international prisoner exchange since the Cold War. Through this complicated deal, journalists, a former U.S. Marine and political activists were freed by Russia in exchange for the release of a convicted Russian assassin imprisoned in Germany and several Russian intelligence operatives and hackers held in the United States and Europe. Keep in mind that there are still some Americans being held in Russia. Below are a few prisoners who were involved in the East-West swap. Source: The Wall Street Journal, The Washington Post
American's Released Evan Gershkovich, 32, a Wall Street Journal reporter, was working as a correspondent in Moscow in March 2023 when Russian security forces detained him on charges of espionage. Russian prosecutors said he “collected secret information” about the Uralvagonzavod military factory in Russia’s Yekaterinburg region while “on assignment from the CIA.” The White House says the charges were wholly fabricated and declared him wrongfully detained — a designation that commits the U.S. government to work for his release. The case made him the first American journalist formally accused of being a spy in the country since the Cold War. His closed-door trial with secret evidence began in June, and by mid-July he was sentenced to 16 years in prison.
Paul Whelan, 54, a Marine who became a corporate security executive, Paul Whelan, 54, had been detained in Russia since 2018 — among the longest-held and most high-profile of the Americans detained in Russia. He has citizenship in four countries: the United States, Canada, Britain and Ireland. While he was visiting Russia to attend a wedding in late 2018, the Russian Federal Security Service arrested him on accusations of espionage. In 2020, Whelan was sentenced to 16 years of hard labor in a prison colony.
Russians Released Vadim Krasikov, 58, is a convicted Russian assassin who had been serving a life sentence in Germany for the 2019 murder of a former Chechen fighter in a Berlin park. Krasikov was convicted of murder and sentenced to life in prison in a Berlin court in 2021. The killing, German prosecutors said, was a political murder ordered by the Kremlin. The “state-sponsored murder,” Germany said, was a “serious violation of German law and Germany’s sovereignty.”
Vladislav Klyushin, 42, is a Russian businessman with ties to the Kremlin. In September 2023, he was sentenced to nine years in a U.S. prison after being convicted of participating in a $93 million insider trading scheme that involved hacking corporate computer networks. In Russia, Klyushin opened an information technology company called M-13 that did work for the Russian government.
Roman Seleznev, the son of a Russian legislator, Roman Seleznev was convicted in 2016 by a U.S. federal court in Washington State for orchestrating a cyberattack on thousands of American businesses. He infiltrated point-of-sale systems to steal and sell credit card information, leading to a loss of $169 million for financial institutions. In 2017, he received a 27-year prison sentence, the longest ever imposed for hacking in the United States. That same year, Seleznev also admitted to involvement in a racketeering operation in Nevada and a conspiracy to commit bank fraud in Georgia, for which he was given two 14-year sentences, to be served concurrently with his Washington sentence.
Vadim Konoshchenok, a Russian citizen with alleged connections to Russia’s Federal Security Service, was arrested in Estonia and extradited to the United States on July 13, 2023. U.S. officials stated that Konoshchenok smuggled American-made electronics and ammunition to support Moscow’s war efforts in Ukraine, using front companies to hide his operations and violating U.S. sanctions.
Sturgis 84th Motorcycle Rally! Sturgis kicks off its 10-day motorcycle rally today in the Black Hills of South Dakota. Last year the 2023 rally drew an estimated +450,000 people throughout the 10 days. The biggest attendance was in 2015 with 755,000 people passing through over the week's time. Remember, the first rally was held by Indian Motorcycle riders on August 14, 1938. The event was organized by the town’s motorcycle club called the Jackpine Gypsies who bought and developed large tracks, hill climbs and field areas where the rally would be held. The first event was called the "Black Hills Motor Classic." The founder was Clarence "Pappy" Hoel, who purchased the Indian motorcycle franchise in Sturgis in 1936 and formed the Jackpine Gypsies in 1938. During the first few years, the Sturgis motorcycle rally focused on racing and stunts, testing the participant’s various riding skills, courage and stunt creativity. By the 1960s, the rally action expanded with hill climbs and motocross. Now the event has blown up to a nationwide tourist event. For example, this year the rally will feature performances from Corey Kent, Saliva, Travis Tritt, Elle King, Asia, Quiet Riot, Aaron Lewis, Parmalee, Jelly Roll, Buckcherry, Kid Rock, Easton Corbin, and Bret Michaels. For everyone heading up to Sturgis the next several days, I hope you all have a fun and safe trip
Pandemic Boomtowns in the Sunbelt Are Still Hot Housing Markets: Falling or flatlining home values can mean different things, good or bad, depending who you are. Either way, it’s happening in the Sunbelt, the Southwestern region known for its warm climate and prosperous economic growth. But the area everyone loves to talk about could return to its former glory. Numerous housing analysts have highlighted falling home prices in formerly booming areas of Florida and Texas. But it isn’t that these metros are losing steam following their hot pandemic days; it’s supply. Developers have been feverishly building homes to meet wildly hot demand. In the South, according to Capital Economics, four times as many houses have been built in the last three or so years than in the Northeast. And the wave of new supply in the Sunbelt has tipped the scale to favor buyers. “Significant homebuilding in the Sunbelt region over the past three years has restored housing inventory to pre-pandemic levels, which is why house prices there have stalled,” Capital Economics economist Thomas Ryan wrote. “In contrast, markets in the Northeast and California, which haven’t seen the same level of new construction and where inventory remains historically low, are experiencing double-digit house price inflation.” Source Fortune
AI Startup Claims Copyrighted Music is “Fair Use”: Following the recent lawsuit filed by the Recording Industry Association of America (RIAA) against music generation startups Udio and Suno, Suno admitted in a court filing on Thursday that it did, in fact, train its AI model using copyrighted songs. But it claimed that doing so was legal under the fair-use doctrine. “We train our models on medium- and high-quality music we can find on the open internet… Much of the open internet indeed contains copyrighted materials, and some of it is owned by major record labels,” Suno CEO and co-founder Mikey Shulman wrote. Shulman also argued that training its AI model from data on the “open internet” is no different than a “kid writing their own rock songs after listening to the genre.” Source Techcrunch
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