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Stocks are getting hammered again this morning as bulls become more concerned about being on shaky ground after the July employment report indicates a rapidly deteriorating job market. The Labor Department on Friday reported job gains in July of just +114,000 versus Wall Street’s expectations for a gain of +180,000. Job gains for the previous month were also revised down to +179,000 from +206,000 initially. Wall Street was also surprised by a notable jump in the unemployment rate to 4.3% from +4.1% previously. Bulls argue that 4.3% unemployment is still low by historical standards. Bulls also believe the jump can ultimately be viewed as a positive because it’s the result of an increase in the “participation rate.” That means that more people re-entered the job market. An uptick in the participation rate is generally viewed as good for the job market, particularly the current one that has suffered more from too few workers than too many. Bulls point out that having more available workers is key to keeping wages under control, and that was on display in the July report. Hourly wage gains slowed to an annual rate of +3.6% from +3.9% previously. Bears are much less optimistic, believing that the July job market slowdown is proof that the Federal Reserve has waited too long to cut its benchmark interest rate and is now behind the curve. Many bears also warn that outright job losses and possible recession likely lie ahead as more unemployed and cash-strapped consumers are forced to rein in spending even further, in turn sapping both economic and earnings growth. Bears also argue that even if the Fed were to cut interest rates tomorrow, the impacts would not be felt in time to head off a more serious economic downturn. Most Wall Street economists think another month of jobs data is going to be needed to really determine how bad - or not - the slowdown might be. Wall Street is also confronting more serious concerns about the profit potential of AI after the world’s biggest tech companies mostly failed to deliver any real “blowout earnings.” The only so-called “Magnificent Seven” company (Google-parent Alphabet, Amazon, Apple, Facebook-parent Meta Platforms, Microsoft, Nvidia, and Tesla) left to report is Nvidia, which isn't scheduled for release until August 28. Nvidia did however announce that there were some design flaws with its upcoming newest chips and that they will be delayed by three months or more. Keep in mind, Meta (Facebook), Google and Microsoft had collectively ordered billions of dollars worth of these chips, so it will be interesting to see how they respond and react. Stock bulls argue that Q2 earnings have been better than the bad headlines let on. Amazon’s earnings nearly doubled (+99.8%), Alphabet’s were up almost +29%, and Microsoft’s grew almost +10%. Overall, S&P 500 companies are on track to report earnings growth of around +10.5%, which would make it the highest growth rate since Q4 2021. Today, investors will be digesting earnings from Carlyle Group, CSX, Palantir, Siemens, Simon Property Group, and Tyson Foods. The only economic data is the ISM Non-Manufacturing Index. The bulls are backpedaling as geopolitical risks appear to be escalating (Iran and Israel), the US election appears to have become a much tighter race, and US employment seems to be weakening at a much quicker pace than previously thought.
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Here’s Where the Jobs Are: Hiring in the U.S. slowed significantly last month, with information and financial sectors registering job losses. These sectors are known for creating higher-wage, higher-quality jobs, said Julia Pollak, chief economist at ZipRecruiter. The labor market is clearly no longer normalizing. Further deterioration could set off a negative cycle of job losses, consumer spending declines, business revenue declines and more job cuts, she added. Health care again led in job creation, adding 55,000 to payrolls. Other notable gainers included construction 25,000, government 17,000, and transportation and warehousing 14,000. Leisure and hospitality, another leading gainer over the past few years, added 23,000. Source CNBC
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Is the Middle East Headed for a Wider War? Iran rejected U.S. and Arab efforts to temper its response to the killing in Tehran of Hamas’s top political leader, as authorities were investigating the security breaches that led to the attack. Iranian prosecutors said Saturday that they had opened a formal investigation into the killing of Ismail Haniyeh, which came hours after an Israeli strike killed a senior Hezbollah commander in Beirut. The two attacks, following a rocket strike on a soccer field in the Israeli-controlled Golan Heights, escalated a recent cycle of violence and threatened to push the region to the brink of war. Iranian leaders have vowed to retaliate. On Saturday, Iran told Arab diplomats that it didn’t care if the response triggered a war, according to people familiar with the conversations. The U.S. asked European and other partner governments to convey a message to Iran not to escalate, warning that any significant strike would draw a response. Israel has put its military on high alert, while U.S. officials have worked to get military assets and regional partners ready to stop an attack that some fear could be broader and more complex than an Iranian assault in April. In that attack, Iran fired more than 300 drones and missiles at Israel, but only after telegraphing its response to diplomats ahead of time and giving Israel and the U.S. a chance to prepare. Source WSJ EV Costs on Track to Meet Gas-Powered Engines: The higher cost of owning an electric versus a gas-powered vehicle is a sticking point for many would-be buyers of EVs. Now, the price of a key EV component is falling, raising hopes that automakers could close the gap as they grapple with waning demand. Batteries make up about one-third to one-fourth of the cost of producing an electric vehicle, according to Goldman Sachs analysts. The firm predicts the global average cost to automakers for batteries in 2024 will average about $115 per kilowatt hours, about -23% lower than last year. Prices are expected fall another -20% in 2025. Tesla CEO Elon Musk recently noted that "battery cell suppliers have increased their supply, and the orders from other car manufacturers have declined." The drop in demand has impacted the price of lithium. The essential mineral used to make current EV batteries has plunged more than 70% over the past year. Source Yahoofinance
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HVAC Companies Can’t Keep Up With Heat: There’s one thing hotter than the record-breaking temperatures blanketing the country this summer: business for air-conditioning contractors. Demand for air-conditioner replacements in the United States has spiked this summer as triple-digit temperatures have settled in across the country, said Gary Bedard, the home comfort solutions president for Lennox International, one of the HVAC industry’s biggest manufacturers. That spike can be even bigger for regions at the center of the heat wave such as D.C., he said. The global market for air conditioning has seen an average annual growth rate of 7 percent over the past decade, according to a 2024 report from the Building Services Research and Information Association. In 2018, the International Energy Agency forecast that the global stock of air conditioners in buildings would grow to 5.6 billion by 2050, up from 1.6 billion. Although much of that demand will come from outside the United States, domestic demand for new and repaired units is far from peaking, Bedard said. Most new air-conditioning units last between 15 and 20 years, so those installed as the U.S. housing market rebounded from the 2008 financial crisis are starting to fail, he said. Source Washington Post Why Pharmacy Chains are Shuttering Locations: In its fiscal third-quarter earnings report to investors in late June, pharmacy chain Walgreens announced plans to close a “significant” number of its 8,600 U.S. stores. CEO Tim Wentworth said only 75% of the chain’s locations were making a profit, and that the other one-quarter of them faced the chopping block by 2027. This was just the latest sign of weakness out of the retail pharmacy space following a slew of CVS closures through the end of this year and Rite Aid filing for bankruptcy in October. While citing macro issues, like a worsening consumer environment and pressure on pharmacy margins, as cause for the closures, Walgreens is also grappling with its own set of issues. The retail side of the business — or front of store — continues to see declines quarter after quarter, with the most recent year-over-year decline of -4% in the fiscal third quarter. Walgreens leans heavily on its back-of-store pharmacy revenue to make up for weakness in retail, an arena which itself has struggled with shrinking margins. Source CNBC
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