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Stock market volatility remains the theme as worries about possible recession and unimpressive Q2 earnings hang over investors. The rush to buy the dip that helped indexes recover some losses on Tuesday has faded as more investors seem content to stay on the sidelines. Wall Street insiders have been warning that stock markets between now and the November election could be susceptible to bouts of extreme volatility due to a combination of seasonal influences (historically low trading volume and poor performance in August and September), upcoming Federal Reserve policy moves, and the of course the chaos of the Presidential campaign.
This recent roller coaster ride likely benefited markets by shaking out some of the froth but many on Wall Street are still feeling highly uncertain about the outlook for big tech giants as sentiment surrounding AI grows more pessimistic. On top of what many see as a failure of tech companies to successfully monetize their AI technologies, more companies are struggling with shrinking margins as costs remain high and consumers pull back.
Company executives on earnings calls been very cautious about the outlook for the quarters ahead amid weakening consumer demand as well as what could be a more burdensome regulatory and tax landscape, depending on who wins the White House.
Today, the earnings highlights are Eli Lilly, Gilead Sciences, and Restaurant Brands International. As for the economy, bulls don’t believe weak recent weak data that has rekindled recession fears is as bad as headlines have made out and that any slowdown currently underway will be interrupted by the Fed’s rate cuts that are expected to begin later this year. Most expect that will be September. Along with other global central banks that have already started trimming rates, bulls actually think that the less restrictive economic landscape will boost growth in the last part of the year and into 2025. Still, more cautious investors may see no reason to rush back in right now with many believing that the near-term risks to the downside still outweigh the upside.
Keep in mind that oil prices have been pressing higher as the conflict in Gaza continues to ratchet up tensions in the Middle East. Israel right now is preparing to defend against retaliation attacks by Iran after killing senior members of the Hamas and Hezbollah terrorist groups on Iranian soil last week. There also are reports that Hezbollah forces in Lebanon are planning their own strikes against Israel, independent of Iran. Additionally, the Houthi rebels in Yemen have been ramping up attacks against ships in crucial Red Sea shipping channels, including attacks against two US destroyers in the Gulf of Aden.
It all risks sparking a wider war in the region that could put oil supply chains at risk, as well as other goods if the Red Sea gets more treacherous.
Investors have not been very inspired by Q2 2024 earnings, either. Investors also will be paying close attention to Weekly Jobless Claims as they try to suss out clues about the current state of the labor market.
Shipping Giant Maersk Sees No Sign of US Recession in Freight Demand: Shipping giant Maersk, considered a barometer for global trade, is not seeing signs of a U.S. recession as freight demand remains robust, the company’s chief executive said Wednesday. “We’ve seen in the last couple of years, actually, [the shipping container] market remaining surprisingly resilient to all the fear of recessions that there has been,” Vincent Clerc told CNBC’s “Squawk Box Europe” Wednesday, adding that container demand was generally a good indicator of underlying macroeconomic strength. U.S. inventories — goods being stored before delivery or processing — “are higher than they were at the beginning of the year, but they are not at a level that is worrisome or that seems to indicate a significant slowdown right in the offing,” Clerc said, despite noting some unpredictability in numbers for companies replenishing stocks. Source CNBC
Chinese Companies Are Everywhere Now—and Setting Off Alarms: Chinese companies have quietly gone global, popping up in the lives of Americans everywhere. Teens play Honor of Kings on phones powered by Anker chargers. Homeowners cool off with Haier air conditioners and peer into Midea or GE refrigerators for a snack. Car owners grab their Dirt Devil vacuum to clean up a mess in their Volvo. Americans are long used to buying products made in China for U.S. companies. The difference now is that Chinese companies are the owners and innovators. Honor of Kings is among Tencent Holdings stable of games. Anker Innovations is a Chinese consumer electronics company founded by a former Google software engineer. Haier Group and Midea Group are appliance giants. Dirt Devil is among the brands owned by Hong Kong–based Techtronic Industries, and Volvo is owned by Chinese automaker Geely. Early in the last decade, a wave of Chinese companies went on buying sprees. China’s foreign direct investment peaked in 2016 at about $200 billion. The acquisitions that year included Tencent’s purchase of a majority stake in Clash of Clans developer Supercell and Haier’s purchase of GE’s appliance business. The overseas push by a broad range of Chinese companies helps ensure that China remains a factory for the world—increasingly for higher-value-added products like semiconductors, electric vehicles, and commercial aircraft. Behind the effort is increased competition and slowing growth at home, and a push by Chinese leaders to use exports to boost the nation’s overall growth. One result is overproduction, threatening to flood the world with cheap electric vehicles, batteries, and industrial parts. Many of these lesser-known companies have escaped controversy even as fast-retail giant Shein, TikTok owner ByteDance, and telecom giant Huawei Technologies face congressional probes, trade restrictions, and tariffs. Interesting...Source Barrons
Where Inflation Has Hit Americans the Hardest: Since the June 2022 peak of 9.1%, inflation (as measured by the Consumer Price Index for All Urban Consumers (CPI-U) has abated considerably. The CPI-U in June 2024 was just 3.0%. But that doesn’t necessarily mean prices are going back down – just that they’re rising more slowly than they had been. Most things cost considerably more than they did before the COVID-19 pandemic. Overall, the June 2024 CPI-U was 21.8% above its level in Jan 2020, before the pandemic really began to hit the United States. But the costs of many products and services have risen much more than that. Topping the list: margarine, which as of June is 56.8% pricier than in January 2020. Other notable increases include motor vehicle repair services (up 47.5%), motor vehicle insurance (47.3%) and veterinarian services (35.6%). On the other hand, some goods and services cost less now than before the pandemic. For example, men’s suits, sport coats and outerwear are 6.3% cheaper than in January 2020. And dishes and flatware are down 9.9%. The biggest item in the CPI-U, accounting for about a quarter of the entire index as of May 2024, is “owner’s equivalent rent of a primary residence” (OER), which basically estimates how much it would cost to rent out an owned home. OER inflation peaked at +8.1% in spring 2023 and came in at +5.4% in June 2024. Overall, OER prices are +23.8% above their January 2020 level – just a hair below rental inflation, which is up +24.0%. Source Pew Research
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Tropical Storm Debby Stalls Off Carolinas: Tropical Storm Debby brought unrelenting rain to the U.S. Southeast as it drifted off the Carolinas on Wednesday, threatening the region with dangerous flooding before picking up speed in the coming days and moving north. At least six people have died in Florida and Georgia in the wake of the storm, which made landfall on Florida's Gulf Coast on Monday as a Category 1 hurricane and headed northeast. It is expected to next menace the Southeastern and mid-Atlantic coasts for days. Governors in the Carolinas, Florida and Georgia have declared states of emergency. The storm has already left neighborhoods and communities underwater with widespread flooding washing out streets and inundating homes across the region. The storm could still deliver another 3 to 9 inches of rainfall to the Carolina coast, the National Weather Service said. That would bring rain totals to 25 inches in South Carolina and 15 inches in southeastern North Carolina near Wilmington and coastal Georgia. Debby was forecast to make landfall again further north in South Carolina on Thursday morning, the National Hurricane Center said. Debby's greatest threat remains the sheer volume of rain it is dumping on the Eastern Seaboard and the potential for flooding that could continue into next week. Source Reuters
How Going to the Movies Is Changing: Young audiences haven’t returned to the movies in earnest since Covid, the number of screens in the U.S. is waning and it takes smash hits on IMAX-scale screens to sell tickets. Plus, Americans are evermore comfortable watching movies at home. Ticket sales looked dire heading Memorial Day, but a summer jam-packed with sequels has delivered several bright spots. For the year overall, however, ticket sales are still lagging behind last year’s haul. The 2024 box office was at roughly $4.8 billion as of Aug. 1, according to box-office tracker Comscore, lower than the year-to-date totals of recent years…meaning 2024 is on pace to be another year of ticket sales falling short of prepandemic levels. To attract customers, theaters have begun offering novelty perks such as special popcorn buckets, in-theater playgrounds and cocktail bars. Others are trying to make moviegoing logistics as easy as possible with order-ahead concessions. When customers do go to movies, they increasingly prefer “premium large format” and IMAX screens, both of which now account for a larger share of box-office sales than they did before the pandemic. As more consumers opt to watch movies from home, some studios have shortened the time between theatrical releases and when movies are available for at-home rental. For many families, spending $20 to rent a new movie at home is cheaper than a theater outing. More films are being made available to consumers at home for the first time via so-called premium rentals, rather than via streaming services. Source WSJ
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