Stock indexes are mostly flat to start the week with investors bracing for a slew of new data, as well as numerous Federal Reserve speakers in the days ahead.

Investors today will be digesting the latest Case-Shiller Home Price Index and FHFA House Price Index, both of which are expected to edge even higher. It’s worth noting that the New Home Sales report yesterday showed a -2.6% decrease in the median new house sale price. However, the NAHB believes that decline has likely slowed as builders have more recently begun to pull back on incentives.

Housing costs, aka “shelter,” accounts for a large share of the major inflation gauges (CPI and PCE Prices) and it’s been stuck at around +5.75% for at least the last six months, despite economists predicting for over a year now that shelter costs were going to start coming down. While the increases have slowed, they have nonetheless remained persistent.

Other data today includes the Richmond Fed Manufacturing Index, Consumer Confidence, and Durable Goods Orders. Investors over the next several days will also have a lot of “Fed speak” to digest. Federal Reserve Vice Chair Michael Barr is scheduled to speak today at an industry conference regarding credit risk management.

Then from Wednesday through Friday, there are at least eight officials scheduled to deliver remarks - some more than once.

As usual, investors will be listening closely for any clues as to how recent data might be influencing officials’ stance on the timing of Fed rate cuts.

I've heard several Wall street insiders as of late saying that the stock market is able to trade at this elevated level (+20x forward earnings) because it is not fearful of any major rate shock to the upside. In other words, it's the "uncertainty" of extremely higher rates and what those higher rates might do to the economy that shocks and worries the market early on, but once market participants are comfortable knowing rates probably aren't going a whole lot higher the trade takes on a more overall optimistic attitude.

This feels like where we are currently at.... but eventually the bulls are going to need more to chew on to keep the market moving higher.    

Sweden Will Become NATO's 32nd Member: When Sweden joins NATO as soon as this week, the alliance will gain a solidly anti-Russian member with a robust military that provides critical defense of Europe’s northern flank. It also brings a country whose approach to national security, engaging teenagers, retirees, teachers and police officers in the country’s defense, offers a model for other European countries fearing Russian aggression. Everyone between the ages of 16 and 70 living in Sweden is part of Sweden’s total defense, states the government emergency information website. By conveying to ordinary people the need for security, Sweden also wins broad support for its military industry, which ranks among the world’s top in technology and exports. The decision in May 2022 by Sweden and neighbor Finland to abandon decades of nonalignment and join the alliance was prompted by chilling proposals from Russia in December 2021, two months before it attacked Kyiv, that the North Atlantic Treaty Organization roll back its post-Cold War expansion and pledge to accept no more members. Source WSJ

What's Up With the Labor Shortage at Restaurants?  The old paradigm of restaurant economics — 30% labor cost plus 30% food cost plus 30% fixed costs equals 10% profit — doesn’t hold water in an era where restaurant profit margins are shrinking. The business model isn’t working and neither is the labor model of 14-hour workdays and last-minute shift changes. The main problem is that restaurants have been struggling to find enough qualified workers, an issue that predates but was dramatically made worse by, the pandemic. At the start of 2023, the National Restaurant Association found that there were 400,000 fewer people employed in hospitality industries than in 2020, and an estimated 87% of restaurants were operating with insufficient staff. By the end of last year, employment in restaurants finally surpassed pre-pandemic levels, according to the Bureau of Labor Statistics, but there were still nearly 1 million job openings. And, according to the online ordering- and reservation-software company Toast, restaurants have an annual turnover rate of 74% — the highest of any industry in America. Source Business Insider

"Basement Find" Makes Family Millionaires Overnight: A family in Regina, the capital city of the Canadian province of Saskatchewan, recently identified a box that had been in their basement for over +40 years as perhaps something worth some money. They thought they had a case of hockey cards from Wayne Gretzky's second season, but upon further evaluation found out the case of hockey cards was from Gretzky's rookie season which made the 16 unopend boxes inside much more valuable to collectors. For reference, a case of these hockey cards contained 16 boxes of 48 unopened packs of cards. Data from the card-collecting hobby suggest that back in the day you could expect to find about 20 Gretzky rookies in an entire case. This past weekend at Heritage Auctions the case of cards found in the basement sod for a whopping $3.72 Million. What a find!  

Fed Hikes Are Hurting Consumer Mood More Than Economists Think: The gloomy mood of US consumers amid a surprisingly strong economy has befuddled many economists, but a paper by researchers from the IMF and Harvard University, including former Treasury Secretary Lawrence Summers, proposes that elevated borrowing costs may solve the mystery. The paper argues that increases in the cost of living due to higher financing expenditures faced by consumers — which are not factored into inflation — underpin the recent divergence between official inflation data and consumer sentiment. Quite simply, consumers are including the cost of money in their perspective on their economic health, while economists are not, the researchers found.  For example, while the cost of a car is included in the Consumer Price Index, the cost of financing the car is absent. The paper proposed alternative measures of inflation that “explicitly incorporate the cost of money.” The cost of money also shapes consumer sentiment through the use of credit cards and other forms of financing, according to the paper. Consumers have become more reliant on credit cards for purchases since the pandemic. Source Bloomberg

Cigarettes Are Losing Their Hold on the Nicotine Fix: Pretty soon, Americans who crave a nicotine hit will be more likely to reach for a vape or an oral nicotine pouch than a cigarette. Few tobacco companies look ready for this milestone. According to data from Marlboro maker Altria, cigarettes’ share of the U.S. nicotine industry fell to 60% last year, down from 80% in 2018. Smokers are switching to smoke-free products such as vapes in higher numbers than expected. If the trend continues, it will only take another three years for cigarettes’ share to slip below 50%. In 2023, the number of cigarettes sold in the U.S. shrank by around 8%, double the long-term average. There is a debate within the tobacco industry about what is causing volumes to contract so fast and whether the trend is short-term. Tobacco use has been out of kilter for a few years: It was unusually high during the pandemic when people were stuck at home and smoked more, but has been lower than normal recently. Inflation and price increases may have forced some smokers to cut back on cigarettes, or to quit altogether. Both BAT and Altria announced new price increases that took effect in January, after raising them three and four times respectively in 2023. Source WSJ

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Threat of Strike Looms Large Over East, Gulf Coast Ports: There’s an increasing abundance of skittishness surrounding the future of East and Gulf Coast ports. The labor contract between the International Longshoremen’s Association and the United States Maritime Alliance (USMX) is set to expire at the end of September. The ILA represents some 70,000 dockworkers, while the USMX represents employers at 36 coastal ports — including three of the U.S.’s five busiest ports: the Port of New York and New Jersey, the Port of Savannah, Georgia, and the Port of Houston. Contract negotiations between the ILA and the USMX began in February 2023 but quickly foundered on the issue of wage increases. Developments since then have not been promising. In November, ILA leadership warned roughly 45,000 of its members to “prepare for the possibility of a coastwide strike in October 2024,” after the current master contract expires. For their part, retailers are broadly expected to pull forward their peak season freight so as to avoid potential issues come October. Source Fright Waves

FTC Sues to Block Kroger’s Acquisition of Albertsons: The Federal Trade Commission (FTC) today sued to block Kroger’s $24.6 billion acquisition of the Albertsons Companies, alleging that the deal is anticompetitive. The FTC charges that the proposed deal, which is the largest proposed supermarket merger in U.S. history, will eliminate competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for American consumers. The loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries, the agency added. Outside of what the merger would mean for consumers, the FTC said it would negatively affect thousands of grocery store workers as it would immediately erase aggressive competition for workers. Source Feedstuffs

How the Shipping Industry is Adapting to Red Sea Tensions: According to a new report from the World Economic Forum, over 33 vessels have been assaulted by Houthi rebels in the Red Sea, with 16 experiencing direct hits from missiles or drones. The emerging threat landscape has compelled major shipping conglomerates to navigate around the Cape of Good Hope, introducing delays of 1-3 weeks to standard transit times. This recalibration of shipping routes exacerbates the issue of capacity within the ocean freight sector, as vessels now require extended durations to complete round trips and prepare for subsequent cargo loads. There has been a contraction in available market capacity, a phenomenon not isolated to the Red Sea but also influenced by the drought situation in the Panama Canal and the cyclical effect of the Chinese New Year. These dynamics have precipitated noticeable capacity reductions across pivotal trade corridors: Transpacific routes to North America’s East and West Coasts have registered decreases of 7.5% and 6.9%, respectively, while the Asia-North Europe trade lane has encountered a contraction of 4.9%. The emerging threat landscape has compelled major shipping conglomerates to navigate around the Cape of Good Hope, introducing delays of 1-3 weeks to standard transit times. The necessity to divert, coupled with the overarching crisis, has exerted upward pressure on ocean freight rates, primarily due to escalating operational costs. Source World Economic Forum

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