Stock bulls once again push the S&P 500 and Nasdaq to fresh record closing highs. The S&P 500 closed higher for a sixth straight session, its longest daily winning streak since January. Bulls are feeling more optimistic about Federal Reserve interest rate cuts in 2024 following Fed Chair Jerome Powell’s first day of Congressional testimony.
The Fed Chair noted, “Elevated inflation is not the only risk we face,” and explained that officials are sensitive to the risks that lowering rates “too late or too little” poses to the economy and job market. Many bulls see Powell’s increased focus on the negatives of keeping interest rates higher for longer as an indication that Fed officials are increasingly ready to start lowering rates.
Most on Wall Street think that will happen at the September meeting. Some also think there’s a case building for the first cut to be a larger -50 or even -75 basis points versus -25 basis points if the job market keeps cooling at the same pace.
Powell pointed out that the “labor market has cooled really significantly across so many measures,” which includes the unemployment rate climbing to 4.1% in June versus 3.7% at the end of last year. While that’s still low by historical standards, if it continues to climb in the months ahead, some bulls believe the Fed will feel pressured to make a “jumbo” rate cut in order to stave off a bigger downturn in the labor market.
Wall Street economists warn that when the job market does backslide, it has a tendency to go from strong to weak very quickly. Despite Powell’s more dovish tone yesterday, the Fed Chief declined to say when he thought the central bank would make its move.
Bears believe that concerns about the labor market are warranted but note that Powell also reminded that cutting rates too soon or too much risks reigniting inflation. Bears point out that the Fed has two mandates - to achieve maximum employment and to keep prices stable. Bears also point out that there are many outside influences working to keep inflation elevated, including instability in the Middle East and Europe, increasing tensions with China, and a slew of weather headwinds that are damaging global crops. Meaning the Fed could be in a position where it has to choose one over the other - tackle high inflation by keeping rates high and letting unemployment climb; or tackle unemployment by cutting rates and letting inflation run.
That’s the “stagflation” dilemma and why many view it as one of the worst possible economic outcomes.
Powell will be in front of the House Financial Services Committee today, which is expected to mostly be a repeat of yesterday’s Senate testimony. Several other Fed officials are scheduled to speak at a separate events today as well, including Federal Reserve Board Governors Michelle Bowman and Lisa Cook. The only economic data today is the preliminary read on Wholesale Inventories. There are no US earnings of note.
Everyone Needs to Read, But You Are Not Going to Like! America’s most unaddressed problem is the increasing national debt of $35 trillion. It’s rapidly growing to unsustainable levels, and Americans will eventually face some unhappy choices. Virtually no politicians want to talk about how to fix or eliminate the debt because the real answers are things people aren't wanting to hear. Tax hikes, spending cuts, and benefit reductions are all inevitable, and those messages upset so many voters that telling the truth and getting elected mutually exclude each other. Yet there are solutions. In a new analysis for the Manhattan Institute, budget expert Brian Riedl outlines a range of actions Congress can take to stabilize federal borrowing and forestall a debt crisis that would cause soaring interest rates, runaway inflation, or both. The United States doesn’t need to pay off its entire national debt. It just needs to peg it at around 100% of GDP and keep it there. And the actions Riedl outlines are not the draconian ones that will be necessary if Washington dawdles, as usual, and waits until the last moment to address the problem. There are a few truisms of debt math. One that we all can see coming is that taxes on the wealthy are going to end up going higher because that’s where the money is. The share of national wealth controlled by the top 1% of earners has risen from 14% in 1990 to 16.8% at the beginning of 2024, while the share for the bottom 50% has dropped by a bit. Another inevitability is that the better-off seniors are eventually going to have to pay a little bit more and take a little bit less, , because they get a disproportionate share of federal benefits. Current Medicare and Social Security enrollees shouldn’t complain because most are getting more than they put in. The average retiree today will have paid around $176,000 in Social Security taxes and will get about $238,000 worth of benefits, adjusted for inflation. For Medicare, lifetime taxes are about $48,000, while benefits will total $298,000, also adjusted for inflation. Source Yahoo finance
Office Vacancy Rate Hits Record High: If you are looking to lease office space, now might be a good time to negotiate. Office vacancy rates reached a record 20.1% in the second quarter, the highest since at least 1979, when Moody's began tracking. Typically vacancy rates rise in economic downturns, meaning it's outside the normal pattern that they've been going up for the past few years as the economy has remained on solid ground. Of course, offices are sitting empty because the pandemic seems to have permanently changed the way many Americans work, and companies don't need as much space as they once did. Long-term leases are taking a long time to unwind, says Moody's associate economist Nick Luettke. And these vacancy rates are likely to continue to climb for the next few years, peaking at the end of 2026, per Moody's projections. If the economy moves into a downturn, things could get even worse. There's just going to be pain over the next coming years, he says Source Axios
Crazy Money Chasing Carbon Credits: Microsoft and Occidental Petroleum have signed a record carbon credit deal worth hundreds of millions of dollars, as the technology industry struggles to keep its climate promises amid a surge in power needs driven by artificial intelligence. Occidental, one of the biggest US oil producers, will sell 500,000 carbon credits for an undisclosed amount to Microsoft over six years, under an agreement announced on Tuesday. The companies said it was the largest deal of its kind, and would allow Microsoft to offset its emissions by paying Occidental to have the carbon removed from the atmosphere and stored underground. Occidental is America’s fourth-largest producer by volume of oil and gas. But it has rapidly expanded its carbon dioxide management business in recent years in a bet that trapping and storing the greenhouse gas will become increasingly necessary in the race to keep global temperatures in check. That growing business allows Occidental to sell credits linked to the captured carbon. It signed a similar deal with Amazon in September for 250,000 credits over 10 years. Source Financial Times
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Why Solar is the Fastest Source of US Electricity: Solar power is the fastest-growing source of power in the United States with the use of natural gas for electricity generation poised for a year-over-year decline in the second half of 2024, the Energy Information Administration said Tuesday. In a monthly report, the EIA said electricity demand will be about +2% higher in the second half of 2024, compared with the same period in 2023. “The increase in electricity demand paired with a decrease in natural gas generation creates a gap between the power we need and the power being produced,” EIA Administrator Joe DeCarolis said in a press release. Solar power is the “fastest growing source of electricity in the United States,” the EIA said in its report. The EIA said it expects 42% more electricity generation from solar in the second half of the year compared with a year earlier. It also forecasts 6% more generation from wind, 3% more from hydropower, and 3% more from coal over the same time period. Meanwhile, the use of natural gas for power generation, which is still the largest source of domestic electricity generation, is forecast to fall by 2% in the second half of this year from the same period a year ago, the EIA said. The government agency cited higher generation from renewable sources and its own expectation of a 7% rise in U.S. natural-gas prices in the second half of this year versus a year earlier. Source MarketWatch
Texans Use Whataburger App To Track Power Outages: Texans affected by Hurricane Beryl and its remnants are using the Whataburger app to track power outages in their area after the outage map for CenterPoint Energy—one of the state’s largest electric companies—went down this week. The app provides real-time updates on location closures, using a gray Whataburger logo to indicate which stores are closed, so customers are watching the app to know which areas of the state have restored power. The Texas-based burger chain has over 900 locations in the U.S., with around 700 locations in Texas alone. Social media users complained about the lack of a power outage map from Houston-based CenterPoint Energy, which caused them to turn to the Whataburger app for power outage updates. Source Forbes
China’s Influence on Economies Around the World: People around the world feel China’s economic influence where they live, according to a new Pew Research Center survey of 35 countries. Large majorities in nearly all the nations polled – spanning six continents and ranging in income level – say China has a great deal or a fair amount of influence on their country’s economic conditions. And China’s economic influence is now felt more widely than it was when Pew last asked this question in 2019. In 10 of the 13 countries where trend data is available, a larger share say China has a great deal of impact on their country’s economy than said so five years ago. But whether people see this influence as positive or negative varies widely. In most of the middle-income countries included in the survey, people tend to view China’s economic influence as a good thing. But in the high-income countries, people tend to see it as a bad thing. Americans are the most likely to have negative views of China’s economic impact. About three-quarters say China’s influence on the U.S. economy is negative. Where views on China’s economic influence have changed, they have generally become more negative. In Argentina, Brazil, Israel, Japan, South Korea, and Tunisia, more say China has a negative economic influence on their country than said so in 2019. Source Pew
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