Stock indexes are higher as investors await the June Consumer Price Index (CPI). Wall Street is expecting the headline rate to slow to +3.1% year-over-year from +3.3% in May while the “core” rate (strips out food and energy) is expected to increase to +3.5% from +3.4%.

Keep in mind, the Federal Reserve prefers “core” rates so it’s not good news if that gauge starts climbing, even if headline inflation is still pulling back. If you recall, May CPI came in much cooler than expected, which went a long way in restoring Wall Street’s faith that Federal Reserve rate cuts will happen in 2024. Fed Chair Jerome Powell wrapped up has second day of testimony before Congress yesterday where he mostly repeated his same comments from Tuesday.

Most on Wall Street feel Powell’s overall tone was much more dovish and many have noted his increasing concern about the labor market. Some believe Powell is making an early case for the Fed to make its pivot sooner rather than later. The next inflation update is the June PCE Prices Index on July 26, which is one of the Fed’s favorites. Additionally, there are two more CPI prints and one more PCE Price read due out before the Fed’s September meeting, which is when most anticipate the first rate cut will happen.

On the earnings front, there is nothing of note today but keep in mind that big Wall Street banks Citigroup, JPMorgan, and Wells Fargo “unofficially” kick off Q2 2024 earnings season tomorrow. Tech bulls are hoping to keep the ongoing AI-related rally going, despite growing concerns about too-high valuations. Bulls are pointing to Taiwan Semiconductor Manufacturing Co.’s (TSMC) latests sales results, which jumped +40% in Q2 2024 versus average estimates for a +35.5% rise. For those not familiar, TSMC is the exclusive supplier of both Nvidia’s and Apple’s advanced AI chips. Bulls see TSMC’s sales results as confirmation that the rapid adoption of AI continues and possibly at a faster pace than most have been forecasting.

Bulls also see no reason why this growth can’t continue as chip companies already have even more advanced chips in the pipeline, which are considered a necessity in order for AI companies to further develop their systems.

Bears, however, continue to warn that the nosebleed valuations of some companies like NVIDIA - which has risen around +165% this year and follows a nearly +240% gain in 2023 - have gone too far. Many are pointing to the typical long-term price trends of technology products, which historically have gotten cheaper as adoption grows and it becomes more widely available. To some degree, it’s just a matter of supply and demand. When a product is new, it is also typically short on supply. If everyone wants it, companies obviously have a lot of control over prices. But as the product matures and competition increases, prices tend to decline.

Bottom line, AI chip makers that are basically the only game in town right now can command exorbitant prices that are juicing profits but history shows that this control is almost never permanent. ... 

What Investors Are Watching For When Bank Earnings Season Kicks Off: Wall Street will be interested in seeing the unrealized losses on banks’ balance sheets as bank earnings begin this week. Banks are sitting on around $517 billion in unrealized losses on their balance sheets, according to data from the Federal Deposit Insurance Corp. The bank regulator said in May the amount has been “unusually high” for nearly 2½ years. Most of that is because banks bought government bonds such as Treasurys and mortgage-backed securities when interest rates were low and banks were flush with customers’ deposits during the pandemic. When the Federal Reserve started to raise rates in 2022, the carrying value of these bonds declined. Analysts expect that unrealized losses should be flat in the second quarter, given that the 10-year Treasury yield finished the three months ended in June roughly where it started. Banks are also at the center of the continuing reckoning in the commercial real-estate market. Economists estimate that banks hold anywhere from 40% to 50% of all commercial real-estate debt outstanding, and delinquencies are rising. Delinquencies haven’t yet touched levels seen during the 2008 financial crisis. But a string of defaults this year on commercial mortgage-backed securities is prompting fears that the rate is likely to grow. Source WSJ

Suddenly There Aren’t Enough Babies and the World Is Becoming Alarmed: The world is at a startling demographic milestone. Sometime soon, the global fertility rate will drop below the point needed to keep the population constant. It may have already happened. Fertility is falling almost everywhere, for women across all levels of income, education and labor-force participation. The falling birthrates come with huge implications for the way people live, how economies grow and the standings of the world’s superpowers. In high-income nations, fertility fell below replacement in the 1970s, and took a leg down during the pandemic. It’s dropping in developing countries, too. India surpassed China as the most populous country last year, yet its fertility is now below replacement. Many government leaders see this as a matter of national urgency. They worry about shrinking workforces, slowing economic growth and underfunded pensions, and the vitality of a society with ever-fewer children. Smaller populations come with diminished global clout, raising questions in the U.S., China and Russia about their long-term standings as superpowers. Some demographers think the world’s population could start shrinking within four decades—one of the few times it’s happened in history.  Source WSJ

Costco Raising Membership Fees For First Time In 7 Years: Maintaining or buying a membership for Costco will soon become more costly, as the bulk retailer announced Wednesday its membership fees will increase at the start of September, in its first price hike since 2017. Costco’s Gold Star Membership and Business Membership will jump from $60 to $65 per year in less than two months, while the Executive Membership fees will increase from $120 to $130 per year. The cap for the annual 2% reward for certain purchases held by Executive Membership shoppers will increase from $1,000 to $1,250 as part of the price hike. Membership fees represent the largest share of Costco’s profits. The retailer reported $1.1 billion in membership fee revenue in its latest quarter and $4.5 billion in 2023. The company has some 52 million members, a little over half of whom have the Business Membership.  Source Forbes

Used Vehicle Prices are Plummeting:  Average wholesale prices declined to $17,934 in June, down -8.9% versus a year earlier, according to Cox Automotive's Manheim Used Vehicle Value Index. That's the 22nd straight month of year-over-year drops. Wholesale price trends typically translate into similar retail price movement for used cars. The price declines are hitting EVs the hardest as choices proliferate and some consumers balk at the chance to go electric. Used EV prices are down -16.6% over the last year. The average price of a 2023 Tesla Model 3 with two-wheel-drive has plunged -40% in a year, according to Manheim. Vehicle inventories have recovered after the pandemic temporarily ravaged supply chains, Cox Automotive chief economist Jonathan Smoke said on a conference call. Overall, sedan prices are down -11% over the last year, while SUV prices are down -9.3% and pickup prices are down -8.3%. None of this is a welcome development for people looking to trade in a vehicle they're still paying off. Upside-down loans hit an all-time high of $6,255 in the second quarter, which is up +39% from two years ago, according to data released Wednesday by Edmunds. Source Axios

Walmart Opening Five Automated Distribution Centers: Walmart is opening five automated distribution centers for fresh food across the country as the retailer chases efficiency and its online grocery business grows. The discounter’s new facilities are roughly 700,000 square feet on average. Chilled and frozen areas have automation that stores and retrieves perishable items, such as strawberries and frozen chicken nuggets that are later sold at stores or added to customers’ e-commerce orders. Walmart is the nation’s largest grocer, but it is modernizing its supply chain to keep up with customers who are increasingly picking up orders in the parking lot or getting groceries delivered to their doors. Store pickup and delivery drove the company’s 22% e-commerce gains in the U.S. in its most recent quarter. Automation, along with higher-margin businesses like advertising, is a key reason why CEO Doug McMillon said in April 2023 that Walmart would grow its profits faster than sales over the next five years. Source CNBC

Why More Americans Can’t Afford to Stop Working: Retirement is increasingly becoming a luxury many American workers cannot afford. With rising housing costs and medical expenses and without the pensions that buoyed previous generations, millions of older Americans can’t stop working. Social Security – which pays less than half of average wages and faces possible benefits cuts – doesn’t stretch far enough and many older Americans have too little stowed away in savings or 401(k) accounts to get by. In fact, only about half of American households have retirement accounts, according to the federal Survey of Consumer Finances. For decades, the combination of pensions − defined benefit plans − and Social Security made a dignified retirement possible for many. Not today. Research from labor economist and professor at The New School for Social Research Teresa Ghilarducci shows just 10% of Americans between the ages of 62 and 70 who are retired are financially stable. Most older Americans either are retired and live below the standard of living they had when they were working or they can’t afford to stop working.  Source USA 

NO FALLEN HEROES FOUNDATION

Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.