Stock indexes are off to a quiet start this week as investors await key inflation updates and the start of Q2 2023 earnings season. Bulls are hoping a lower-than-expected read from the upcoming Consumer Price Index on Wednesday will help resume the rally later in the week.

Some economists believe that year-ago comparisons to much higher inflation reads last summer could pull June headline CPI below the +3% level. Bears, however, warn that the Federal Reserve's preferred gauge of "core" prices, which strips out food and energy, is likely to remain close to +5%, more than double the Fed's +2% target rate. That would in turn keep the prospect of a hike in July very much alive and add to worries that more could follow.

Several Fed officials yesterday echoed similar views that inflation is not coming down fast enough and that more hikes are likely going to be needed, including San Francisco Fed President Mary Daly, who tends to be one of the more "dovish" members.

Keep in mind, after the July 25-26 meeting, the Fed doesn't meet again until September 19-20. Meaning August inflation reads are much more important to investors than what June or even July delivers.

Investors right now seem to be more anxious about earnings than they are Fed policy. While big tech and the excitement surrounding AI have been a major catalyst behind this year's stock gains, the rally was also supported by better-than-expected Q1 2023 earnings. Not surprisingly, bulls are hoping for a repeat as Q2 reporting season gets underway. Most bulls believe company cost cutting measures will again help boost Q2 results, while a continuation of falling producer prices will buoy outlooks for the quarters ahead.

Bulls are especially keen on the idea that China is now exporting "deflation" after the country's producer price index dropped for a ninth month in a row in June. Most economists don't see that trend reversing anytime soon with China's economy still struggling to rebound from its long Covid shutdown just as demand in most other countries is cooling. In contrast, bears warn that stock valuations have already climbed too high and believe a second quarter in a row of negative growth will likely push more investors into "safer" but still profitable bets like bonds. Bears also doubt that forward guidance will support analyst forecasts for a return to growth in the second half of the year, believing that higher interest rates, slower consumer spending, and "deflation" will likely offset any expected improvements in operating margins.

Additionally, bears question whether outlooks from big tech companies will be able to justify their stock prices pushing any higher, which in turn could weigh on the wider market and leave stocks drifting sideways, at best.

Bears also warn that many multinational companies could also be facing pretty sharp downturns in Asia and Europe. China's slump is especially problematic for Asia and its big manufacturing and tourism hubs.

There will not be much for investors to chew on today with no notable US economic data or earnings on the calendar.

Big Tech’s Dominance in Stock Market Hits Breakpoint for Nasdaq 100: America’s biggest tech companies have become too large even for the stock index tracking America’s biggest tech companies. Now the benchmark’s overseer is taking action to pare back their influence. The seemingly unstoppable growth of mega-caps like Apple Inc. and Microsoft Corp. means they have breached an upper limit imposed on stocks in the Nasdaq 100. As a result, Nasdaq Inc. has announced a “special rebalance," the first ever of its kind, will be carried out to redistribute the weight of the index’s members. The index provider says the July 24 adjustment will “address overconcentration in the index by redistributing the weights,” according to a statement from the firm on Friday, with more details due later this week. Nasdaq’s extraordinary action is a result of the relentless rally that has accounted for almost all the broader market’s gains in 2023. Fueled by optimism over artificial intelligence, the supercharged performance has sparked a heated debate on Wall Street about whether this top-heavy advance can last. While details on the action are sparse, a paper on the Nasdaq website says special rebalancings can be called in certain circumstances when the portion represented by the index’s biggest members exceeds a preset threshold. In one scenario, the document says, weights can be pared back if the combined influence of the largest companies — those making up 4.5% or more of the gauge — adds up to more than 48%. Source Bloomberg

Unsold EVs Piling Up on Dealer Lots: Cox Automotive experts highlighted the swelling EV inventories during a recent midyear industry review for journalists and industry stakeholders. EV sales, which account for about 6.5% of the U.S. auto market so far this year, are expected to surpass 1 million units for the first time in 2023, Cox forecasts. A Cox survey found that 51% of consumers are now considering either a new or used EV, up from 38% in 2021. Tesla’s rapid expansion, plus new EVs from other brands, are fueling the interest — 33 new models are arriving this year, and more than 50 new or updated models are coming in 2024, Cox estimates. However, sales aren't keeping up with that increased output. The nationwide supply of EVs in stock has swelled nearly 350% this year, to more than 92,000 units. That's a 92-day supply — roughly three months' worth of EVs, and nearly twice the industry average. For comparison, dealers have a relatively low 54 days' worth of gasoline-powered vehicles in inventory as they rebound from pandemic-related supply chain interruptions. In normal times, there's usually a 70-day supply. By comparison, hybrid vehicles have much lower inventory levels, supporting Toyota's argument that consumers want a stepping stone to fully electric cars. There's a relatively tight 44-day supply of hybrids industrywide, according to Cox. Source Axios

Meta's "Threads" Hits +100 Million Users Even Faster than ChatGPT: User traffic on Twitter has slowed since the launch of Meta’s text-based platform Threads, which has already surpassed 100 million sign-ups since its debut last week. Threads launched in the U.S. on Wednesday and is being touted by Meta executives like Instagram chief Adam Mosseri as a more positive “public square” for communities “that never really embraced Twitter.” So far, users seem to be on board. Twitter appears to have taken a hit. According to Similarweb, a data company that specializes in web analytics, web traffic to Twitter was down 5% for the first two full days Threads was generally available compared with the previous week. The company said Twitter’s web traffic is down 11% compared with the same days in 2022. If Threads is able to retain its userbase, it could solidify its position as a real competitor for Twitter, which reported nearly 238 million monetizable daily active users in its last quarterly earnings report as public company last summer. Threads reached the 100 million milestone even faster than OpenAI’s generative chatbot ChatGPT, which surpassed 100 million monthly users in two months. Source CNBC

Used-Car Prices Fall by the Most Since the Start of the Pandemic: Used-car prices in the US fell 4.2% in June, their biggest monthly drop since the early days of the pandemic, as a key measure of inflation eases. Rising interest rates and bigger discounts on new cars are sapping demand for used vehicles, which is lowering the prices they fetch at auctions dealers use to buy and sell previously owned vehicles. Pricing also is taking a hit because dealers have almost fully replenished inventory on used-car lots that were depleted by shutdowns and supply shortages during the pandemic. Overall, consumer spending on vehicles — new, used and car parts — is up +10% from a year ago. Manheim now expects a -1.1% decline in its used-vehicle price index in December, down from a previous forecast of a -4.2% year-over-year decline. Used-car prices have been a key driver of core inflation. Source Bloomberg

Michelin Testing its Airless Tires on French Postal Vans: The days of nails in your tires and bills to fix the tire pressure warning system may be numbered. Michelin is testing airless tires in real-world conditions. La Poste, France’s equivalent of the U.S. Postal Service, has begun equipping mail delivery vans with Michelin’s Uptis-brand airless tires (short for Unique Puncture-proof TIre System, according to Michelin). The tires, Michelin says, eliminate “problems linked to tire pressure and punctures.” That’s a big factor for fleet operators like postal services, which “can reduce downtime and maintenance operations.” Instead of air pressure, the tires use flexible spokes for support, much like those used on moon rovers in the past. Down on Earth, they’re reinforced with glass fibers to provide support. That means a puncture doesn’t do significant damage to them. Michelin says that alone could reduce the number of scrapped tires by at least 20%. It could also eliminate the need to carry spare tires. Source Kellybluebook

Disney World Hasn’t Felt This Empty in Years: Visitors to Disney theme parks this summer are encountering something they haven’t seen in a while: elbow room. Travel analysts and advisers say traffic to Disney’s U.S. parks, and some rival parks, has slowed this summer. Data from a travel company that tracks line-waiting time at Walt Disney World in Orlando, Fla., shows that the Independence Day weekend was one of the slowest in nearly a decade. Disney executives have said they have expected weaker earnings from their U.S. parks this year. The Orlando-area resort is even offering hotel discounts around Christmas, typically a peak period. Travel advisers and industry analysts say the slowdown is the latest sign that Disney’s recent price hikes and changes to park operations have soured some families on visiting the Most Magical Place on Earth. Source WSJ

Prime Day Bump: Amazon's annual, global Prime Day, which officially starts today, has become a tide that lifts all boats in retail. Stores this year are trying to thin inventory while competing for wallet share against revenge travel and entertainment spending. Consumers need a reason to spend money on products right now versus things like "Taylor Swift tickets" or travel, Tom Forte, senior research analyst at D.A. Davidson, tells Axios. "If you're a retailer, and you're not focused on live events or travel, then you're looking for something to stimulate sales." And Prime Day could do just that. Prime is now an "industrywide shopping holiday" as Best Buy, Walmart, Target, and other retailers "counter-program" against it with their own sales. Total U.S. e-commerce sales are expected to grow by about +116% on Prime Day this year versus an average day. Non-Amazon retailers specifically could see a +40% increase in sales. Amazon's own sales are expected to grow by +243% on Prime Day over an average day. Source Axios

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