Wall Street has a lot to digest today, starting with the May Consumer Price Index (CPI) this morning, followed by the Federal Reserve’s policy decision this afternoon.

Headline CPI is expected to come in at +3.4% year-over-year, unchanged from April, while “core” CPI (strips out food and energy) is seen falling to +3.5% from +3.6% previously.

A “hot” print on core CPI would be a particularly big worry for bulls and more than likely cause the stock market to pull back. The Fed’s policy decision is due out today at 1 p.m. CST and will be accompanied by updated economic projections. Wall Street widely expects the Fed to leave its benchmark rate "unchanged". The more important question is how have Fed officials’ interest rate outlooks changed? The so-called “dot plot” in March showed members expected to cut rates by -75 basis points (three -25 basis point cuts) by the end of 2024.

Today, Wall Street insiders are pretty evenly divided between either one or two -25 basis point rate cuts happening in 2024. Traders place the odds of no rate cut this year at around 11%.

Fed Chair Jerome Powell will hold a press conference at 1:30 p.m. CST where he will likely weigh in on the morning’s CPI print, which will not be factored into today's central bank’s policy decision or economic projections.

The CPI print will also likely have an impact on Powell’s comments in regard to whether he comes across “hawkish” or more “dovish.” Typically, Powell tends to use his press conferences to convey the central bank’s overall sentiment. Based on the numerous comments made by officials since they last met, most have grown more “hawkish” and are concerned that inflation is coming down much slower than initially anticipated. At the same itme, the Nasdaq and S&P 500 are again at new record highs and bond yields have drifted lower this week. That would normally indicate that Wall Street isn’t expecting the Fed decision or Powell to be overly hawkish, in fact, just the opposite.

The Nasdaq and S&P 500 are getting a big boost from AI-mania that seems to have ramped up even further this week. Some of that’s been spurred by Apple’s new AI plans, as well as a surprisingly strong outlook from Oracle on “enormous demand for training AI large language models in the Oracle Cloud.” Apple alone added more than +$200 billion in market cap yesterday.

Semiconductor maker Broadcom is the earnings highlight today. I remain a long-term owner of Apple stock. I like the fact the Apple store remains one of the few places cutting edge technology and the majority of US consumers can meet face-to-face. I believe this provides them a decided edge in their "Services" revenue channel which operated at +70% gross margins the past couple of years and many insiders now predict will generate over +$100 billion in total revenue for Apple in 2025. While revenue from Apple's products may have slipped as of late, the Services sector continues to show strong growth and keeps me believing in the stock. 

Wealthy Getting Second Passports, Citing Risk of Instability:  Wealthy U.S. families are increasingly applying for second citizenships and national residences as a way to hedge their financial risk, according to a leading law firm. These “passport portfolios," are collections of second, and even third or fourth, citizenships, in case they need to flee their home country. Henley & Partners, a law firm that specializes in high-net-worth citizenships, said Americans now outnumber every other nationality when it comes to securing alternative residences or added citizenships. Recent high-profile examples of second citizenships include billionaire tech investor Peter Thiel, who added a citizenship in New Zealand, and former Google CEO Eric Schmidt, who applied for citizenship in Cyprus. According to Henley, the top destinations for supplemental passports among Americans are Portugal, Malta, Greece, and Italy. Portugal’s “Golden Visa” program is especially popular since it provides a path to residency and citizenship, with visa-free travel in Europe in exchange for an investment of 500,000 euros or roughly $541,000 in a fund or private equity.  Source CNBC

Pimco Warns of More Regional Bank Failures on Property Pain: Pacific Investment Management Co. expects more regional bank failures in the US because of a “very high” concentration of troubled commercial real estate loans on their books. “The real wave of distress is just starting”, said John Murray, Pimco’s head of global private commercial real estate. His division sits within Pimco’s $173 billion alternatives business. Uncertainty over when the Federal Reserve may cut interest rates has exacerbated challenges faced by the Commercial Real Estate (CRE) sector, where high borrowing costs have hammered valuations and triggered defaults, leaving lenders stuck with assets that are tough to sell. Contrary to some market expectations, larger banks have been disposing of some of their higher quality assets first to avoid deeper losses, according to Murray. The turmoil has been particularly felt among regional banks, which boosted their CRE exposure that in many cases is now worth only a fraction of their value at their peak. Regional banks were also the only lenders that didn’t demand extra down payments from commercial-property borrowers in recent years. Deposit-taking institutions face an estimated $441 billion wall of maturing property debt this year. For larger banks, the property exposures aren’t expected to cause systemic failures as their CRE lending was curbed after the 2008 crisis, Murray said. But borrowers’ failure to repay means they’re lending even less compared with 2021 and 2022, he added.  Source Bloomberg

U.S. Rents Tick Up for Second Straight Month in May: The median U.S. asking rent rose +0.8% year over year in May to $1,653—the highest level since October 2022. That’s the second consecutive increase (rents climbed +0.9% year over year in April) following 11 months of decreases. Rents rose +0.5% on a month-over-month basis. Apartment prices are closely tied to apartment supply. Multifamily construction surged during the pandemic moving frenzy, which pushed rent prices down because building owners were competing for tenants. While multifamily building starts have fallen below their 10-year historical average, there’s still a backlog of new units that are hitting the market every month, which is putting a lid on how much prices can grow. For the past three quarters, the rental vacancy rate has hovered at 6.6%. That’s the highest level since 2021, though it’s worth noting that the vacancy rate is no longer growing like it was during the pandemic. While asking rents ticked up in May, they’re stable compared to recent years; they rose as much as +17.5% year over year during the pandemic, and then fell as much as -4.1% this past summer. Still, the median asking rent in May was just $47 below (-2.8%) August 2022’s record high of $1,700. The biggest asking rent declines were in Jacksonville, FL (-10.1%), San Diego (-8.7%), Austin, TX (-7.2%), Seattle (-5.9%) and Phoenix (-5.5%). Meanwhile, rents are rising in many Midwest metros because the region hasn’t been building as many apartments. Source Redfin

People Over 50 Fastest-Growing Homeless Population: Older adults are the fastest-growing segment of people experiencing homelessness, and make up almost half of the total homeless population, according to an October 2023 report by the U.S. Department of Health and Human Services. The number of people 65 and older who are unhoused will nearly triple by 2030 compared with the number in 2017, according to a 2019 study by researchers at the University of Pennsylvania and other institutions that analyzed the populations of homeless shelters in New York City, Los Angeles and Boston. “It’s a mistake to think that [older people experiencing homelessness] will be growing old on the streets. Most people will die before they’re 65,” said Margot Kushel, director of the Benioff Homelessness and Housing Initiative and lead author of the report. “It’s a very frail population. Many will die homeless.” Among older unhoused adults, the median age of death was 64, Kushel said. “This has financial implications,” she added. “Many die before they can get Social Security.  Source Marketwatch

Harmful Plastic Are Now Being Detected Throughout the Body: As if we don't already have enough things that are supposedly making us sick... Harmful microplastics aren’t only being detected in lungs, bloodstreams, and placenta—but they are now being found in human testicles and male sperm. According to a new report in the journal Science of the Total Environment , a medical team collaborating across multiple universities in China recently discovered various types of microplastics within every semen sample collected from a total of 40 males selected from a general population pool. “As an emerging body of research increasingly implicates microplastic exposure as a potential factor impacting human health, understanding the extent of human contamination and relations to reproductive outcomes is imperative,” the team wrote in their study. Globally… about 15-percent of couples experience infertility, among which male factor infertility accounts for 50-percent of the cases,” the researchers wrote, adding that and male infertility continues to increase in tandem with an ongoing deterioration of semen quality. But even as more males display lower sperm counts and similar issues, “impaired spermatogenesis remains unidentified in about 40-percent of men.” And thanks to studies such as these, it is becoming increasingly likely that microplastics may have something to do with this. Researchers say these new findings may further support a current theory that microplastics are contributing to the global decline in overall sperm counts. PVC, for example, was also detected in the testes and has been linked to spermatogenesis interference and endocrine issues. While the full extent of microplastics’ health effects aren’t known yet, evidence strongly indicates the particles can raise the risk of heart attacks and strokes, among other complications like tissue inflammation. 

Americans Want to be Their Own Boss: The Shopify-Gallup Entrepreneurship study finds that most Americans share the desire to be their own boss. More than six in 10 U.S. adults (62%) say they would prefer to be their own boss, while 35% would prefer to work as an employee for someone else. In addition, over half of those who want to be their own boss (52%) say they would be willing to accept at least a fair amount of financial risk to do so. The percentage who are risk tolerant is even higher, 70%, among aspiring entrepreneurs who are seriously considering starting a business. The appeal of being one’s own boss and having the opportunity to earn more money top the list of reasons why business owners say they started their own enterprise. Those are also the top motivators for aspiring entrepreneurs. Four in 10 people in each group also say that the desire for a more flexible work schedule is a key reason for wanting their own business. Schedule flexibility is a much greater driver of entrepreneurial interest for women than men. While Americans are interested in being their own boss, financial matters remain a barrier for people to overcome when starting a business. Aspiring entrepreneurs rate a lack of funding (60%) and concerns about the personal financial risks of going into business (50%) as the biggest challenges they face. Inflation (33%), needing to learn more about starting or managing a business (33%), lack of confidence that the business would succeed (26%), government regulation (25%), and access to business loans (24%) are also viewed as important challenges by aspiring entrepreneurs. Notably, current business owners say they faced similar barriers when starting their business.  Source Gallup

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