Many Wall Street insiders continue to question how much further stocks can climb and remain concerned about the heavy consolidation in big tech giants. Still, the rally that has followed the Federal Reserve's Wednesday decision to pause rate hikes is drawing in even reluctant investors that are afraid of missing out as well as big money managers that perhaps can't afford to sit on the sidelines any longer.
Bears warn that the momentum created by investors chasing the rally can't last and believe a lot of seasoned traders will likely take advantage of the upswing and book profits while they still can. Most bears are still convinced a recession is right around the corner and the resulting hit to corporate profits could become very painful in the quarters ahead, especially with the "extreme" valuations some companies' stocks have now soared to.
Bears are also quick to remind that the Fed is not likely done with rate hikes yet, based on both the central bank's own guidance that indicated two more rate hikes could be in the cards, and the fact that "core" inflation remains mostly unmoved by what the Fed has already done.
Bulls argue that official inflation data hasn't yet caught up to "real" inflation, which some economists believe may already be close to +3% or lower. Bulls are also optimistic that new stimulus measures announced by China will help boost the wider global economy and help the US prevent the long-anticipated recession that has still failed to materialize.
Additionally, many bulls seem to be unconcerned about soaring valuations in the tech sector, arguing that the profit potential of new artificial intelligent technologies may even be undervalued still.
Today, investors will be digesting the preliminary University of Michigan Consumer Sentiment Survey for June.
Turning to next week don't forget the stock and the bond market is closed Monday.
Economic data for the week will be pretty light with Housing Starts and Building Permits on Tuesday; Existing Home Sales on Thursday; and preliminary reads on IHS Manufacturing and Services PMIs on Friday. There are a few key earnings on the calendar as well, including FedEx on Tuesday; Accenture and Darden Restaurants on Thursday; and CarMax on Friday. Also, don't forget, Father's Day is this Sunday. Here's to all the great Dads out there!!!
Economist Says US is Now Facing a Third Wave of Inflation: Although US consumer prices provided further signs of relief for consumers in April, there are still factors keeping inflation elevated and corporations may be reaping the benefits of that. We've had a really unfortunate situation where we've had three very, very different inflation waves caused by very different things, said UBS Global Wealth Management Chief Economist Paul Donovan, and they've just come one after the other. Following consumer durable goods, a second wave of supply-led inflation, now we're getting this unusual profit-led inflation. Sometimes called "excuseflation" or "greedflation," which is profit-led inflation. This occurs when consumer-facing companies toward the end of the supply chain persuade shoppers to accept price hikes by pointing to plausible explanations. However, Donovan said, the true reason for these elevated prices could have more to do with expanding margins and keeping investor sentiment high than with increased input costs, adding that it's being used somewhat as an excuse or as a cover. Fortunately, prices for materials have slid tremendously. The World Bank expects a -21% decline in commodity prices in 2023 relative to 2022, but unfortunately, certain companies continue to institute price increases or continue to keep prices elevated despite declining comparable costs Source Yahoo Finance
US Government Shutdown Threat Emerges for October: Republicans in the U.S House of Representatives on Thursday adopted government spending targets for the next fiscal year below the level agreed by Speaker Kevin McCarthy and Democratic President Joe Biden, setting up a fight with the Democratic-led Senate that could again risk a government shutdown. The House Appropriations Committee voted 33-27 along party lines to adopt a discretionary spending level of $1.47 trillion for fiscal year 2024, which starts on Oct. 1. That is about $120 billion below the $1.59 trillion set out in the debt ceiling bill negotiated by Biden and McCarthy. The targets would maintain defense spending at the $866 billion level agreed in the debt ceiling legislation. But the plan would slash spending for the environment, public assistance and foreign aid. It would also increase spending for border security, drug enforcement and countering China. Democrats say that the lower levels renege on the debt-ceiling agreement. Republicans counter that the deal only capped spending. Lower spending levels could make it harder for the House to reach agreement with the Democratic-led Senate. Federal agencies could have to shut down if the two chambers are unable to agree to spending levels by October. Source Reuters
China Ramping Up Stimulus Measures to Revive Flagging Economy: Beijing is planning major steps to revive the country’s flagging economy, including the possibility of billions of dollars in new infrastructure spending, and looser rules to encourage property investors to buy more homes, people familiar with the discussions say. The push follows a series of interest rate cuts by China’s central bank this week, including one on Thursday which cut a key policy rate for the first time since August, as fresh data showed the country’s economic recovery is flickering out. After posting solid +4.5% growth in the first quarter, China is wrestling with numerous economic challenges, including cooling exports, a continuing property downturn and stubbornly high youth unemployment. More stimulus might not help, some economists warn, because businesses and consumers are unwilling to take on more debt. As part of its stimulus efforts, Beijing is considering issuing roughly one trillion yuan, equivalent to about $140 billion, of special treasury bonds to help indebted local governments and boost business confidence, according to people familiar with the discussions. Beijing is also considering plans to scrap purchase restrictions on second homes in China’s smaller cities. Source WSJ
Bayer Reaches $6.9 Billion Settlement with NY Over Roundup: Bayer AG agreed on Thursday to pay $6.9 million to settle claims by New York Attorney General Letitia James that it misled consumers by advertising Roundup weedkiller as environmentally safe. The settlement resolves accusations that Bayer and its Monsanto unit failed to substantiate their repeated claims about Roundup products containing the active ingredient glyphosate. James said the claims violated state laws against false and misleading advertising, and breached Monsanto's 1996 settlement with New York over its advertising of Roundup at the time. Thursday's settlement requires Bayer to stop advertising glyphosate-based Roundup as a safe and non-toxic product. The $6.9 million will be spent on reducing the impact of pesticides on pollinators and aquatic species. Bayer did not admit or deny wrongdoing Source Reuters
Why the Construction Industry is Going Electric: From demolition and mining to aerial lift and industrial work, electric construction equipment is actually already being used in the building industry. And as EVs continue to be rapidly adopted overall, electric equipment could be the construction industry’s preferred choice in the near future. Some of the reasons include lower operating and maintenance costs, Federal and state tax credits, as well as carbon credits and offsets. Source Electric
Tipping Has Become More Confusing: There’s no definitive guidebook on tipping in America, and it’s unlikely two people will tip the exact same way. The only thing most Americans may agree with is that they dislike some aspect of tipping, according to a new Bankrate survey. Roughly two in three (66 percent) U.S. adults have a negative view about tipping, according to the survey. Americans said they believe businesses should pay employees better rather than relying so much on tips (41 percent), they’re annoyed about pre-entered tip screens (32 percent), they feel that tipping culture has gotten out of control (30 percent), they’re confused about who and how much to tip (15 percent), and they would be willing to pay higher prices if we could do away with tipping (16 percent). Despite annoyances, people haven’t stopped tipping for everyday services. More than two-fifths (44 percent) of U.S. adults who dine at sit-down restaurants typically tip at least 20 percent. But when it comes to many tipped services, such as hair stylists, food delivery, taxis and more, everyone approaches tipping differently. The frequency of U.S. adults tipping has declined steadily since 2019, according to Bankrate. In 2023, fewer people say they always tip workers in every category. The tendency to always tip for a service increases as people age. Gen Z is generally the least likely to always tip for a service, while baby boomers are generally the most likely. The Midwestern stereotype of “Minnesota nice” also applies to their tipping habits. Midwesterners are more likely to always tip for several services than people in other regions. Source Bankrate
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