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Keep in mind, the balance of the week could bring some added volatility due to lower-than-usual trading volume, as well as a couple of technical events on Friday.
First, Friday is a “triple witching” day, in which stock options, stock-index futures, and stock-index options contracts all expire on the same day. Second, Friday marks the quarterly rebalancing of many popular US benchmark indexes and exchange-traded funds that could create some unusual stock moves.
If you missed it on Tuesday, Nvidia’s stock surpassed Microsoft to become the most valuable company in the world. The chipmaker is up nearly +175% this year alone, a clear leader in the artificial intelligence rally that seems to keep gaining momentum.
Bears increasingly think the AI frenzy mirrors the late-1990s “dot com” boom and subsequent crash in 2000. They point to the similarities in skyrocketing valuations for anything vaguely related to the internet in the 1990s and the current enthusiasm for AI.
Bulls, however, argue that it is not a fair comparison, most notably because the stocks involved in the current AI rally are established companies and are already generating sizable profits, whereas a large portion of dot com era companies barely had functional businesses, let alone any significant revenue or cash stockpile in the bank.
Still, it seems reasonable to question how much higher some of this year’s biggest gainers can climb as more investors starts to get nervous that things have run too far, too fast?
The data calendar today is very light with just the Philadelphia Fed Manufacturing Index and Weekly Jobless Claims. There are however several Federal Reserve officials scheduled to speak today.
Most Fed officials that spoke in the first half of the week did note that “recent” inflation data has become more encouraging, but also stuck closely to the script that they need to see more evidence that it will continue before rate cuts will be appropriate.
A couple of Fed officials indicated that they think the first cut could come in Q4 2024.
On the earning front today, the highlights are Accenture, Darden Restaurants, and Kroger.
Still Not Enough NEW Houses Being Built: Despite a pandemic construction boom, the U.S housing shortage grew to 4.5 million homes in 2022, up from 4.3 million the year before, according to a new analysis from Zillow. This deepening housing deficit is the root cause of the housing affordability crisis. At its core, the housing market is driven by supply and demand. When the number of people who want a home increase faster than the number of homes available, prices go up. This balance reached a tipping point when the Great Recession ushered in a decade of underbuilding and millennials — now the biggest generation in U.S. history — reaching the prime age for first-time home buying. The result has been worsening affordability, now exacerbated by stubbornly high mortgage rates. The simple fact is there are not enough homes in this country. The pandemic-era housing frenzy sparked a construction boom, but thus far, that boom has fallen short. In 2022, 1.4 million homes were built — at the time, the best year for home construction since the early stages of the Great Recession. However, the number of U.S. families increased by 1.8 million that year, meaning the country did not even build enough to make a place for the new families, let alone begin chipping away at the deficit that has hampered housing affordability for more than a decade. According to the U.S. Census Bureau, roughly 1.45 million homes were completed in 2023. The slight increase over 2022 is a sign of progress, but much more needs to be done. Source WSJ
This Hasn’t Happened to Restaurant Spending Since the Pandemic: A sign of financial stress? Sales at bars and restaurants in the U.S. have fallen in four of the past six months for the first time since the pandemic. Restaurant spending is often a good cue for the health of the broader economy. Retail sales have been volatile month-to-month so far this year as more consumers struggle under the weight of rising prices, higher interest rates, and dwindling savings, said chief U.S. economist Scott Anderson of BMO Capital Markets. A new survey by KPMG, for instance, found that 41% of consumers said they plan to spend less on restaurants this year. Only 21% said they would spend more. The cost of takeout and dining out has risen 4% in the 12 months ended in May. And prices to eat out are up a whopping 35% since the pandemic. Source MarketWatch
Fund Managers Are the Most Bullish They’ve Been in Years: Investors are feeling the most bullish that they have in years, according to Bank of America’s latest survey of fund managers. Such optimism is evident from the stock market’s performance as well: Both the S&P 500 and Nasdaq Composite notched fresh record closes on Tuesday, bringing their year-to-date gains to +15% and +19%, respectively. According to BofA’s Global Fund Manager Survey for June, investors have been eager to put their money to work in riskier assets like stocks. In fact, cash made up just 4% of their portfolios, on average—the lowest level since June 2021, BofA said. These managers are largely turning to equities: About 32% of their allocation out of money-market funds went into U.S. stocks, while 19% went to global stocks, the survey said. In June, the survey’s so-called Bull and Bear Indicator—which looks at fund managers’ cash levels, equity allocations, and economic growth expectations to assess their sentiment—hit its most bullish level since November 2021. However, BofA notes that “global risk sentiment is not yet extreme,” as the indicator remained at a level of six out of a possible 10. However, certain risks still stand out, the biggest being higher inflation (33% marked that as their biggest concern). Other tail risks for fund managers were geopolitics (22%), and the U.S. election (16%). Source Barrons
China’s Currency is Not as Influential as Once Imagined: Chinese officials seem pleased with the yuan’s recent progress as a global currency. The international monetary system is diversifying at an accelerating pace, said Pan Gongsheng, the governor of China’s central bank. The yuan has become the fourth-most active currency in global payments, he noted. In trade finance, it now ranks third. And according to the central bank’s data, about half of China’s transactions with the rest of the world (for financial assets, as well as goods) are now settled in yuan. Despite these gains, the yuan’s global position still looks modest compared with past expectations. the yuan was included in the imf’s basket of usable reserve currencies in 2016. But its share of global foreign-currency reserves remains far short of expectations. Indeed, it “shows signs of stalling out”, according to a recent update by Serkan Arslanalp and Chima Simpson-Bell of the imf, together with Barry Eichengreen of the University of California, Berkeley. The yuan’s share was just 2.3% at the end of last year, according to the latest imf data, down from a peak of 2.8% in the first quarter of 2022. Thanks to that decline, the yuan has dropped back behind the Canadian dollar in the pecking order, and now ranks sixth. Source The Economist |
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Housing Boom, Blue State Migration Prompts Southern Backlash: Tennessee and several of its neighbors in the US South are facing an anti-growth backlash, after turbocharged migration helped boost the region’s population by 2.7 million people — the size of Chicago. As traffic snarls in once-sleepy downtowns, apartment complexes replace meadows and municipal water systems strain under new demand, passions are running high in a way that goes beyond regular nimbyism. While not-in-my-backyard activists have long fought new developments, local officials and business groups across the South say they’ve seen a heightened level of anger since the pandemic-era growth. In some cases, the backlash stems from people mourning the loss of a small-town way of life. In others, public infrastructure simply can’t keep up. In Texas, city water and wastewater systems are over-stressed, while farm bureaus in Tennessee and South Carolina warn their agricultural land is being plowed over for subdivisions. Source Bloomberg
Russia and North Korea signed a mutual defense pact. Russian President Vladimir Putin visited North Korea, and the two increasingly isolated nations agreed to come to one another’s aid in the event of “aggression” against either of them. Though full details of the apparently sweeping deal to tighten their relationship were not released, the AP reported it could represent the strongest collaboration between the two countries since the Cold War. Source MorningBrew
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