Wall Street is anxious to see the PCE Prices Index this morning. Most expect PCE headline prices in May pulled back to +2.6% year-over-year from +2.7%, while “core” (strips out food and energy) prices are also expected to slow to +2.6 versus +2.8% in April, a slightly steeper slowdown than headline prices.

Core PCE Prices is one of the Federal Reserve’s favorite inflation gauges so this number is very significant to Wall Street and interest rate outlooks. Federal Reserve rate cuts are likely to remain investors’ main focus over the next couple of weeks, which are packed with a slew of key data.

The most critical data as far as the impact on Fed rate cut expectations are the June jobs report next Friday, July 5, and the Consumer Price Index (CPI) the following Thursday, July 11.

In order to support Wall Street’s current outlook for 1 or 2 interest rate cuts in 2024, data needs to show that inflation is still slowing closer to the central bank’s +2% target. The Fed has also been clear that a return of wage inflation would likely make it harder to cut rates this year so that component of the June jobs report next week will get a lot of attention from investors.

Other key data next week includes ISM Manufacturing and Construction Spending on Monday; the “minute’s” from the Fed’s June 11-12 meeting, ADP’s private payroll report, Trade Balance, and Factory Orders on Wednesday; and the ISM Non-Manufacturing Index on Friday.

Remember, US stock, bond, and commodities markets are closed on Thursday, July 4, for Independence Day.  

Many investors are likely to use the holiday as a chance to squeeze in a long weekend, in turn leading to low trading volumes and some added volatility on Friday, the same day the June payroll report is due out.

On the earnings front, there are no significant US releases today and the only result of interest next week is Constellation Brands on Wednesday. Earnings will remain extremely light until we get closer to Q2 2024 earnings season, which kicks off with big Wall Street banks Citigroup, JPMorgan Chase, and Wells Fargo on July 12.

To summarize before heading into our July 4th week long break... Wall Street seems to be looking for two -25 basis point rates cuts in 2024.

 And as for the upcoming presidential election... wow! Remember, the stock market seems to like it best when no one party has control in Washington, that way it knows not a lot of things can change. Right now the  Republicans have control of the House by just six seats and there are currently 3 vacancies (219 Republicans and 213 Democrats). The Democrats control the Senate by just one vote, However, the Democrats will be trying to defend 22 Senate seats in November – double the number Republicans have to protect.

There are several important Senate races that will be closely monitored ahead of the November 5th election. Bottom line, markets typically don't care about politics, but this particular election may eventually start to worry some investors. 

You Might Be Buying Your House at the Top of the Market: Between high prices and mortgage rates, getting wealthy off your home is about to get a lot harder. The Wall Street Journal released this article yesterday. Below are a few things I found interesting... 

For prospective buyers, it’s a crisis. For owners and sellers, it’s a windfall. Homes are assets, and overvaluation is a predictor of stagnant, even negative, real returns in coming years, which could be a headwind to anyone counting on real estate as a source of wealth.

Like any asset, a house’s value depends on several factors, and all have made valuations more stretched. First, price: The S&P CoreLogic Case-Shiller U.S. national home price index, which controls for changes in the mix of homes, is up 51% since the end of 2019.

The second factor is the stream of income generated by an asset. The income on your house is the value derived from living there, which can be proxied by how much a similar place costs to rent. According to the Labor Department, this owner-equivalent rent is up 24% since 2019. That’s a lot, but far less than the rise in home prices and much, much less than the 114% increase in the monthly payment on a newly purchased and financed home, according to the National Association of Realtors. Owning and renting are close substitutes, so this widening gap is a red flag.

The third factor is the interest rate at which an asset is financed and its future income discounted. Higher valuations can be justified by lower rates, but currently that's not the case. Goldman Sachs predicts the average 30-year fixed mortgage rate will fall to 6.5% by the end of 2024, and to 6.3% by the end of 2025. 
A model in the Fed’s semiannual financial stability report incorporates all these elements and shows that homes are now 25% overvalued, just below the 28% peak in 2007, using the Labor Department’s measure of rent, and 19% overvalued using private measures of market rents.

John Burns Research and Consulting concludes that based on supply, demand and affordability, every part of the country is overvalued relative to its history, from 24% in northern California to 37% in southern Florida.  Source WSJ

Walgreens Stock Hit Hard on Announced Plans to Close Significant Number of US Stores:  The pharmacy chain confirmed its plan to close underperforming stores. In the statement, a Walgreens spokesperson said the company is repositioning its store footprint, noting that about 25% of its stores are not contributing to the chain's long-term strategy. The spokesperson also said the company is working on a program to close a significant portion of these locations over the next three years. Walgreens operates roughly 8,700 stores in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands, according to its website. I should note, Wallgreen's stock got hammered yesterday on this news and its share price closed at its lowest level in some 27 years.  Source CNBC

Drug Prices Have Risen Nearly +40% in Last Decade: The cost of prescription medications in the U.S. has increased by +37% since 2014, far surpassing the rate of inflation, according to data from drug savings company GoodRx. Though the price increases have slowed this year in comparison with the past decade, the higher costs are raising out-of-pocket expenses for consumers. The average American spends $16.26 out of pocket per prescription, according to the data. GoodRx said the patients’ share of the cost continues to grow due to rising copays, coinsurances and deductibles. The company found that over the last 10 years, the average person’s deductible nearly doubled, and copays are rising as the majority of plans are adding another tier of drugs with higher copays. It’s a dynamic GoodRx deems “the big pinch.” High medication costs are coupled with reduced insurance coverage. Analyzing coverage for over 3,700 Medicare Part D plans between 2010 and 2024, GoodRx found that the portion of medications covered dropped by 19% over that period. On average, Americans pay 2 to 3 times more for prescription drugs than consumers in other developed countries, according to the White House. Source CNBC


Next week the format will be different -entirely as it will be generated 100% from AI data.  Only 1 week 


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