Stock investors will be carefully scrutinizing remarks from Federal Reserve Chair Jerome Powell today, who is participating in a European Central Bank discussion about central bank policy starting at 8:30 a.m. CST.

His appearance follows several stronger-than-expected economic reports yesterday that may not be compatible with the Fed's fight against inflation. In particular, Consumer Confidence in June rose to the highest level since January 2022, before the Fed began its tightening campaign. Importantly, that included an increase in consumers' assessment of the job market, with 46.8% of respondents saying that jobs were plentiful, up from 43.3% in May. That has some Wall Street insiders concerned that the economy may have added a lot more jobs in June than what some are anticipating.

Keep in mind, hiring in May came in far stronger than expected with companies adding +339,000 jobs. The Fed has consistently pointed to the tight labor market as a key contributor to stubborn inflation and some believe the central bank may be intent on pushing the economy into recession in order to bring the job market back into balance. The positive takeaways from the report included a decrease in inflation expectations, which the Fed tracks pretty closely, as well as a decrease in consumers planning to make big-ticket purchases and travel domestically.

If consumers are correctly predicting their vacation plans, that could help slow down inflation in the services sector. Also showing surprising strength was New Home Sales for May, which +12.2% month-over-month and +20% compared to last year. The good news is that the median sales price declined -7.6% year-over-year to $416,300. Additionally, the S&P Case-Shiller Home Price Index for April, also released yesterday, showed declines in the 20-city unadjusted index, which fell -0.2% from year-ago levels. It was the first year-over-year price decline since April 2012. However, the seasonally adjusted measure - which some economists believe is a better indicator of which direction the market is trending - showed a +0.9% increase for April.

Many bears believe the strong housing market is becoming a bigger problem for the Fed and may be something beyond its reach as far as the fight against inflation. Economists estimate the US market is short anywhere from -4.5 million to -6.5 million homes, which means sellers still have the upper-hand as far as pricing power, despite the significant rise in mortgage rates. And while Existing Home Sales have slowed this year, recent data indicates that buying activity seems to just be shifting to the new home market rather than declining across the board.

Today, economic data includes advance reads on Retail and Wholesale Inventories, as well as International Trade. General Mills and Micron Technology report earnings results today.

It's Shaping Up to be a Summer of "Labor Strikes": Workers are walking off the job across a remarkable range of industries from Starbucks baristas, to factory workers making parts for jets, to Amazon delivery drivers. The worker activism originally sparked by the pandemic seems to be increasing, thanks in part to companies starting to dial back, calling workers back to the office, and trying to stay profitable. It's true that the strikes aren't having much of a broad economic impact, for now, but they could portend even more labor unrest. Through May, there were about the same number of strikes in 2023 as in 2022, but the number of workers who walked out went up 80%. Then this month, really in the past week, there was a lot more action as about 3,000 Starbucks workers are on strike over gay pride decor and accusations of unfair labor practices. Two large strikes in the manufacturing industry got underway, 1,400 members of the United Electrical Workers union at a locomotive plant in Erie, Pa., and one involving about 6,000 workers at a Boeing supplier in Wichita. Looking ahead, two major collective bargaining agreements are about to expire. Later this summer, 150,000 autoworkers from GM, Ford, and Stellantis are set to begin what's expected to be fairly contentious negotiations for their new contract, and UPS is negotiating a contract with its 340,000 drivers right now, making it the biggest collective bargaining agreement in North America. Source Axios

Business Investment Still Trending Lower: We can clearly see a big slowdown in business investment since the end of 2021 as higher interest rates began to take their toll. Companies invest less when they expect the economy to soften. They also invest less when they see their cost of borrowing climb aggressively higher. The industrial side of the economy is just muddling along. Higher interest rates have dampened demand for expensive manufactured goods and consumers have shifted more of their spending to services such as travel. Source Market Watch

Are Private Credit’s Double-Digit Yields Too Good To Be True? The private credit industry has ballooned to $1.5 trillion in assets, more than tripling in the last decade. Private credit loans generally come with a floating rate pegged to a base rate like the London Interbank Offered Rate (Libor). With one year LIBOR rates nearly 6% and private lenders tacking on spreads of 5-7 percentage points on top of that, many funds are offering double-digit yields to investors. This spring’s regional banking crisis is helping private credit firms to take more market share on the margins, and some are planning to take loans off banks’ hands. But double-digit returns rarely last forever, and in a recent report Moody’s cast doubt on private credit’s future performance. Associate managing director Christina Padgett and four coauthors cautioned that loans originated in 2021, when the market was most frothy and fundraising hit its peak, are likely more susceptible to defaults. “It's extremely vulnerable to the change in rates on top of whatever softening we see in the economy, and these are sort of fragile businesses to begin with,” says Padgett. “We're going to continue to work on trying to shed light on an area that does present risk structurally because it is essentially supporting the leveraging of a lot of U.S. businesses.” With limited transparency and liquidity, an International Monetary Fund report warned that a potential decline may spill over into other markets if interest rates rise more and institutional investors face margin calls. Source Forbes

Some Advisors are Flocking to Alternative Investments: After a tough year for the stock and bond markets in 2022, some advisors are turning to alternative investments, according to a new survey from the Financial Planning Association. Nearly 30% of advisors are actively investing in or seeking alternative investments, or “alternatives,” for clients, the findings show. These assets typically fall outside traditional investments in publicly traded stocks, bonds and cash. “Diversification” and “risk mitigation” were top objectives among advisors who recommend alternatives, according to the FPA survey. While some advisors recommend alternatives, nearly 30% are “familiar” with them but are steering clear, the FPA survey found. For many advisors, the biggest obstacle was the “lack of liquidity” with certain products, especially amid economic uncertainty and higher borrowing rates. Fees and expenses were other challenges for alternatives, and those tend to be higher with certain products. The FPA survey cites private equity as the top category of alternative assets. Over 90% of respondents said they were currently using or recommending exchange-traded funds with their clients, and half expect to increase their usage over the next 12 months. Source CNBC

Costco Cracks Down On Membership Sharing: Costco is following the footsteps of other membership-based businesses and cracking down on membership sharing among its customers, the wholesale company announced Tuesday. The company has reportedly grappled with an increase in non-Costco members using other Costco members’ cards to shop at the store. Employees will begin reviewing membership cards at the recently expanded self-checkout, where the abuse has been particularly egregious, the company reportedly said. If a members’ card does not have a photo, the company said it will ask customers for a photo ID to verify their identity. Costco has 124.7 million cardholders worldwide, across 69.1 million households. Source Forbes

Baseball Scouts Call In Artificial Intelligence Help From the Bullpen: The most important thing a baseball team can do ahead of the amateur draft is predict future success for developing young ballplayers. Scouting has changed drastically since an explosion of data and technology entered the game a decade ago, and now Major League Baseball is introducing an even more high-tech tool: analysis of player potential via artificial intelligence. The league has partnered with Uplift Labs, a biomechanics company that says it can document a prospect’s specific movement patterns using just two iPhone cameras. The setup was available for use in evaluating prospects who agree to participate at the MLB draft combine last week in Arizona. Uplift says it uses artificial intelligence to translate the images captured by the phone cameras into metrics that can quantify elements of player movement. It believes the data it generates can detect player’s flaws, forecast their potential and, possibly, flag their potential for injury. Source WSJ

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