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Wall Street is highly anxious to see critical jobs and inflation data this week. The “higher for longer” rhetoric from Federal Reserve officials the last few weeks has been weighing on stocks. Bulls are hoping softer economic data this week will take some pressure off yields and revive investor optimism that seems to have faded as we’ve neared the end of Q1 2024 earnings season.
Key data today includes the ISM Manufacturing Index which has revealed a jump in wholesale prices the past two months that has some worried about another spike higher in consumer prices up ahead if the trend continues. Likewise, the ISM services index, which is due out on Wednesday, showed a spike in wholesale services costs in both March and April.
Bulls think a softer read on the prices paid component of both these indexes will go a long way in restoring confidence that the “disinflation” trend has resumed. The most important data this week will come Friday with the May jobs report.
Wall Street continues to pay particularly close attention to the pace of "wage gains" as that has been a top worry for the Fed. Wage gains slowed to +3.9% in April versus +4.1 in March. Most economists think the Fed would like to see that pace closer to +3.5%. Wall Street bulls will be happy to see job gains come in at or a little less than April’s +175,000.
Some Wall Street bears are worried that the jobs picture may soon to start to deteriorate and unemployment might spike as we move deeper into the summer and consumers continue to reign in spending.
Right now, Wall Street is welcoming a softer job market but it’s hard to say at what point that thinking might shift and investors start to worry about brewing economic trouble.
Keep in mind, the US consumer drives about two-thirds of the economy and the more strapped they become, the more spending declines, and the great the odds of a recession. Worse yet would be “stagflation” where growth plunges, unemployment climbs, and inflation stays high. Amid the debate as to when and by how much the Fed might cut its benchmark interest rate, investors will be looking to other global central banks that could jumpstart the rate cutting trend.
In Canada, the central bank on Wednesday is expected to trim interest rates by -25 basis points while the European Central bank is expected to do the same on Thursday.
There is also some potential that renewed inflationary worries could be further calmed this week as Israel and Hamas look to be moving closer to a cease fire deal backed by the US. If Hamas agrees to the proposal, the Biden administration has “every expectation” that Israel will also say yes, White House National Security Council spokesman John Kirby said Sunday.
There are no earnings of note today. By the end of this week we will be inside 150 days until the highly anticipated 2024 Presidential election. I'm thinking things could get a lot more volatile and uncertain between now and then..
OPEC Agrees to Extend Production Cuts to Boost Oil Prices: OPEC+ on Sunday agreed to extend all production curbs into next year, a deal that likely signals oil prices will remain elevated through the U.S. presidential election. The group has longstanding official reductions of -3.66 million barrels a day. Eight top producers in the group also agreed to continue voluntary cuts separately into 2025, currently around -2.2 million barrels a day, according to an OPEC+ document. But the voluntary cuts, which include a production cut of one million barrels a day from top producer Saudi Arabia, will be only maintained at the same level for three months before being gradually eased through September next year, the document says. In effect, the agreement gives the cartel considerably leeway to make adjustments depending on market conditions. Source WSJ
Homebuyers Are Starting to Revolt Over Steep Prices Across US: The US housing market — long crippled by an inventory drought — is finally starting to see listings rise. But now, in many places, the buyers just aren’t showing up. Sellers are grappling with the fact that higher-for-longer rates are choking off demand during what’s typically the key season for the market. And more of those owners are cutting asking prices than any time since November 2022 as inventory grows stale, according to Redfin Corp. “With mortgage rates rising back over 7%, the willingness of homebuyers to take a stab this season is diminished,” Ralph McLaughlin, senior economist at Realtor.com, said. “You can have high prices or you can have high mortgage rates, but you can’t have both for long.” The average rate on a 30-year mortgage has hovered near 7% since the middle of April. And prices have continued to climb higher. In the four weeks ended May 26, the median sale price was up 4.3% from a year earlier to a record $390,613, according to Redfin. While sales are falling on average in the US, geography matters. Sun Belt markets including Florida and Texas, which boomed with the influx of new arrivals during the pandemic, are now cooling in part because people have been priced out, according to Redfin. Meanwhile, metros in the west such as Seattle and the San Francisco Bay area had sharper corrections in late 2022 and are already beginning to recover. Source Bloomberg
S&P 500 Has Best May Since 2009, Thanks Again To the Biggest Companies’ Stocks: The S&P’s near +4% gain last month marked its best May since 2009 and second-best May of the last 20 years, according to FactSet data. But for investors in individual companies, it was an uneven month: The S&P, which tracks the total change in market capitalization for its 500 members and is thus skewed toward larger companies, outperformed the equal-weighted S&P 500, which considers each of the 500 stocks equally, for the fifth consecutive month of 2024. The equal-weighted S&P rose just +1% in May, extending the gap between the normal S&P (up +10% year-to-date including dividends, +39% dating back to the beginning of last year) and its equal-weighted counterpart (+4% and +19%, respectively). It’s the biggest stocks that drove the S&P 500’s rally, as Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta - the six West Coast technology leaders who are the only American firms valued at over $1 trillion - tacked on a whopping +$1.3 trillion in market cap, accounting for +76% of the index’s total gains. These six stocks have accounted for +40% of the S&P’s market value gained this year. If you invested $1,000 in each of the stocks of Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta at the beginning of last year, you’d now have about $18,500. A $6,000 investment in the S&P 500 at the start of last year would leave you with just below $8,400, and a $6,000 investment in the equal-weighted S&P would now be worth around $7,100. Source Forbes
OPEC+ Extends Deep Oil Production Cuts: OPEC+ agreed on Sunday to extend most of its deep oil output cuts well into 2025 as the group seeks to shore up the market amid tepid demand growth, high interest rates and rising rival U.S. production. Brent crude oil prices have been trading near $80 per barrel in recent days, below what many OPEC+ members need to balance their budgets. Worries over slow demand growth in top oil importer China have weighed on prices alongside rising oil stocks in developed economies. The Organization of the Petroleum Exporting Countries and allies led by Russia, together known as OPEC+, have made a series of deep output cuts since late 2022. OPEC+ members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand. Those include 3.66 million bpd of cuts, which were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2 million bpd, expiring at the end of June 2024. On Sunday, OPEC+ agreed to extend the cuts of 3.66 million bpd by a year until the end of 2025 and prolong the cuts of 2.2 million bpd by three months until the end of September 2024. OPEC+ will gradually phase out the cuts of 2.2 million bpd over the course of a year from October 2024 to September 2025. Source Reuters
China Makes Historic Landing on Far Side of Moon: China landed an uncrewed spacecraft on the far side of the moon on Sunday, overcoming a key hurdle in its landmark mission to retrieve the world's first rock and soil samples from the dark lunar hemisphere. The landing elevates China's space power status in a global rush to the moon, where countries including the United States are hoping to exploit lunar minerals to sustain long-term astronaut missions and moon bases within the next decade. The successful mission is China's second on the far side of the moon, a region no other country has reached. The side of the moon perpetually facing away from the Earth is dotted with deep and dark craters, making communications and robotic landing operations more challenging. Source Reuters
Post Office Raising Stamp Prices to 73 Cents: A request by the U.S. Postal Service (USPS) to raise prices of first-class mail stamps to 73 cents from 68 cents effective July 14 has been approved, regulators said Friday. The plan, announced in April and approved by the Postal Regulatory Commission, will raise overall mailing services product prices by +7.8%. USPS said this month it is also seeking an average +25% price hike for high-volume shippers to enter packages for regional delivery through its Parcel Select service. USPS in November reported a -$6.5 billion yearly net loss as first-class mail fell to the lowest volume since 1968. Stamp prices are up +36% over the last four years since early 2019 when they were 50 cents. First-class mail volume fell -6.1% in the 12 months ending Sept. 30, 2023 to 46 billion pieces and is down -53% since 2006. Source Reuters
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