Commentary |
Stock bulls seem to be struggling as excitement over Nvidia’s big earnings beat fails to boost the broader market. Bears continue to argue that artificial intelligence hype has been overdone and that investors are overlooking signs of trouble brewing in the US economy.
Many bears are pointing out that the strain on consumer wallets is forcing companies to cut prices, which will in turn likely have a negative impact on earnings in the quarters ahead. And though lower goods prices will have cooling effect on prices, most bears doubt it will be enough to offset services and housing inflation that continue to climb.
Several Federal Reserve officials have expressed confusion about the lack of decline in “shelter” inflation, which is calculated using rental prices as well as “owner-equivalent rents” to account for all housing costs. Because rental properties only turnover once a year at most, price changes are reflected in inflation measures with a considerable lag. The problem is that no one seems to know how long that lag is, not even the Fed. Housing inflation has slowed from a peak of +8.2% one year ago to +5.6% in March, though that is still very high.
Wall Street economists think shelter inflation needs to be below +4% to get to the Fed’s +2% inflation target. For what it’s worth, Existing Home Sales prices climbed another +5.7% in April while New Home Sales prices were up +3.9% last month.
Shelter accounts for one-third of the consumer-price index and around one-sixth of the price index of personal-consumption expenditures. The only economic data is Consumer Sentiment and Durable Goods Orders. There are no earnings of note.
Keep in mind, markets could be a little more volatile today as investors head out early for the Memorial Day holiday weekend.
The economic data highlight next week will be the PCE Prices Index on Friday, which is one of the Fed’s favorite gauges. Other data includes the FHFA Housing Price Index, the S&P Case-Shiller Home Price Index, and Consumer Confidence on Tuesday; and Pending Home Sales, the second estimate of Q1 GDP (gross domestic product), and advance reads on International Trade, Wholesale Inventories, and Retail Inventories on Thursday.
The earnings calendar includes Abercrombie & Fitch, Advance Auto Parts, American Eagle, Chewy, Dick’s Sporting Goods, HP, and Salesforce on Wednesday; and Best Buy, Burlington, Costco, Dell, Dollar General, The Gap, Hormel Foods, Marvell Technology, and Nordstrom on Thursday.
Federal Reserve Bank of Atlanta President Raphael Bostic say he thought monetary policy has been less effective in slowing growth than in previous cycles, which reinforcing the need to keep rates higher for longer to help curb inflation. That can eventually weigh on the US consumer and then starts to negatively impact corporate earnings.
Remember, to this point a lot of the earnings beats have come on cost-cutting not necessarily top-line growth. Once you've done all the trimming of the fat you can do, you eventually have to show increasing market-share and or increasing profit margins. And if inflation and rates stay higher for longer showing real growth is going to get tougher and tougher for a lot of US businesses.
I wish everyone a safe and happy Memorial Day weekend, and a Special Thank you to all of those who have served our great nation and to all of the families who have had to sacrifice through the years while your loved ones were defending and protecting our freedoms!
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If you can find about 3 minutes of time I urge to watch this short Memorial Day speech by Ronald Reagan. God Bless America! Click HERE and share and share often because regardless of our political differences and opinions...we must recognize those that sacrificed themselves for our Freedom. JPMorgan CEO Says Can’t Rule Out ‘Hard landing’ For the US: JPMorgan Chase’s chairman and CEO, Jamie Dimon, says a “hard landing” for the U.S. cannot be ruled out. Speaking at the JPMorgan Global China Summit in Shanghai, he told CNBC that the worst outcome for the U.S. economy will be a “stagflation” scenario, where inflation continues to rise, but growth slows amid high unemployment. Dimon also said interest rates could still go up “a little bit” as he thinks inflation is stickier than people are forecasting. Source CNBC
Number of 401(k) Millionaires Hits New Record: The universe of 401(k) accounts with balances of $1 million or more at Fidelity Investments rose to a record 485,000 in the first quarter, according to the company. With stocks surging, the number of retirement account millionaires jumped 15% from the prior quarter and 43% since March 2023. Average retirement account balances, meanwhile, hit their highest level since the end of 2021, rising to $125,900 for 401(k)s and $127,745 for IRAs. It’s worth noting that average balances tell a skewed story since large account balances boost the averages. The median balance for 401(k)s at Fidelity is $28,900, and $15,000 for IRAs. Millionaire retirement accounts remain a rarity, making up about 2% of the roughly 24 million defined contribution plan accounts at Fidelity. These account holders, not surprisingly, tend to be older. Fidelity’s 401(k) millionaires had an average tenure of 26 years in their workplace retirement savings plans and an average contribution rate of 17% . Source Bloomberg
US Sues Live Nation-Ticketmaster for Being Monopoly: The Department of Justice and a group of 30 state and district attorneys general on Thursday announced a lawsuit against ticketing giant Live Nation on antitrust grounds. The outcome of the legal battle could upend the ticketing and live events industry for years to come. Live Nation illegally abused its monopoly power in live ticketing following its 2010 acquisition of Ticketmaster, the attorneys general and Justice Department said in a lawsuit filed in the Southern District of New York on Thursday morning. They argue Live Nation leveraged Ticketmaster's exclusive contracts with concert venues to maintain a monopoly in the live entertainment industry, allowing them to "freeze innovation and bend the industry to their own benefit." They argue a breakup of the company is necessary to protect consumers and competitors. They are seeking a jury trial to litigate their case. Source Axios
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SpaceX Weighs Plan to Sell Shares Valuing Firm at $200 Billion: Elon Musk’s SpaceX has initiated discussions about selling existing shares at a price that could value the closely held company at roughly $200 billion, according to people familiar with the matter. SpaceX is discussing a tender offer that may kick off in June, said some of the people, who asked not to be identified because the information is confidential. The price for the upcoming tender offer has not been decided but SpaceX is weighing offering shares at $108 to $110 apiece, said one of the people. A $200 billion valuation would be a premium to the $180 billion valuation the company obtained through its most recent tender offer. Already, SpaceX is on par with some of the world’s largest, publicly traded companies by market capitalization. Source Bloomberg
SEC Opens the Door for Spot Ether ETFs: The Securities and Exchange Commission on Thursday paved the way for trading in exchange-traded funds that invest directly in the cryptocurrency Ether, putting the digital-asset industry on the cusp of a significant milestone. In a first-of-its-kind blessing, the SEC signed off on a proposal by venues run by Cboe Global Markets Inc., Nasdaq and the New York Stock Exchange to list products tied to the world’s second-biggest cryptocurrency. The move, which had seemed unlikely as recently as last week, removes a key hurdle for spot Ether ETF trading in the US. Issuers now need a separate sign-off from the regulator; no deadline has been set for that decision. Investment companies, including VanEck, ARK Investment Management, BlackRock Inc., and Fidelity Investments, are all vying for crucial first-mover advantage in the race to launch a spot Ether ETF. Their interest has been piqued by billions of dollars gushing into new Bitcoin ETFs since January when the SEC signed off on trading in those products. Source Bloomberg
NOAA Forecasts Extraordinarily Busy Atlantic Hurricane Season: The 2024 Atlantic hurricane season features an unprecedented combination of air and ocean conditions, and is likely to be extremely active, according to the U.S. government's official seasonal outlook released this morning. Hurricanes are nature's largest and most expensive storms, and the odds of a U.S. landfall during an above average season may be generally higher this year. NOAA is forecasting the season will bring 85% odds of an above normal season, with 17-25 named storms of tropical storm intensity or greater, eight to 13 of which will become hurricanes, and four to seven major hurricanes of Category 3 or greater. This is the most aggressive hurricane season outlook that NOAA has ever issued for its May outlook, Spinrad said. The numbers are well above the 1991-2020 average of 14 named storms, seven hurricanes and three major hurricanes each season. Source Axios
The Startups Coming for Nvidia’s Crown: Access to GPUs, and in particular those made by Nvidia, the leading supplier, is vital for any company that wants to be taken seriously in artificial intelligence (AI). Analysts talk of companies being “GPU-rich” or “GPU-poor”, depending on how many of the chips they have. Tech bosses boast of their giant stockpiles. Nvidia’s dominance has pushed its market value above $2trn. On May 22nd it reported that its sales for the quarter ending in April grew by 262%, year on year. The initials stand for “graphics processing unit”, because such chips were originally designed to process video-game graphics. It turned out that, fortunately for Nvidia, they could be repurposed for AI workloads. Might it be better to design specialist AI chips from scratch? That is what many companies, small and large, are now doing in a bid to topple Nvidia. Dedicated ai chips promise to make building and running AI models faster, cheaper or both. Any firm that can mount a credible threat to the reigning champion will have no shortage of customers, who dislike its lofty prices and limited supplies. Source The Economist
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