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Stock indexes are mixed with investors seeming to be losing interest in high-flying tech stocks and rotating more money into overlooked stocks that have lagged the broader indexes.
That’s helped the Dow notch six winning trading sessions in a row now, something it hasn’t done since December. The dimmed excitement for tech stocks is partially tied to recent earnings results from chipmakers that, while mostly topping analyst expectations for Q1 2024, haven’t really impressed with forward guidance enough to justify the high-flying valuations.
The strong US dollar also may be weighing on tech megacaps and other multinationals that dominate the S&P 500 and Nasdaq indexes. A strong dollar has the effect of making non-US generated profits worth less.
Remember, just over 40% of S&P 500 revenues stem from non-US sources.
The dollar index, which measures the greenback against six major currencies, is up about +4% so far this year. One thing that’s helping to buoy the dollar right now is the expectation that the US Federal Reserve will keep rates higher for longer than other global central banks.
Several companies during this earnings season have cited the USD as an expected headwind for the quarters ahead. Another main theme has been softening consumer spending with lower-income household budgets in particular starting to show cracks.
Today, investors this morning will be digesting the Bank of Englands monetary policy announcement. While no change is expected, investors are hoping for clues as to when the BoE might begin rate cuts. There are growing expectations that they could pull the trigger as early as June. In other words, long before the US Fed starts to cut. The only US data is weekly jobless claims.
On the earnings front, today’s highlights are Hyatt, Roblox, and Warner Music. Staying conservative!
Homeowners Now Sitting on Record Mountain of Equity and Wealth: The economy looks pretty great for Americans who are homeowners, and that's nearly 66% of the population, with about 34% renting. I should note, it's estimated that about 40% of homeowners have no mortgage on their home. Those homeowners with mortgages, however, hold close to $17 trillion in equity, a record high, per a report out this week from Intercontinental Exchange. A record $11 trillion of home equity is tappable, meaning homeowners can borrow against it while still maintaining at least 20% equity in the house, per the report, which looks at data from March. About 48 million folks have access to tappable equity, with an average of $206,000 per mortgage holder. The American dream of homeownership, where you snag a 30-year mortgage and step onto the wealth-building ladder, is kind of dead at the moment, unless you've already bought a home. Rising asset prices, both stocks and housing, make consumers feel pretty good. That wealth effect is likely helping to keep consumer spending numbers healthy. Meanwhile, because of rising mortgage rates and still-increasing home prices, buying a house is increasingly out of reach for first-time buyer. Source Axios
Will ExxonMobil Still Be Producing Oil and Gas in 2050? ExxonMobil CEO Darren Woods told Yahoo Finance on this week that the energy giant will still be producing oil and gas depending on how quickly the world transitions to green technologies. Woods envisions using oil and gas as feedstock for materials that will be more efficient and require less emissions to produce and in the process make oil and gas a smaller part of the portfolio than it is today, he said. The products that we make in 2050 may be very different than the products that we make today, said Woods. He cited for instance a resin material derived from fuel molecules that can be used to replace the reinforcing bars commonly used in construction projects. It's lighter, lower emissions, and more cost-effective and it doesn't corrode. Woods says that he doesn't believe the answer to net zero involves getting rid of fossil fuels altogether. If you want to dramatically reduce the amount of emissions happening today, you're going to have to abandon the energy systems that are in place. That means people around the world are going to have to do without, he said. The people who are lower on the economic prosperity scale ... If they don't have affordable, reliable energy, they'll be penalized. That, in my definition, is not a just transition. Source YahooFinance
Gas Prices Set To Drop Ahead of Memorial Day Weekend: As tens of millions of Americans are expected to hit the road for Memorial Day weekend travel, analysts expect those travelers might see a reprieve at the pump, as gasoline prices in the U.S. plateau heading into the unofficial start of summer. The national average price for a gallon of gas costs $3.64, according to data from GasBuddy and AAA, a two cent drop from a week ago putting the national average just above where it stood this time last year. AAA spokesperson Andrew Gross said last week he expects gas prices to remain “somewhat flat for the immediate future,” citing dropping oil prices (the Brent Crude Oil has since climbed up to $83.5 per barrel, though it’s still nearly $8 below where it stood last month). Patrick De Haan, head petroleum analyst for GasBuddy, also expects lower prices heading into Memorial Day, with wholesale gas prices dropping to their lowest point since February. De Haan speculated that $2.99 per gallon could be a possibility by July 4 at roughly one in 10 stations, likely across the South and Great Plains. U.S. gas inventories have also inched up, a promising sign for drivers, with the Energy Information Administration reporting a +4% increase from this point last year, to 227.1 million barrels as of late last month. Source Forbes
One Out of Every 24 New York City Residents Is Now a Millionaire: New York New York City’s residents have more wealth—in excess of $3 trillion—than those of any other metro in the world. New York has almost 350,000 millionaires, which is the most of any city and up 48% from a decade ago, according to a global ranking of the wealthiest cities. That means about one in every 24 of its 8.26 million residents has a seven-figure net worth, compared with about one in 36 in 2013. New York still has a large share of the ultra-rich, too: the report found that it has 60 billionaire and 744 people with investable wealth of more than $100 million. The findings illustrate the scope of New York’s wealth at a time when some of the city’s richest people are fretting a power shift to Florida as the finance industry sets up a Wall Street South. Miami ranked 33rd among the cities with the most millionaires, up +78% over the past 10 years. Source Bloomberg |
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Lenders Are Seeing a Bottom for Consumers: More consumers have been struggling to pay off their debts, and are likely tightening their belts. Thankfully for the economy, others can pick up the slack. Federal Reserve data at the end of last year showed that borrowers on cards and auto loans were moving into delinquent status at the fastest pace in several years. Some more recent readings, though, contain signs of a slowdown in that deterioration. Data on card loans collected by analysts at Jefferies showed the delinquency rate slipping 0.18 percentage point from February to March, better than the usual seasonal trend. This would be consistent with what many lenders are saying. The economy has been working through what remains of the big bump in income and savings that many consumers experienced during the pandemic and its aftermath, which led to a lending boom now reverberating in that jump in late payments. Following that, trends seem to be returning to normal, even if many consumers are still feeling the squeeze of higher borrowing and other costs. Digital consumer lender Upstart on Tuesday told analysts that it believes “the wave of elevated defaults propagating from the abrupt stimulus and de-stimulus of the economy in 2021 is now at or very close to its peak.” Source WSJ
Interest Rates on Federal Student Loans May Jump By +1%: The government sets interest rates on its education loans once a year. The rate, which runs from July 1 to June 30 the following year, is based in part on the May auction of the 10-year Treasury note. The May 8 auction put the high yield rate at 4.483%. As a result, federal student loan rates may increase in the 2024-2025 academic year, according to an estimate by higher education expert Mark Kantrowitz. The interest rate on new undergraduate loans will likely rise to 6.5% for the 2024-2025 academic year, up from 5.5% last year, Kantrowitz calculates. The U.S. Department of Education is expected to publish the official new rates in the coming weeks. Source CNBC
Will Tesla’s EV Charging Slowdown Supercharge Competitors? Tesla this past week laid off much of the team responsible for creating its EV charging network, which accounts for at least 60% of all direct current fast charging ports in the U.S. CEO Elon Musk wrote last week on X that Tesla still plans to grow the Supercharger network but at a slower pace. EV charging stocks, which had taken a beating over the past three years, rallied on the news. ChargePoint and Blink Charging have gained 32% and 16%, respectively, since last Monday, when layoffs were announced. There is no question that Tesla’s move leaves a large opening for competitors. No company has been able to match Tesla’s speed of EV charging build-out, its low cost or its reputation for reliability, according to industry analysts. Whether competitors can take full advantage of the vacuum Tesla has created is another question. Faster growth will ultimately require more funding. And there is another consideration: EV charging stocks are heavily dependent on the pace of EV adoption and Tesla’s latest moves offer mixed messages on the speed of that growth. Source WSJ |
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