It was somewhat of a “dog days of Summer” week as volume was light and the major indexes meandered near record highs. In fact, three of them (Dow Jones Industrial Average, S&P 500, U.S. Total Market Index) are within a percent of that mark with the Russell 2000 closing Friday at a record. The key figures investors were watching this week were the inflation data and that did not surprise, elevated but trending slowly in the right direction. (See below.) The end of the war with Iran certainly would help with that. Historically, muted volume can result in heightened volatility, so this past week is welcome as both professional investors along with school children get ready for the increased workload beginning in September.
· According to FactSet, “at this late stage of the earnings season, the (blended) revenue growth rate for the S&P 500 for Q2 is 15.0%. If 15.0% is the actual growth rate for the quarter, it will mark the highest revenue growth rate reported by that index since Q4 2021 (16.1%). However, the Q2 revenue growth rate for the S&P 500 has been increasing over a longer period. On March 31, the estimated growth rate for Q2 was 9.5%. On June 30, the estimated growth rate for Q2 was 12.2%. Today, the (blended) revenue growth rate is 15.0%. All eleven sectors are reporting (or have reported) year-over-year revenue growth. Five of these eleven sectors are reporting (or have reported) double-digit revenue growth led by Energy, Information Technology and Communication Services sectors.” We always believe that if you focus on the downside, the upside will take care of itself. At this time, we don’t see substantial downside risk.
· According to the Department of Energy, stockpiles in the U.S. Strategic Petroleum Reserve fell to their lowest level since 1983, sparking concerns that such a level could damage the caverns that hold those reserves. The reserves, now at 298.7 million barrels, have dwindled due to the war with Iran. This past March President Trump authorized the release of 172 million barrels to offset the closing of the Strait of Hormuz by Iran. Upon the completion of the drawdown, the reserves will be at around 243 million barrels. This bears watching. Created by Congress in 1975, the Strategic Petroleum Reserve is a stockpile of oil buried in deep underground salt caverns in Texas and Louisiana. They are kept to help control the price of oil during supply disruptions.
· Nvidia (NVDA) announced this past week that has lined up “strategic partnerships to establish independent compute financing platforms with Apollo, BlackRock, Brookfield, Goldman Sachs and KKR to mobilize over $500 billion of third-party capital for the buildout of AI infrastructure over time.” According Nvidia founder and CEO Jensen Huang, “this is really the first time that technology chips have become an investable asset class.” Semiconductors have always been a cyclical investment. AI may either be changing that permanently or just elongating the cycle. Time will tell.
Economic Data That Drove Market Sentiment This Past Week…
- Retail Sales fell 0.6% in July (5.0% y/y), after rising 0.2% in June. Spending on Motor Vehicle & Parts fell 1.8% during July (1.9% y/y) after rising 2.9% in June. Retail Sales Excluding Motor Vehicles & Parts fell 0.3% during July (5.8% y/y), after sliding 0.2% during June. Two key components of this report, Sales at Gasoline Stations fell 0.9% during July (16.2% y/y) after falling 5.8% in June as Restaurant and Drinking Place Sales rose 1.8% during July (4.2% y/y) after plunging 4.8% in June. Also of note was the 0.5% slide in sales at electronic & appliance stores (4.7% y/y) as well as the 1.9% jump (5.0% y/y) in sales at clothing and accessory stores. (Source, U.S. Census Bureau)
- The University of Michigan reported that its Preliminary August Reading of Consumer Sentiment fell to 51.0 (-12.4% y/y) from a final July 55.2 as well as from a preliminary July 54.4. The preliminary August expectations component fell to 50.6 (-9.5% y/y) from a final July 55.4 and from a preliminary July 54.7. Lastly, the preliminary August current conditions component slipped to 51.8 (-16.0% y/y) from a final July 54.8 and from a preliminary July 54.7. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment fell about 8% this August, ending two consecutive months of improvement. While views of personal finances saw only minor declines, expected business conditions sank 11% for the short run and 17% for the long run.” (Source, Univ of Michigan)
- Prices at the wholesale level as measured by the Producer Price Index slipped 0.03% during July, this after falling 0.1% in June. Over the past year the PPI has risen 4.7%, down from 5.5% in June. Energy prices fell 3.1% during July (18.2% y/y) after falling 6.5% in June. Finished food prices fell 0.9% during July (-0.1% y/y) after falling 0.5% in June. Excluding food, energy and trade, the core PPI rose 0.4% during July (4.7% y/y), after rising 0.1% in June. Prices for Intermediate Goods fell 0.6% during July (9.9% y/y) after falling 1.1% in June. (Source, U.S. Bureau of Labor Statistics)
- Inflation at the Retail Level as measured by the Consumer Price Index rose 0.1% during July (3.4% y/y), after sliding 0 4% during June. The CPI has fallen from a y/y high of 9.1% during June 2022 but remains stubbornly elevated relative to the Fed’s 2.0% target. Energy prices slid 1.5% during July (14.7% y/y) after dropping 5.7% in June. Food at home prices rose 0.2% (2.7% y/y) during July matching the increase during June. The cost of shelter rose 0.2% during July (3.2% y/y), after rising 0.1% during June. Excluding food and energy, the core CPI rose 0.3% during July after remaining flat during June. Over the past year the core CPI has risen 2.5%, well below the September 2022 peak of 6.6%. (Source, U.S. Bureau of Labor Statistics)
- Sales of Existing Homes fell 1.7% (0.7% y/y) to a Seasonally Adjusted Annualized Rate (SAAR) of 4.06 million units during July from 4.09 million during June. According to the National Association of Realtors (NAR) total housing inventory at the end of July was 1.54 million units, down from 1.56 million units in June and by 0.6% y/y. Unsold inventory held steady at 4.6 months during July as compared to May. The report also noted that the median price for all existing homes fell 2.0% (2.0% y/y) to $434,100 in July from $440,600. According to National Association of Realtors Chief Economist Lawrence Yun, “home sales have been remarkably stable, even amid the rising mortgage rate environment of the past few months. Year-to-date sales are up 2.4% and there’s no doubt that the housing market would be thriving if average mortgage rates would return near 6%.”. (Source, National Association of Realtors)
Economic Reports scheduled to be released this week, include the following – on Tuesday, July Housing Starts along with July Industrial Production and Capacity Utilization; on Thursday, Initial Weekly Claims for Unemployment Benefits and the July Index of Leading Economic Indicators (LEI).
Several potentially market moving companies are scheduled to report earnings, to include BHP Group (BHP), Home Depot (HD), Baidu (BIDU), Viking Holdings (VIK), Target (TGT), Lowe’s (LOW), Analog Devices (ADI), TJX (TJX), Estee Lauder (EL), Walmart (WMT), Deere (DE), Alibaba (BABA), NetEase (NTES) and Ross Stores (ROST).
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
