Stocks notched another record closing high this past Thursday before settling back fractionally on Friday. Given the rally off the early April low, it certainly makes sense that a time out is necessary and would be healthy. That said, over the short haul the market confounds all so nothing would surprise us. As we noted last week, central to the move was a backing up of what President Trump promised during his campaign which was to focus on economic growth. This came in the form of deregulation as well as the passage of the tax bill which was signed into law earlier this month.
· The U.S. Pentagon announced that it was purchasing $400 million of preferred stock of rare earth miner, MP Materials (MP), backstopping the Las Vegas headquartered company in its effort to build a second magnet facility with the United States. Magnets as well as other rare earths are vital components to a broad range of military weaponry along with electronics, wind turbines and electric vehicles. Presently, approximately 70% of rare earths are mined in China along with nearly 90% of the refining capacity.
· According to the minutes from the June 17-18 meeting of the Open Market Committee of the Federal Reserve (FOMC), “most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate.” On the topic of tariffs the minutes noted that “the eventual effect of tariffs on inflation could be more limited if trade deals are reached soon, if firms are able to quickly adjust their supply chains, or if firms can use other margins of adjustment to reduce their exposure to the effects of tariffs.”
· At an event in Ireland, JP Morgan CEO Jamie Dimon, never one to hold his tongue, plainly state that Europe was losing its competitiveness with the United States. He further state that “Europe has gone from 90% of U.S. GDP to 65% over 10 or 15 years. That’s not good.” “We’ve got this huge, strong market and our companies are big and successful, have huge kinds of scale that are global. You have that, but less and less.” In our opinion, the root cause of this is too much regulation along with social engineering – something the U.S. must avoid if it is to remain a global economic powerhouse.
· According to data reported by Bloomberg, the U.S. dollar suffered it worst first half of a year since 2005 as many speculated that the Trump Administration intentionally was weakening the greenback in an effort to reshore manufacturing. Although bullish for exporters, it also raises concerns as the United States relies on foreigners to purchase a substantial percentage of our debt and a declining dollar reduces returns. (Source; Bloomberg)
· The Bitcoin beat goes on with the cryptocurrency surging to a record during trading on Friday. Thus far this year, the speculative, yet lucrative coin has risen approximately 25%. Some see it as a symptom of an overheated market, others as a result of the drop in the dollar.
It’s The Economy…”
· Initial Claims for Unemployment Benefits for the week ending July 5th fell 5,000 to 227,000 from 232,000, which were revised lower by 1,000. The four-week rolling average fell 5,750 to 235,500 from 241,250, which was revised lower by 250. Continuing claims for the week ending June 28th rose 10,000 to 1,965,000 from 1,955,000, which was revised 9,000 lower. The continuing claims four-week average rose 3,500 to 1,955,250 from 1,951,750. (Source, U.S. Department of Labor)
· The Commerce Department reported that Wholesale Inventories fell 0.3% during May (1.4% y/y) after rising 0.1% in April. Wholesale Sales fell 0.3% (4.8% y/y) during May, after remaining unchanged in April. Meanwhile, the Inventory-to-Sales Ratio remained at 1.30 months in May for the fourth consecutive month but has fallen from 1.34 months one year prior. (Source, U.S. Census Bureau)
· The Federal Reserve reported that Consumer Credit outstanding rose $5.1 billion during May, after rising $16.9 billion during April. Analysts had expected Consumer Credit to rise by $12.0 billion. Over the past year Consumer Credit has risen 2.0%. Non-revolving Credit (automobiles, consumer durables and student loans), which accounts for nearly two-thirds of total consumer credit, rose $8.6 billion during May (1.8% y/y) while revolving credit (credit cards) fell $3.5 billion (2.6% y/y). Importantly, consumer credit as a percentage of disposable income rose to 22.5% during May as compared to 22.3% during April and 22.8% one year ago. (Source, U.S. Federal Reserve)
Economic Reports scheduled to be released this week include the following: Tuesday, June Consumer Price Index (CPI); on Wednesday, June Producer Price Index (PPI), June Industrial Production and June Capacity Utilization; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits, June Retail Sales and June Business Inventories; and, on Friday, June Housing Starts and July Preliminary Consumer Sentiment.
Several Q2 Earnings Season is About To Ramp Up. Companies of note scheduled to report earnings this week include JP Morgan Chase (JPM), Blackrock (BLK), Citigroup (C), Progressive (PGR), Goldman Sachs (GS), Johnson & Johnson (JNJ), Bank of America (BAC), Morgan Stanley (MS), Taiwan Semiconductor (TSM), Abbott Labs (ABT), GE Aerospace (GE), Netflix (NFLX), Pepsi (PEP), Charles Schwab (SCHW) and American Express (AXP).