Most major indexes traded higher this past week despite the rise in energy prices as investors are less focused on this and more so on the expected 23% y/y earnings growth on a 12% jump in revenue y/y. We are confident that companies will deliver at or above these levels and would use any meaningful pullback to accumulate shares.
On the interest rate front, global yields, including the benchmark 10-Year U.S. Treasury Note turned up this past week in response to the continuation of the conflict with Iran, the resilient U.S. economy, supply shifts and geopolitical concerns. Despite the higher rates, the yield curve is still within an acceptable range. In addition, we would be more concerned if the move was rapid rather than as it has been, gradual. We would also become somewhat concerned should the yield on the 10-Year approach five percent as opposed to where it sits now, 4.56%.
· Q2 Earnings Season kicks off this coming week which may go a long way in determining the direction of the stock market over the remainder of the Summer. Specifically, we will be watching to see how much remains in the AI trade, the impact of the war with Iran on the consumer and how businesses are dealing with sticky inflation pressures. For a full list of the potentially market moving earnings coming out this week, see below.
· South Korean Chipmaker SK Hynix (SKHY), that country’s second most valuable company and who along with Samsung comprise more than half of the KOSPI (Korean Composite Stock Price Index), started trading on the NASDAQ Composite this past Friday as American Depository Receipts (ADRs), rising thirteen percent. Investors may not be aware that this memory chip manufacturer, a key supplier to many technology companies, is also the world’s second largest manufacturer of memory chips, ahead of Micron (MU) and Sandisk (SNDK), two companies domiciled in the United States.
· Lightning Strikes. Former Circle K Store Manager Robert Gawiltza claims that he and another employee were indeed following company policy when they purchased $25 worth of lottery tickets left behind by a customer who was unable to pay for the purchase. Apparently, a customer came in and purchased $85 worth of lottery tickets but only had enough money for $60. It turns out that one of the tickets purchased by Gawiltza was the winner of a $12.8 million jackpot! The company contends that the unsold tickets legally belong to the company as the retailer. Following law, the Arizona Lottery is currently holding the proceeds until a judge decides the rightful owner.
Economic Data That Drove Market Sentiment This Past Week…
· Sales of Existing Homes fell 2.4% (2.8% y/y) to a Seasonally Adjusted Annualized Rate (SAAR) of 4.09 million units during June from 4.19 million during May. According to the National Association of Realtors (NAR) total housing inventory at the end of June was 1.56 million units, down from 1.57 million units in May, but up by 1.3% y/y. Unsold inventory rose to 4.6 months, up from 4.5 months during May. The report also noted that the median price for all existing homes rose 2.2% (1.8% y/y) to $440,600 in June from $431,200. (Source, National Association of Realtors)
· The Federal Reserve reported that Consumer Credit outstanding unexpectedly fell $0.2 billion during May, after rising $20.6 billion during April. Over the past year Consumer Credit has risen 2.1%. Non-revolving Credit (automobiles, consumer durables and student loans), which accounts for nearly two-thirds of total consumer credit, rose $5.1 billion during May (1.6% y/y) while revolving credit (credit cards) fell $5.3 billion (3.4% y/y). Importantly, consumer credit as a percentage of disposable income stood at ~21.7%, remains well within an acceptable range. (Source, U.S. Federal Reserve)
· The U.S. Trade Deficit widened to $77.6 billion during May from $54.6 billion in April. The value of Exports fell 3.20% to $317.7 billion from $328.2 billion while the value of Imports rose 3.27% to $395.3 billion during May from $382.8 one-month prior. (Source, Bureau of Economic Analysis)
· The Institute for Supply Management’s Services Purchasing Managers Index slid to 54.0% during June from 54.5% in May, the twenty-fourth consecutive month of expansion. Of note were New Orders (55.1% v 57.3%), Employment (51.2% v 47.9%), Backlog of Orders (54.9% v 51.3%) and Business Activity (55.4% v. 57.7%). The Prices Paid Component fell to 67.7% during June from 71.3% in May. (Source, Institute for Supply Management)
Economic Reports scheduled to be released this week, include the following – on Tuesday, June Retail Inflation as Measured by the Consumer Price Index (CPI); on Wednesday, June Wholesale Inflation as Measured by the Producer Price Index (PPI); on Thursday, Initial Weekly Claims for Unemployment Benefits, June Retail Sales and May Business Inventories; and, on Friday, June Housing Starts, Preliminary June Consumer Sentiment (University of Michigan), June Import and Export Prices, and June Industrial Production and Capacity Utilization.
Several potentially market moving companies are scheduled to report earnings, to include JP Morgan (JPM), Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), Wells Fargo (WFC), BlackRock (BK), Bank of NY Mellon (BNY), PNC Financial Services (PNC), Morgan Stanley (MS), ASML Holding (ASML), Johnson & Johnson (JNJ), United Health (UNH), GE Aerospace (GE), Taiwan Semiconductor (TSM), Netflix (NFLX), Intuitive Surgical (ISRG), Seagate Technology (STX) and Abbott Labs (ABT).