The financial markets are singing their own version of the song written by Sonny Bono and sung by Cher in 1967, “The Beat Goes On,” this despite the issues regarding tariffs, the recent tensions in the Middle East, the budget impasse and general disharmony in our nation’s Capital and elsewhere. To us it proves just how resilient as well as unpredictable the financial markets can be, the latter over the short-term. This “beat” may get old quickly should the conflagration between Israel and Iran spread meaningfully. However, for now and despite Friday’s pullback, stocks are buoyed by lower inflation but kept in check by valuation.
• China and the U.S. continued their trade negotiations, with rare-earth taking the center stage. According to an article in the Wall Street Journal this past Wednesday, “China is putting a six-month limit on rare-earth export licenses for U.S. automakers and manufacturers, according to people familiar with the matter, giving Beijing leverage if trade tensions flare up again while adding uncertainty for American industry.”
• Nvidia (NVDA) AI “competitor” Huawei Technologies of China conceded that “our single chip is still behind the U.S. by a generation,” this according to Huawei CEO Ren Zhengfei. Ren added that “the United States has exaggerated Huawei’s achievements. Huawei is not that great. We have to work hard to reach their evaluation.” Despite the outward humility, Huawei continues to pose stiff competition to Nvidia especially in China, a state-run economy, especially if the tariff talks stall. Absent that, Nvidia stock has room to run.
• GM to invest $4 billion in its U.S. Manufacturing Plants, according to a Tuesday news release. Of interest is the fact this substantial investment will focus this investment on gas-powered automobiles at its Oriona Assembly Plan in Michigan, its Fairfax Assembly Plant in Kansas City, Kansas and at its Spring Hill Manufacturing Plant in Spring Hill, Tennessee.
• According to data from J.P. Morgan, “partially retired households tend to spend more in the years preceding retirement and continue to spend more post-retirement than their fully retired peers.”. In our opinion, which we shared in this past Wednesday’s Chart Talk, this can be partially attributable to the pace of mind working part-time provides during periods of market volatility. We also cited health insurance, physical activity and socialization as other benefits.
• Tuesday, Meta (META), the company formerly known as Facebook, signed a 20-year agreement with Constellation Energy (CEG) to purchase 1.1 gigawatts of energy, necessary to power their Artificial Intelligence (AI) infrastructure. This comes on the heels of similar deals by Alphabet (GOOGL) as well as Microsoft (MSFT), both with similar intentions. Recent data from Apollo Global Management attributed one-percentage point of growth in Gross Domestic Product to data center construction.
• The Open Market Committee of the Federal Reserve meets this coming Tuesday and Wednesday, where they will decide the fate of interest rates. We were toying with the idea that regarding perhaps a 0.25% cut. However, given the current tension in the Middle East which has caused oil prices to shoot higher, this is now certainly off the table.
It’s The Economy…”
• The University of Michigan reported that the Preliminary June Reading of Consumer Sentiment surged to 60.5 (-11.3% y/y) from a final May 52.2 as well as from a preliminary May level of 50.8. The preliminary June expectations component jumped to 58.4 (-16.1% y/y) from the final May 47.9 and from mid-May 46.5. Lastly, the preliminary June current conditions component rose to 63.7 (-3.3% y/y) from a final May 58.9 and from a mid-May level of 57.6. According to the Survey of Consumers Director, Joanne Hsu, “year-ahead inflation expectations plunged from 6.6% last month to 5.1% this month. Long-run inflation expectations fell for the second straight month, stepping down from 4.2% in May to 4.1% in June. Both readings are the lowest in three months.” (Source, University of Michigan)
• Prices at the wholesale level as measured by the Producer Price Index rose 0.1% during May, after falling 0.2% in April. Over the past year the PPI has risen 2.6%, up from 2.4% in March, but down from a peak rate of 11.7% during March 2023. Energy prices were unchanged during May (-4.4% y/y) after rising 0.1% in April. Finished food prices rose 0.1% during May (3.5% y/y) after falling 0.9% in April. Excluding food and energy, the core PPI rose 0.1% during May (3.0% y/y), after sliding 0.2% in April. Prices for Intermediate Goods rose 0.1% in May (1.9% y/y), after rising 0.3% in April. (Source, U.S. Bureau of Labor Statistics)
• Initial Claims for Unemployment Benefits for the week ending June 7th remained unchanged at 248,000, which were revised higher by 1,000. The four-week rolling average rose 5,000 to 240,250 from 235,250, which was revised higher by 250. Continuing claims for the week ending May 31st rose 54,000 to 1,956,000 from 1,902,000 the prior week, which was revised 2,000 lower. The continuing claims four-week average rose 19,250 to 1,914,500 from 1,894,750. (Source, U.S. Department of Labor)
• The Consumer Price Index rose 0.1% during May (2.4% y/y), after edging 0.2% higher in April. The CPI has fallen from a y/y high of 9.1% during June 2022 and rests just above the 2.1% cycle low set last month. Energy prices fell 1.0% during May (-3.5% y/y) after rising 0.7% in April. Food and beverage prices rose 0.3% during May (2.9% y/y) after falling 0.1% during April. The cost of shelter rose 0.3% during May (3.9% y/y), after rising 0.3% during April. Excluding food and energy, the core CPI rose 0.1%, after rising by 0.2% during April. Over the past year the core CPI has risen 2.8% y/y, the weakest in four years. (Source, U.S. Bureau of Labor Statistics)
Economic Reports scheduled to be released this week include the following: on Tuesday, May Retail Sales, May Industrial Production, May Capacity Utilization and April Business Inventories; on Wednesday, May Housing Starts; on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits; and, on Friday, the May Index of Leading Economic Indicators.
Q1-2025 Earnings Season Has Begun To Wind Down. Nonetheless, several companies of note are scheduled to report, to include Lennar (LEN), Jabil (JBL), La-Z-Boy (LZB), CarMax (KMX), Darden Restaurants (DRI), Accenture (ACN) and Kroger (KR).