Stocks pushed higher with the S&P settling just over the six-thousand mark at 6,000.36, having bounced 20.42% off their April 8, closing low of 4,982.77. The NASDAQ Composite, U.S. Total Market Index and Russell 2000 have all risen between 20% and 30% over that same time frame. Presently, all large cap indexes are within striking distance of their all-time highs set earlier this year, prior to the tensions over trade. Friday, investors received an encouraging jobs report (see below) that showed a labor market that was slowing only modestly. Despite and perhaps because of the strong “V-shaped” rebound, this is not the time to get giddy, but rather maintain a well-diversified portfolio as there will most likely be further bouts of volatility as the trade negotiations unfold.
· According to brokerage firm Edward Jones, “despite macroeconomic headwinds and headline volatility, S&P 500 companies delivered solid results, growing profits 12.5% year-over-year, the third quarter of double-digit growth in the past four.” This is pretty much in line with the gains in the corresponding index implying a stable price-to-earnings ratio, a key metric in determining valuation.
· The spat heard round the world. President Trump and Elon Muk’s falling out was one for daytime drama and yet, we would expect it to deescalate as President Trump needs Elon Musk’s money during the mid-term elections and Elon Musk needs government contracts for his myriad of companies. One caveat, given their bombastic personalities, this might take a little time. Nonetheless, investors have begun to look past the noise and focus on the underpinnings of the economy, which are decent.
· After the European Central Bank and India’s Central Bank, the Royal Bank of India cut rates by 0.25% and 0.50%, respectively, U.S. President Donald Trump called for a full 1.00% rate cut by the Federal Reserve. On his own social media cite, Truth Social, Trump posted, “go for a full point. Rocket Fuel!” In our opinion, the Fed is in a pickle, damned if they do and damned if they don’t as, yes, inflation has eased. However, the labor market remains resilient and U.S. companies or consumers have yet to quantify the impact of tariffs.
· 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.
It’s The Economy…”
· Non-Farm Payrolls (approximately 80% of the U.S. workforce) rose by 139,000 during May, above the consensus estimate of 125,000. Payroll numbers for the prior two months were revised to 147,000 and 120,000, from 177,000 and 185,000 during April and March, for a net loss of 95,000. The rolling three-month average fell to 135,000 from 155,000. Private Sector companies added 138,000 jobs while the Public Sector added 1,000. This includes a 22,000 drop in federal government employment during April (-1.6% y/y) and 59,000 year-to-date. Payroll data was influenced by health care (62,000) along with leisure and hospitality (48,000). The Unemployment Rate remained at 4.2% during May when compared to April. The Unemployment Rate had gotten as low as 3.4% in April 2023. According to the household survey, the labor force fell by 625,000 and employment by 696,000. Average Hourly Earnings rose 0.42% or $0.15 to $36.24 during May from $36.09 one month prior and by $1.35 or 3.87% from $34.89 y/y. Average Weekly Earnings rose 0.42% or $5.14 to $1,243.03 during May from $1,237.89 during April. Average Weekly Earnings over the past year have risen by $46.30 or 3.87% from $1,196.73 as Average Hours Worked held steady at 34.3 m/m as well as from one year ago. (Source, U.S. Department of Labor)
· The Federal Reserve reported that Consumer Credit outstanding rose $17.9 billion during April, after rising $10.6 billion during March. Analysts had expected Consumer Credit to rise by $11.0 billion. 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 $10.2 billion during April (1.7% y/y) while revolving credit (credit cards) rose $7.6 billion (3.4% y/y). Importantly, consumer credit as a percentage of disposable income fell to 22.1% during April as compared to 22.8% one year prior. (Source, U.S. Federal Reserve)
· The Institute for Supply Management’s composite index of non-manufacturing (service) sector activity rose to 51.6% during April from 50.8% in March. Of note were New Orders (52.3% v 50.4%), Employment (49.0% v 46.2%), Backlog of Orders (48.0% v 47.4%) and Business Activity (53.7% v. 55.9%). The Prices Paid Component rose to 65.1% during April from 60.9% during March. (Source, Institute for Supply Management)
· The Institute for Supply Management’s composite index of manufacturing sector activity fell to 48.5 during May compared to 48.7 in April. Generally, a reading above 50% indicates that the manufacturing economy is expanding, below indicates one in contraction. Of note were the changes in New Orders (47.6% v. 47.2%), Production (45.4% v. 44.0%), Supplier Deliveries (inverse, higher number indicates slower delivery times) (56.1% v. 55.2%), Inventories (46.7% v. 50.8%) and Employment (46.8% v. 46.5%). The Prices Paid Component slid to 69.4% during May from 69.8% during April.
Economic Reports scheduled to be released this week include the following: on Wednesday, May Retail Inflation as Measured by the
Consumer Price Index (CPI); on Thursday, the Weekly Report of Initial Claims for Unemployment Benefits along with May Wholesale Inflation as Measured by the Producer Price Index (PPI); and, on Friday, a final look at May Consumer Sentiment as reported by the University of Michigan.
Q1-2025 Earnings Season Has Begun To Wind Down. Nonetheless, several companies of note are scheduled to report, to include Casey’s General Stores (CASY), GameStop (GME), JM Smucker (SJM), Dave & Buster’s (DAVE), Chewy (CHWY), Oracle (ORCL), Kroger (KR), Adobe (ADBE) and RH (RH)