August 14, 2023

Stock Market’s Summer Rally Cools Off

📰 News Organizations

  • Stock Market’s Summer Rally Cools Off. The S&P 500 fell modestly for a second consecutive week. The tech-heavy Nasdaq Composite fell 0.7% to a one-month low. Economists are worried that the increase in wholesale prices serves as a reminder that the Fed isn’t ready to declare victory on its inflation campaign.'

  • U.S. Bank Lending Flattens Out In Latest Week. Commercial and industrial loans — a key economic driver — fell slightly in the week ending Aug. 2, the Federal Reserve said Friday. Lending dipped by $500 million to $2.75 trillion in the week.

  • Amazon Cuts Dozens Of House Brands As It Battles Costs, Regulators. Some of the brands remain on Amazon’s site for now, as the company sells off remaining inventory, but when completed its house-label clothing division will have just three brands: Amazon Essentials, Amazon Collection, and Amazon Aware.

  • SEC Investigates Illumina Over The Acquisition Of Cancer Test Developer Grail. The SEC informed Illumina about the probe and requested documents and communications related to the deal. Illumina, in the filing, said it is cooperating with the SEC.

  • SEC Delays Decision On Bitcoin ETF From Cathie Wood’s Ark Invest. The regulator said in a filing Friday that it is seeking public comment on one of the amendments in the application for the ETF, effectively pushing out the date a decision is needed for approval to 2024.

  • Amazon Designing Custom AWS A.I. Chips. These custom chips, Inferentia and Trainium, offer AWS customers an alternative to training their large language models on Nvidia GPUs, which have been getting difficult and expensive to procure.

🐦 Twitter

  • The least discussed housing topic is the 34.4 million Americans who own their home and have no mortgage. Massive wealth creation. Not “locked in” with a low rate and can move whenever they want. This is 25% of American households and they are driving the economy right now. Source.

  • Energy stocks are only 5% away from recent highs. If historical correlations matter, that would imply a 48% return for oil from its current levels. As a crucial contributor to inflation, rising energy costs could have a significant impact on Fed policy, thus affecting financial markets. Source.

  • Mixed end to last week with Energy decisively in the lead today; YTD laggards did relatively well as YTD leaders fell most. The NASDAQ underperformed and is near the bottom of the leaderboard MTD; Russell 1000 Value is doing best MTD (but still in last place YTD. Source.

  • Gas prices in the US have moved up to $3.94/gallon, their highest levels of the year. Declining YoY commodity prices were a major tailwind driving the CPI lower over the past year but that trend is now coming to an end. Source.

  • 30-year TIPS (Treasury Inflation-Protected Securities) Yield is near 2%, the highest level since 2011. Pay attention to the next auction scheduled for August 24 for signs of increased demand from pension funds and insurance companies. Source.

  • All of the headlines say the US hit a record $1 trillion in credit card debt. But what no one is discussing is how there is a record $3.5 trillion of untapped credit card debt. Americans have only used ~22% of their credit card debt limit. Source.

There's a battle brewing in the US bond market. On the one side, you have those who believe inflation is about to fall off a cliff into the deflation danger zone. On the other, you have those who believe we're just getting started in a high-inflation era.

Lisa Abramowicz

📓 Online Publications

  • Lithium Demand For EVs Is Soaring. Demand still exceeds supply, and is expected to remain that way through 2030. This is great news for top lithium miner Albemarle, which once again posted new record revenue and profitability.

  • Worth Of US Homes Nears $50T As Real Estate Values Hit All-Time High. The total worth of homes in the United States hit a record high of $46.8T in June, overtaking the prior all-time high of $46.6T set a year earlier, according to the analysis by Redfin.

  • Mortgage Rates Hover Near 7%. For the third consecutive week, mortgage rates were on the rise, forcing some hopeful home buyers to the sidelines. Freddie Mac’s latest nationwide survey shows the 30-year fixed-rate mortgage averaging 6.96%.

  • Reports Weekly Active Inventory Down 9% YoY. Active inventory declined, with for-sale homes lagging behind year ago levels by 9% This week marks a 7th consecutive decline in the number of homes actively for sale compared to the prior year, and the gap is growing.

🎧 Podcasts

  • EV Firm Proterra Files For Chapter 11 Bankruptcy Protection. The latest company to go belly up in an industry grappling with supply chain constraints, slowing demand, and a funding drought. Proterra intends to continue operating the business as usual to regain capital. Source(19:04)

  • Treasury Faces Major Debt Challenges. Given the government's rapid accumulation of deficits, the Treasury will likely need to issue around 3 trillion in new T-bills by year-end. Over the next 18 months, there's also a need to refinance approximately 9 trillion in existing government debt at elevated interest rates. Source(1:32:50)

  • Multi-Family and Upward Pressure On Yields. With mortgage rates at 7.5%, incoming multi-family supply is quickly absorbed, and new construction is hampered by unfavorable rates and slow rent growth. Existing low-interest mortgages limit mobility, possibly leading to upward pressure on yields. Source(17:58)

  • Elevated Inflation to Persist. Bob Elliott says that elevated inflation will persist as long as nominal wage growth significantly outpaces productivity growth. Wage growth data today shows 5-6% growth on a matched basis among those with the highest propensity to spend. Too high for inflation to durably fall to target. Source(27:18)