- Winston Churchill Friday, February 7, 2020 Morning Summary

[Pages:24]"Be governed not by the tyranny of the urgent but by the elevation of the important." - Dwight Eisenhower

Thursday, June 23, 2022 Printable Copy or Audio Version

Morning Summary: Stock bulls are struggling to sustain any meaningful rallies as investor optimism continues to take hits. To say the landscape is challenging would be a big understatement. It's been four decades since consumers and businesses have really had to deal with anything resembling "chronic" inflation and just as long since the Federal Reserve has needed to embark on such an aggressive tightening path. During recent testimony before Congress, Fed Chair Jerome Powell acknowledged that the central bank's tightening plan could tip the economy into recession, saying that it will be "very challenging to deliver a soft landing." He also pointed out that the Fed's tools are blunt instruments that operate with a lag of about a year, which Powell says increases the chance of a recession, particularly as some of the forces behind inflation are beyond the central bank's control. Bulls contend that because of the delayed impact of Fed policy, the central bank will need to pause in order to allow the data to catch up with what's happening on the ground. Otherwise, most bulls believe a recession is all but inevitable. Many on Wall Street argue that US "unemployment" must rise before we start to see any noted relief from inflation. In fact, some sources are thinking US unemployment might need to push to +6% or +7% for a few years before we get inflation back under control. Therefore, many experienced investors are suggesting the playbook reads increasing unemployment coupled with declining financial conditions due to higher interest rates and tighter monetary policy. The big question is how much has the stock market already factored into the equation. Keep in mind, the S&P 500 is currently on track for its worst half-year performance since the Great Depression, so how much further will we pullback? Bears however are quick to point out that a lot depends on the Fed and if they will struggle to control inflation. Bulls point to the price of gasoline finally declining this week to sub-$4.95 per gallon vs. over +$5.01 last week vs. 4.59 a month ago. But bears point to the fact gasoline last year at this time was averaging only around $3.05 per gallon. Another interesting concern pointed out by the bears if that US gasoline sales are now down over -8% in the first full-week of June. As for today, Fed Chair Powell returns to Congress for more testimony, though investors don't expect to hear anything new as the second day tends to be a repeat. Economic data today remains limited with just preliminary reads on IHS Manufacturing and Services Indexes. Earnings are a little more interesting today with Accenture, Darden Restaurants, and FedEx due to report results. I remain extremely cautious and overweight "cash" and "energy".

American Airlines to Drop Service to Four US Cities in September, including Dubuque, Iowa, which will lose scheduled commercial air service altogether. The Fort Worth-based carrier blamed the service cuts on a shortage of regional pilots. American, United Airlines and Delta Air Lines have each scaled back service between some smaller cities and their hubs, citing a lack of aviators. (Source: CNBC)

Will Amazon Run Out of People to Hire? Amazon could run out of people to hire in its US warehouses by 2024, according to leaked Amazon internal research from mid-2021 that Recode reviewed. If that happens, the online retailer's service quality and growth plans could be at risk, and its e-commerce dominance along with it. Raising wages and increasing warehouse automation are two of the six "levers" Amazon could pull to delay this labor crisis by a few years, but only a series of sweeping changes to how the company does business and manages its employees will significantly alter the timeline, Amazon staff predicted. (Source: Recode)

Look Up and See the Planets Aligned... Mercury, Venus, Mars, Jupiter, and Saturn have been aligning in order this month and this "parade of planets" hasn't been seen from Earth in 18 years, and it won't happen again until 2040, experts say. This week will offer the peak viewing time to see the planet parade. You won't need a telescope to see the rare grouping of planets, as they will all be visible to the naked eye. It might still be difficult to see Mercury, however, because of how dim it appears. As we get closer to the end of June, Mercury will become brighter as it gradually climbs higher above the horizon each night, according to Sky and Telescope. The best day for viewing will be tomorrow early morning, Friday, June 24, when the waning crescent moon joins the lineup of planets. Looking toward the southeast, the moon will appear positioned between Venus and Mars. The best time to look to the sky will be about 45 minutes to about 1

hour before sunrise through the end of June. Keep in mind that June has some of the earliest sunrises of the year, so this means the ideal viewing time is just before 5 a.m.

Will Russell Rebalancing Roil Stock Markets on Friday? Investors are bracing for a heavy day of trading Friday due to the rebalancing of the Russell U.S. equity indexes, an annual reconstitution that comes amid elevated volatility in the stock market. Global index provider FTSE Russell kicked off the rebalancing process on May 6, or so-called rank day, to ensure the indexes accurately reflect the U.S. stock market. The reconstitution, scheduled to take place after the market's close on Friday, tends to be among the biggest trading days of the year, according to Steven DeSanctis, an equity strategist at Jefferies. About $12 trillion in investor assets are benchmarked to the Russell U.S. indexes, according to a FTSE Russell statement in early June. The larger trading volume tied to the rebalancing could exacerbate stock market volatility, which has already been running high. Volume will likely surge heading toward the closing bell Friday, according to Jay Woods, chief market strategist at DriveWealth, a broker-dealer on the floor of the New York Stock Exchange. "It's all about the close," Woods said by phone Wednesday. "That closing trade is the most important trade for all these mutual funds and ETFs" ahead of the rebalancing as it serves as a gauge of their performance, he said. Under the Russell reshuffling, a "good chunk" of Facebook parent Meta Platforms Inc.'s META shares are set to move to the Russell 1000 Value Index from the Russell 1000 Growth Index, according to a Jefferies note. Learn more at MarketWatch.

JPMorgan Lays Off Home Lending Workers as Rate Spike Hits Demand: The rising mortgage rates are rapidly driving down home buying demand, and that is trickling into the once-booming mortgage business. JPMorgan Chase confirmed on Wednesday it's laying off home lending employees and reassigning some to other positions amid the slowdown. A spokesperson attributed the cuts to "cyclical changes in the mortgage market." JPMorgan isn't the only firm affected by rapidly shrinking home buying demand. Last week, online real estate brokers Compass (COMP) and Redfin (RDFN) both announced plans to cut hundreds of employees amid the cooling housing market. Wells Fargo (WFC), another big mortgage lender, has also been laying off and reassigning employees in its home-lending division. Mortgage rates have doubled since the start of the year. Mortgage rates last week surged to the highest level since 2008, while making their biggest one-week jump last week in 13 years, according to the Mortgage Bankers Association (MBA). Mortgage applications to purchase a home rose +8% last week compared with the previous week, bolstered in part by demand for adjustable-rate mortgages, according to MBA. Applications were, however, -10% lower than they were in the same week one year ago. The ARM share of applications jumped back to over +10%. Applications to refinance a home loan fell -3% for the week and were -77% lower than the same week one year ago. (Sources: Barron's, CNBC)

How US Inflation Compares to the Rest of the World: Inflation in the United States was relatively low for so long that, for entire generations of Americans, rapid price hikes may have seemed like a relic of the distant past. Between the start of 1991 and the end of 2019, year-over-year inflation averaged about 2.3% a month, and exceeded 5.0% only four times. Today, Americans rate inflation as the nation's top problem. But the U.S. is hardly the only place where people are experiencing inflationary whiplash. A Pew Research Center analysis of data from 44 advanced economies finds that, in nearly all of them, consumer prices have risen substantially since pre-pandemic times. In 37 of the 44 nations, the average annual inflation rate in the first quarter of this year was at least twice what it was in the first quarter of 2020, as COVID-19 was beginning its deadly spread. In 16 countries, first-quarter inflation was more than four times the level of two years prior. Among the countries studied, Turkey had by far the highest inflation rate in the first quarter of 2022: an eye-opening 54.8%. Regardless of the absolute level of inflation in each country, most show variations on the same basic pattern: relatively low levels before the COVID-19 pandemic, then rising rates starting in mid- to late 2021, as the world struggled to get back to something approaching normal.

Learn more at Pew Research.

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