MARKET RECAP

• US stocks decline by 1.66% and international stocks by 2.64%. US small caps increased by 1.7%. The NASDAQ was off by 3.65%.
• On Wednesday, the Nasdaq had its worst day in two years due to fears of tighter regulation on chip sales to Congress.
• Fears of a trade war weighed on the market as the week progressed, courtesy of the Trump/Vance platform.
• On Friday, a worldwide software failure impacted businesses almost everywhere due to one line of bad code written by Crowdstrike.

TRUMP

Trump had a chance to make a positive statement at the Republican National Convention. Just a few days after the assassination attempt, with most of the entire country ready to give him a chance, he could have made an honest attempt to broaden his coalition and act like he wanted to unite the country. But just like you would think, he opened up his speech with most of the right notes, but it quickly deteriorated into a rambling, hateful, attack-filled, dark diatribe about Democrats and the current state of the world and the country. Of which, of course, only he could solve, often in as little as a day or two, and simply with a phone call. Trump is crazy, and while the Republican convention-goers swallow it up hook, line, and sinker, most of the rest of the nation realizes he is as bad as ever.

He delivered the longest presidential nomination acceptance speech on record; almost all of it was rambling and off the cuff. Trump is mad at the world and paranoid, believing that he has magical powers to solve problems immediately and that only he can do this.

Even with that, he leads in the polls because Biden appeared frail and unable to continue as President. Today (Sunday), Biden announced that he will withdraw from the race, so the Dems have a chance to rally now and can win if they nominate the right person. Kamila Harris appears to be that nominee, and I would not consider her the right person.

Trump is a weak candidate. And I say this knowing full and well that the Republicans left the convention all fired up and confident in what was a high-energy and well-run event, sure that they will win in November.

But as described above, Trump is still Trump, and he is not mentally well, and the voters in the middle understand that, and they will tilt the election, one way or the other. The big problem with the Democrats is that their policies, which seem to be driven by the far left, are so bad and so harmful for America and its culture that a lot of the middle will lean towards Trump despite his meanness, craziness, and mental instability.

If only there were a reasonable centrist candidate. But at least for now, there isn’t so that Americans will be faced with two bad choices. Let’s hope.

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MARKET RECAP

Here are the highlights for the financial markets for the business week ending July 12, 2024:

-There was an attempted assassination of Donald Trump. Fortunately, the former President survived. Hopefully, some good comes out of this, and we can move forward as a more civil society and respect opinions even when they differ from our own. That is what each party is now pledging.

– The Dow closed above 40,000 for the second time, buoyed by gains in various sectors. The index hit intraday record highs on Friday.

– **Bank Earnings**:
– Wells Fargo’s shares dropped over 5% following their quarterly results, while JPMorgan Chase remained stable, and Citigroup advanced. Analysts expect major banks to increase reserves to cover declining loans, impacting their earnings.

– The June Consumer Price Index (CPI) fell by 0.1%, marking the first monthly decrease in over four years, reinforcing expectations of an interest rate cut by the Federal Reserve in September.
– The market is now pricing three rate cuts by the end of January 2025.

– Jobless claims for the week ending July 6 decreased to 222,000, indicating a stable job market.

Overall, the week was marked by gains in major indexes, a shift in investor focus from large-cap tech stocks to smaller companies, and significant movements in bank stocks following earnings reports. Inflation data and expectations of Federal Reserve rate cuts played a crucial role in shaping market sentiment.

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MARKET RECAP

The NASDAQ and S&P 500 hit new highs. The NASDAQ was up 3.5% for the week and the S&P was 2% higher.

Unemployment increased to 4.1% and the US added 206,000 new jobs, a solid number. But the increase in the unemployment rate follows a recent trend of a slow grind higher. It was 3.4% one year ago. New jobs for April and May were revised lower by 111,000. Average hourly earnings increased by 3.9%, the lowest increase since 2021.

Investors are operating under the assumption that this all  means a comfortable slowing of the economy, and not what might be a tougher recession. They are also taking it to mean that the first rate cut might happen sooner rather than later, maybe in September.

Keir Starmer, leader of the UK Labour Party, will take over leadership of the country. But this is not the Labour Party of old, Starmer has led the party more towards the center, he is more of a pragmatist than a populist. His five point plan is to reduce regulation to increase housing, lower immigration, build-out green energy, and improve the health system. He is pro-business.

MARKET RECAP

• The S&P 500 was up 14% in the first half of the year led by Nvdia, +149%. NVDA accounted for 30% of the return. The market managed an increase despite the expectation of multiple interest rate cuts never happening. The rally was powered by excitement about AI. Meanwhile, the equal-weighted index was only up 4.1%.
• Nike fell 20% on Friday on a disappointing outlook.
• The market cap of S&P 500 companies increased by $6 trillion in the first half of this year, the biggest gain ever for the first half of a year.
• Personal-consumption expenditures index was up 2.6% in May compared to a year earlier, the lowest reading since 2021.
• Britain goes to the polls next week, and a pre-election poll shows that 65% of Brits say that leaving the EU was the wrong decision. Something we wrote about at the time. 15% said the benefits were greater than the costs. Goldman Sachs says that the British economy is 5% smaller now than it would have been had they stayed in the EU.

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THE PROBLEM WITH OUT-OF-CONTROL DEBT

As we all know, this country has had terrible leadership regarding the deficit for decades. Still, incredibly, it has gotten successively worse as time passed, especially with Trump and then Biden. Neither has shown interest in keeping the country’s financial affairs in order. Clinton was the last President to have any success.

This year, US debt will approximate GDP, a marker that has never worked well for previous empires. The WSJ has outlined this in an article titled “Will Debt Sink the American Empire.”

Trump and Biden have added about $7 trillion each to the debt. Historian Niall Ferguson says, “Any great power that spends more on debt service than on defense will not stay great for very long.” That has turned out to be true for the Roman Empire, Spain, France, the Ottoman Empire, and the British Empire. This law will be tested by the U.S. beginning this very year.”

Interest payments on the debt now surpass defense spending and almost match Medicare spending. The record debt as a percent of US GDP was 106%, but that was just after World War II; the US is set to match that number by 2028; by 2034, it is projected to hit 122%.

The CBO says the debt burden will lower income growth by 12% over the next few decades. We have, in effect, been borrowing from the future to grow the economy. Any recession, and unexpected event (like hurricanes or financing wars), Covid, its all no problem, just borrow some more, no need for any sacrifice, that has been the mindset.

The Roman Empire’s strategy was to debase the currency, which led to inflation and its eventual fall in the 5th century. Spain borrowed outside the country and and had high taxes, leading to its fall. Spain defaulted on debt 13 times over four centuries. France followed a similar path. China was a leading economic power in the 19th century, but out-of-control spending and borrowing led to underinvestment, and it couldn’t keep up with other countries. Britain’s debt crowded out other spending, the currency declined, and the country followed.

Treasury Secretary Yellen says that if debt can be held at current levels, “we’re in a reasonable place.” But who believes that will happen? A few examples of countries that pulled back from the brink include Canada, Denmark, Sweden, and Finland.

There will be ramifications whenever the country begins to deal with it. Of course, they will be much worse if we are forced to. Hopefully, the US can begin the process of dealing with this gargantuan problem now to minimize or at least reduce the impact.

MARKET RECAP

• US stocks =0.17%, international +0.20%, bonds +0.05%.
• The ISM report for manufacturing dropped to 48.7 from 49.2 in April, the consensus was for 49.8.
• The number of job openings is at a three-year low of 8 million.
• Brent crude oil dropped to as low as $78.92 on Friday, the lowest price since February.
• India’s Modi lost seats in the election, and Claudia Sheinbaum was elected President of Mexico.
• The S&P 500 closed at a record on Wednesday, its 25th record close this year.
• 272,000 jobs were added in May, smashing the estimate of 180,000. The unemployment rate increased to 4%.
• The net worth of Americans increased by 3.1% or $5.1 trillion, in Q1.
• NVDA topped a $1 trillion valuation.

US STOCK MARKET as represented by the VTI

MARKET RECAP

MARKET RECAP

• US stocks were flat for the week, although the Nasdaq managed a 1.4% advance, helped by blockbuster earnings by Nvdia. The Dow fell by 2.33%.
• The Dow had its worst day of the year on Thursday, falling 600 points, on inflation worries after solid numbers in a manufacturing survey. The index closed below the 40,000 mark at 39,069.
• Target fell 8% on Wednesday as sales declined for the fourth quarter, but TJ Maxx and Ross have had positive reports.
• Earnings estimates have been rising; the SPX is expected to show an 11% increase in 2024 and 14% in 2025.

NVIDIA

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MARKET RECAP

• US stocks +1.65%, international +1.90%, bonds +0.55%.
• Indexes closed at records this week as the rally continued, as investors are hoping that interest rate cuts later in the year are back on the board, given that US inflation eased slightly from April’s pace and that the economy might be softening a bit.
• PPI numbers were higher than expected, but CPI numbers were lower.
• The Dow broke another milestone, closing just above 40,000. See the chart below.

DOW CLOSES ABOVE 40,000

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MARKET RECAP

• US stocks +1.78%, international stocks +1.09%, bonds +0.23%.
• Stocks are back to within about 1% of highs while consumer confidence is falling. The University of Michigan consumer sentiment survey is at a six-month low.
• Earnings estimates have ramped up in the last few weeks; see the chart below.
• GDPNow estimates Q2 growth to be at a strong 4.20%.
• Talk of a recession seems to be receding on earnings calls. Meanwhile, the “10% recession rule” followed by Piper Sandler was triggered last week. The rule is triggered when the three-month moving average of people unemployed rises 10% compared with its level from the prior year.
• Social Security is forecast to run out of funds in 2033, and benefits will drop by 21%, assuming no fix.

EARNING ESTIMATES OVER TIME

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