Morning News: June 28, 2024
Posted by Eddy Elfenbein on June 28th, 2024 at 7:04 am

Japan Names New FX Diplomat as Yen Hits 38-Year Low

Why South Korea’s Making It Easier to Trade the Won Currency

ECB’s Villeroy Says Bank Can Disregard Inflation ‘Bumps’ Given Greater Confidence in Forecasts

The London Metal Exchange Is Taking a Hong Kong Consolation Prize

Treasuries Trim June Rally as Traders Eye PCE Data Ahead

America’s Frozen Housing Market Is Warping the Economy

Wall Street Seems Calm. A Closer Look Shows Something Else

Election and Fed Risks Loom for US Stocks After Strong First Half of 2024

Biden Debate Stumbles Put Trump Tariffs in Spotlight

Junior Bankers Log 100-Hour Weeks Again, And Tensions Are Rising

Wall Street Cop Finra Goes Quiet on the Beat as Its Caseload Plunges

Archegos Judge at 90 Presides Over Jury Crash Course in Finance

Warren Buffett Gives Us a Preview of His Will

Supreme Court’s Sackler Ruling Upends Bankruptcy Settlements

Deaths Linked to Japanese Supplement Suddenly Rise to 80

Nokia to Buy Infinera for $2.3 Billion to Boost Optical-Networks Arm

Walgreens Plans ‘Significant’ Store Closures, Citing Weak Consumer Spending

Apple’s China iPhone Shipments Jump 40% After Steep Discounts

AI Companion Chatbots Blur the Lines Between Fantasy and Reality

All-AI Ad From Toys ‘R’ Us Inspires Debate Over the Future of Marketing

Canada Cuts Bureaucracy, Loans Cash to Bolster Its Space Firms

Tractor Supply Ditches DEI, Climate Goals After Online Attacks

Shopping for a Car This Weekend? Be Patient—and Bring a Pen

Nike’s Warning Shakes European Footwear Stocks

Nike’s Slow Recovery Is Testing Investors’ Patience

N.F.L. Ordered to Pay Billions in Sunday Ticket Lawsuit

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Morning News: June 27, 2024
Posted by Eddy Elfenbein on June 27th, 2024 at 7:05 am

China’s Finance Elite Face $400,000 Pay Cap, Bonus Clawbacks

Ex-Two Sigma Researcher Becomes Big Winner of China Quant Quake

EU Should Delay Deforestation Regulation, Senior Lawmaker Says

Banker-Lawyer Duo Make Billions From Audacious Natural Gas Bet

American LNG’s Long-Term Future Hinges on Election

US Treasury, USAID Call in Development Banks for Urgent Talks on Extreme Heat

Philippines Central Bank Holds Rate Steady

Sweden’s Riksbank Holds Rate Steady But Sees Two or Three Cuts Later This Year

Inflation’s Wild Ride

Fed History Shows Crises Not Calibration Drive Deep Cuts

Rampant Identity Theft Is Taxing the I.R.S.

The FBI’s Star Cooperator May Have Been Running New Scams All Along

Americans’ Pandemic Savings Are Gone — And the Economy Is Bracing for Impact

Number of US Kids Has Fallen Since Pandemic, Except in Florida

Empty Offices Risk Wiping Out $250 Billion in Commercial Property Value

Trump Eyes Bigger Trade War in Second Term

Get Ready for the Debate Like an Economics Pro

A Debate Cheat Sheet for Business

Amazon Becomes the 5th U.S. Company to Reach $2 Trillion in Stock Market Value

Amazon Plans Service for Low-Cost China Goods to Fend Off Temu, Shein

SpaceX Tender Offer Said to Value Company at Record $210 Billion

Boeing Says Added Inspections Are Raising 737 Max Production Quality

Walgreens’ Shares Plunge on Outlook Cut, More Store Closings

Czech Carmakers Expect Record Production This Year

Robots, Drones and Driverless Tractors Usher In New Age of Farming

How Nike Missed the Boom in Running Culture

Beyonce and Blue Jeans Weren’t Enough for Levi’s

H&M Shares Plunge on Worsening Outlook

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Morning News: June 26, 2024
Posted by Eddy Elfenbein on June 26th, 2024 at 7:04 am

Red Sea Turns More Deadly as Houthis Ramp Up Attacks

Nordic Fund KLP Excludes Caterpillar from Portfolios Due to Israel Sales

Yen Slides to Weakest Since 1986, Raising Risk of Intervention

How India’s Rupee Went From Most to Least Volatile in Asia

For American Brands Worried About China, Is India the Future?

Full-Blooded Extension of RBA’s Tightening Cycle Now on the Cards

Bond Market in Step With Fed Is About to Slam Into US Election

Wall Street Banks Accelerate Buybacks Ahead of Fed Stress Tests

Taxing Super-Rich Debate Should Start with 2% Levy, Says Economist Behind Plan

IRS Apologizes to Billionaire Ken Griffin for Leak of Tax Records

The Last 72 Hours of Archegos

Biden Tariff Complaints Pile Up From Welders to Nurses

Why Many C.E.O.s Are Silent on the Biden-Trump Rematch

Go Woke, Go Broke? Not a Chance, Say Ben and Jerry

The A.I. Boom Has an Unlikely Early Winner: Wonky Consultants

When the Terms of Service Change to Make Way for A.I. Training

When Your Building Super Is an A.I. Bot

AI Obsession Obscures Bigger Promise of Climate Tech

Texas’ Extreme Weather Pileups Point to World’s Climate Future

EU Refines Tariff Rates Set to Hit Electric Vehicles From China

Volkswagen’s $5 Billion Investment in Rivian Boosts EV Maker’s Shares

Tesla Is About to Lose Its EV Market Majority in the US

Musk’s Population Obsession Comes With a Dark History

Southwest Airlines Cuts Revenue Outlook

YouTube Dominates Streaming, Forcing Media Companies to Decide Whether It’s Friend or Foe

Why the N.F.L. Put a $7 Billion Antitrust Case in the Hands of an Unpredictable Jury

Sports Retailer Hopes Must-Have Gear and Seasonal Deals Can Entice Wary Shoppers

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CWS Market Review – June 25, 2024
Posted by Eddy Elfenbein on June 25th, 2024 at 4:54 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

Tomorrow is the 11-month anniversary of the Federal Reserve’s last rate hike. On July 26, 2023, the FOMC voted to raise its target range for the Fed funds rate to 5.25% to 5.50%. Since then, the Fed hasn’t made a single change to rates.

It’s odd how doing nothing can receive so much attention. Still, I must acknowledge that the stock market has done very well under steady rates, especially since last October. Sometimes doing nothing is the right thing to do.

This has also become a surprisingly calm market. The S&P 500 has only had very small down days this month. We haven’t had a 2% daily loss since February 2023.

Here’s an interesting stat: The S&P 500 hasn’t closed lower by more than 0.75% in a single day for the last 38 trading sessions in a row. Bear in mind that a fall of 0.75% isn’t that much. For some context, in 2022, we had 77 daily drops of more than 0.75%.

We’re still a long way from the record. In 1965-66, the stock market went for 135 days in a row without a drop of more than 0.75%.

Home Values Reach New High

Thanks to the Fed’s rate hikes, mortgage rates have increased. The 30-year fixed-rate mortgage rose sharply last month. While that has impacted the overall housing market, home prices are still rising.

This morning’s Case-Shiller index on home prices said that home values are at an all-time high. For April, home prices on its 20-city index increased by 0.4%.

Over the last year, prices on the 20-city index are up by 7.2% which is down slightly from the 7.5% increase for the 12 months ending in March. The broader national index increased by 0.3% in April and is up by 6.3% over the last year. All these price indexes are at all-time highs.

A separate report from the Federal Housing Finance Agency said that home values increased by 0.2% in April and are up 6.3% over the last year. The median price of a resale home was $407,600 in April, and a newly built home was $433,500.

Sales are down yet sales prices are higher than ever. What’s going on? Moses Sternstein makes the point that the sales indexes only capture what’s selling, but right now, the important factor is what’s not selling.

In other words, more owners might be willing to sell if buyers could afford it, but the people who are buying right now could simply be less price sensitive. In fact, homebuilders have been cutting prices, which makes sense to me. I trust what the homebuilders are doing more than what the sales indexes are saying. For most homeowners, home values are not rising.

Will Interest Rates Soon Come Down?

Will the Fed start cutting rates soon? Beats me, but Fed Governor Michelle Bowman said she’s open to seeing more rate hikes if inflation doesn’t pull back. In a speech today, Governor Bowman said that we’re not yet at the point to look for interest rates come down.

This places her with other Fed officials who have acknowledged lower inflation but still want to see more evidence that inflation is no longer a threat. I’ve been surprised by how united the Fed appears to be on this point.

We’ll learn more on Friday when the Commerce Department releases its PCE price index report. This report always comes out the day after the GDP report. (I’ll also be curious if the Q1 GDP report is revised lower again.)

As I often say, the PCE is the Fed’s preferred measure of inflation. Wall Street expects that the PCE will have increased by 2.6% over the 12 months ending in May. This is for the headline and core PCE. The Fed has a 2% target for inflation. I’m surprised at how firm the Fed has been publicly to achieving its 2% target.

The current consensus is that the Fed won’t change interest rates at its next meeting which is at the end of July. However, Wall Street expects the Fed to cut rates in September. The futures market thinks there’s a 68% chance that the Fed will cut in September.

The direction of interest rates has a major impact on the stock market. For one, interest expense is a major item for many companies. Lower rates also help larger companies buy smaller ones. Lower rates provide weaker competition for stocks so share prices can afford to go higher.

There’s also an important impact within the stock market. When rates go down, investors tend to favor value stocks, but as rates stay up, like they are now, growth stocks tend to do well. We’ve certainly seen that this year, especially in the last few weeks.

The current stock market has been dominated by one growth stock above all others, Nvidia (NVDA). Nvidia has gotten so big that its news can move the entire market. From last Thursday’s high to yesterday’s low, Nvidia lost 15.5%. That’s over $500 billion in market value.

Fortunately, that selloff came to a quick end today. Shares of NVDA rallied 6.8% today which helped lift the entire Nasdaq. For the day, the Nasdaq was up by more than 1.25% while the Dow was down 0.76%. Interestingly, that nearly perfectly mimicked the growth/value divide today. The S&P 500 Growth ETF gained 1.25% today while the S&P 500 Value ETF lost 0.8%. That’s a wide gap even for this point in the market. Once rates start to go down, this may all unwind.

Stock Focus: Chemed

This week, I wanted to tell you about Chemed (CHE). I can’t fairly say that Chemed is unknown on Wall Street. It’s currently followed by three analysts, but it deserves a lot more attention.

Chemed is also one of the most unusual publicly traded companies I know of. Based in Cincinnati, Chemed runs two wholly-owned subsidiaries. One is VITAS Healthcare which is the country’s largest provider of end-of-life hospice care. The other subsidiary is Roto-Rooter.

I’m not making this up. Chemed runs hospice care and Roto-Rooter, the plumbing folks. I can’t imagine a more dissimilar business. Hey, it works for them so I’m all for it. Chemed has over 15,000 employees and a market value of $8 billion.

On this day in 1991, you could have picked up shares of CHE for about $10.44 apiece. Today, 33 years later, CHE is going for $540 a piece. That’s a gain of more than 50-fold.

Last year, Chemed made $20.23 per share. The analyst community, all three of them, looks for Chemed to make $23.21 per share this year and $25.28 next year as well. The company has increased its dividend for the last 14 years in a row. I expect to see another increase this August.

I’m showing you Chemed because there’s an important lesson for investing here. Any company can be a very profitable business, even seemingly unusual ones. Don’t be afraid to go off the beaten path in order to find superior companies. There aren’t many stocks up 50-fold in 33 years, but Roto-Rooter did it. I’m sure there’s another out there right now.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Morning News: June 25, 2024
Posted by Eddy Elfenbein on June 25th, 2024 at 7:08 am

Russia’s Oil Exports Drop the Most in Three Months on Port Works

Forget Shale: Canada’s Oil Sands Are Having Their Moment

Germany’s Solar Power Generation Surges to a Fresh Record

Brookfield to Takeover France’s Neoen in $6.5 Billion Deal

‘It’s All Happening Again.’ The Supply Chain Is Under Strain

Forget 160, Traders See Yen Slumping as Far as 170 This Time

Norinchukin’s Woes Show Banks Are Still Getting Rates Wrong

Something Unusual Is Happening on Wall Street and It Bodes Well for Stocks

Fearing Losses, Banks Are Quietly Dumping Real Estate Loans

The Clock Is Ticking on Jane Fraser’s Citigroup Turnaround

US Manages Its Twin Deficits (for Now)

Paul Singer Is Pitching Wall Street’s Own Brand of MAGA

C.E.O.s Are Frustrated. That Doesn’t Mean They Embrace Trump

Wikileaks’ Julian Assange to Plead Guilty, Ending Yearslong US Battle

Where Have All the Chinese I.P.O.s Gone?

Huawei’s Secret Ally in the US-China Tech War: A Science Nonprofit Based in DC

Inside Nvidia’s $500 Billion Wipeout

Microsoft Risks EU Fine After Antitrust Warning Over Teams App

Meta Axed His AI Biology Research Team. Now This ‘Meta AI Mafia’ Member’s New Startup Has $142 Million to Chase His Protein-Generating Dream

Trucker US Logistics Solutions Shuts Down in Bankruptcy

Boeing’s Spirit Aero Bid Values 737 Supplier at $35 a Share

Airbus Sheds More Than $10 Billion in Market Value After Slashing Guidance

Stellantis Threatens to Pull Out of UK Over EV Sales Mandate

Tokyo Marathon to Recognize Non-Binary Runners Starting in 2025

Nike Bets Its China Comeback on Michael Jordan’s New $1,000 High-Tops

Bernard Arnault Explains How He Built LVMH Into an Empire of Opulence

Nordic Online Store Boozt Blocks Thousands of ‘Serial Returners’

Hollywood Sharpens Aim at Online Pirates

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Morning News: June 24, 2024
Posted by Eddy Elfenbein on June 24th, 2024 at 7:08 am

Ocean Shipping Prices Are Pushing Toward Pandemic-Era Highs as Congestion Swells

Vietnam Coal Power Project Moving Forward After Phase-Out Deal

Fire at Lithium Battery Plant in South Korea Kills 22

Hyundai and Kia Zip Into the U.S. Car Market’s Fast Lane

Japan and South Korea Are Fighting Over an App at a Tense Time

China Steps Up Pressure on Europe to Avoid EV Tariffs

France Keeps Markets on Edge With Le Pen Fighting Left for Power

How Jeff Yass Became One of the Most Influential Billionaires in the 2024 Election

How Long Can High Rates Last? Bond Markets Say Maybe Forever

Fed’s Mester: Mortgage Bond Sales Should Remain Option for Fed

Women in US Have Just 1/3 of Men’s Retirement Savings, Prudential Report Says

Foreign Banks Target Switzerland After UBS Takeover of Credit Suisse

Big US Banks Expected to Be Cautious on Shareholder Payouts

Jain Raises $5.3 Billion in Biggest Hedge Fund Debut Since 2018

Real Estate Bets Gone Wrong Roil $1.24 Trillion Canadian Funds

Nvidia Sales Grow So Fast That Wall Street Can’t Keep Up

AI Boom Drives Up Risk of Power Squeeze

Apple’s European Headache

Apple Hit by Fresh EU Warning Over Alleged App Store Abuses

Responsibility Over Freedom: How Netflix’s Culture Has Changed

Sonoco Products Buys Eviosys From KPS Capital For $3.9 Billion

Target Aims to Expand Its Online Marketplace With Shopify Partnership

How a Cyberattack Took 15,000 Car Dealers Offline

‘We’re Still Paying’: How Pets Became a Big Business

Holiday Travel Is Booming. Why Are Airlines Doing So Badly?

Tiger Woods, McIlroy-Backed TMRW Sports Valued at $500 Million in Funding Round

Fanatics Teams Up With Juventus in Decade-Long Merchandise Deal

Stephen A. Smith Is the Face of ESPN. How Much Is That Worth?

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Morning News: June 21, 2024
Posted by Eddy Elfenbein on June 21st, 2024 at 7:07 am

Japan Inflation Picks Up, Adding to Hopes for Rate Hikes by BOJ

Eurozone Recovery Slows as French Uncertainty Hits New Orders

U.K. Retail Sales Rebounded in May on Warmer Weather

The Taylor Swift Economy Has Landed in Europe

Monaco Expected to Join Dirty Money ‘Gray List’ Next Week

Wall Street’s $5.5 Trillion Triple-Witching to Test Market Calm

Money-Market Funds See First Outflow in Two Months With Taxes Due

Fintech Firm Pine Labs Weighs $1 Billion IPO in India

I.R.S. Extends Freeze of Pandemic-Era Tax Credit Amid Widespread Fraud

Democrats’ Dream of a Wealth Tax Is Alive. For Now

Arizona’s Economic Boom Is the Biden Signal in Trump Noise

Elon Musk Wants You to Trust X With Your Money

Nvidia’s Staggering Gains Leave Investors Wondering Whether to Cash In or Buy More

How to Do a Four-Day Workweek That Actually Works

First Solar Fights Foreign Subsidies While Cashing In on Its Own

America’s Nuclear Push Doesn’t Guarantee a Revival

Amazon Says It Will Stop Using Puffy Plastic Shipping Pillows

Cybersecurity Firm Kaspersky Denies It’s a Hazard After the U.S. Bans Its Software

Car-Dealer Chaos Arises From Cyberattack on $1.2 Trillion Market

Canada Prepares Potential Tariffs on Chinese EVs After US and EU Moves

At Blackstone’s $339 Billion Property Arm, the Honeymoon Is Over

The Opaque Industry Secretly Inflating Prices for Prescription Drugs

China Gives Europe’s Struggling Pork Farmers Another Headache

Britvic Rejects $3.9 Billion Takeover Offer From Carlsberg

Why Your Starbucks Frappuccino Is Now Half-Price

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Morning News: June 20, 2024
Posted by Eddy Elfenbein on June 20th, 2024 at 7:07 am

Putin’s Hybrid War Opens a Second Front on NATO’s Eastern Border

European Sanctions Target Russian Liquefied Natural Gas for First Time

Tourist-Rich Caribbean Islands Aim to Shake Up Global Aid

China’s Central Bank Hints at Major Policy Shift

Indonesia’s Central Bank Stands Pat as Expected

Bank of England Holds Rates Steady, Despite Slower Inflation

US Regulators at Odds Over Whether to Issue New Draft of Bank Capital Hikes

Treasuries Are a Whisker Away From Erasing This Year’s Loss

How a College Dropout Changed What We Know About the U.S. Economy

A Third of CFOs See US Elections Impacting Investment Decisions

Germany Fines Citigroup Over ‘Fat-Finger’ Failures

Hedge Fund Talent Schools Are Looking for the Perfect Trader

Dilemma on Wall Street: Short-Term Gain or Climate Benefit?

BP to Take Control of Brazilian Biofuels JV in $1.4 Billion Deal

The World’s Best Astronomy Spot Has a Light Pollution Problem

Companies Are Watering Down Their Diversity Recruiting Programs

Reimagining a Retirement Fit for Boomers, and Those Who Are Next in Line

Ilya Sutskever Has a New Plan for Safe Superintelligence

Dell’s AI Margin Slip Will Be a Speed Bump

Micron Has to Resolve a Bat Problem Before Building Syracuse Chip Fab

Honeywell Strikes $2 Billion Deal for Defense Business

Ford Sacrifices Short-Term Profits to Fix Its Costly Recall Problem

Eli Lilly Broadens Crackdown on Fake and Compounded Zepbound

Tate & Lyle to Buy CP Kelco for $1.8 Billion in Push to Cash in on Health Nutrition Trends

Danone Targets Health, Nutrition as Food Industry Braces for Ozempic Era

McDonald’s $5 Value Meal Intensifies a Fast Food Price War

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Morning News: June 19, 2024
Posted by Eddy Elfenbein on June 19th, 2024 at 7:05 am

France and Italy Get EU Deficit Scolding as Markets Watch

Japan Bank to Overhaul Investments as Wrong-Way Rate Bets Trigger Bond Losses

Bond Trading by China’s PBOC Wouldn’t Be Quantitative Easing, Gov. Says

JPMorgan Ignites $40 Billion Rush Into Indian Bonds

JPMorgan Joins Goldman in Scrapping Cap on London Banker Bonuses

Strikes Loom as 200,000 German Bank Staff Fight for Hefty Pay Rise

US FDIC Chair Nominee Likely Has the Votes But Confirmation Process Could Drag

Nvidia’s 591,078% Rally to Most Valuable Stock Came in Waves

What Does Musk’s Shareholder Win Mean for His Pay Package?

Researchers Say Social Media Warning Is Too Broad

HPE’s $14 Billion Juniper Deal Attracts UK Antitrust Scrutiny

Vodafone to Raise $2 Billion Via Stake Sale in Indian Telecom Tower Company

Cyberattack Led to Harrowing Lapses at Ascension Hospitals, Clinicians Say

Codelco Struggles to Halt Persistent Slide in Copper Output

US Backs Angola Plan to Process Critical Minerals, Export Power

Coffeeholics in South Africa Feel the Heat of Surging Prices

Boeing CEO Apologizes to MAX Crash Families, Calls Culture ‘Far From Perfect’

Chinese Carmakers Call for 25% Tax on Large European Cars, CCTV Reports

In Rare Rebuke, Toyota Chairman’s Investor Support Tumbles

Yes In God’s Backyard? This Housing Solution May Be the Answer to Your Prayers

Washington Post CEO Plans a Mysterious ‘Third Newsroom.’ His Past Offers a Clue

Super-Star Sneaker Maker Golden Goose Postpones IPO Amid Market Turmoil

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CWS Market Review – June 18, 2024
Posted by Eddy Elfenbein on June 18th, 2024 at 6:25 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The stock market closed at another all-time high today. This is the S&P 500’s 31st new high this year. The Nasdaq rose for its seventh day in a row.

The stock market also reached another milestone. Nvidia passed Microsoft to become the world’s most valuable public company. The chipmaker now has a valuation of $3.3 trillion. It’s larger than every company in the Russell 2000 combined.

Ten years ago, Nvidia was worth $10 billion. CEO Jensen Huang’s first job was as a busboy at Denny’s. Now he’s worth $117 billion. Not bad.

As I’ve mentioned many times before, this market has been heavily tilted toward growth stocks. In fact, today snapped an 11-day winning streak of the S&P 500 Growth ETF (SPYG) outpacing the S&P 500 ETF (SPY).

As strong as this market has been, it’s been very narrow. Despite being at a new high, only 50 stocks in the index touched 52-week highs today.

Soaring markets can be surprisingly tricky for investors. Watching share prices march steadily higher can induce intense fear in some investors. They tend to think that we must be getting near a cliff and that it would therefore be best to cash out now.

That’s a mistake. A rising market doesn’t necessarily mean we’re in a bubble. It only means that share prices are higher than where they were. Rallies can go on for longer than you think. Peter Lynch said, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”

A few years ago, I looked into the data and found that the stock market does very well when it’s at an all-time high. Not only that, but the market is significantly less volatile when it’s at a new high. It’s pretty rare that the market rallies by more than 1% in a day following an all-time high.

Where do we go from here? That’s hard to say but I’ll note that July has been up for the last nine years in a row.

Let’s look at the market’s current valuation.

The S&P 500 closed Monday at 5,473.23. Wall Street currently expects the S&P 500 to earn $240.78 per share this year. That gives the market a forward price/earnings ratio of 22.7.

That works out to an earnings yield of 4.40% (i.e., the inverse of the p/e ratio, it’s the e/p ratio). To get an idea of how expensive that is, we want to compare the S&P 500’s earnings yield with the current yield on the long-term Treasury bonds. The 10-year Treasury currently yields 4.22%.

In other words, investors are getting a very mild safety cushion of 20 basis points by being in Treasury bonds. That’s not much. The risk/reward balance still leans towards stocks.

There are some important caveats. The market’s forecast for earnings this year is just that, a forecast. Wall Street analysts have often been wrong, and sometimes by a lot. Wall Street has already lowered its earnings forecast for this year, and it can do it some more.

We also don’t know where interest rates will go. If inflation comes back, that would send yields soaring. It was only eight months ago that the 10-year Treasury was yielding close to 5%. Right now, the bigger fear is that the economy will turn south.

Retail Sales Were Weak Last Month

Americans haven’t been shopping as briskly as expected, which is odd since you might think that shopping was our national pastime.

To be fair, this morning’s retail sales report was only a little weaker than expected. Last month, retail sales rose by 0.1% which was 0.1% below expectations. Over the last year, retail sales are up by 2.3%. That’s not adjusted for inflation. The number for April was revised to a decline of 0.2%.

Here’s the year-over-year growth in retail sales:

If we don’t exclude autos, then retail sales for May fell by 0.1% whereas Wall Street had been expecting an increase of 0.2%. So what caused the sluggish shopping numbers?

Moderating gas prices helped hurt receipts at gas stations, which reported a 2.2% monthly decline. That was offset somewhat by a 2.8% increase at sports goods, music and book stores.

Online outlets reported a 0.8% increase, while bars and restaurants saw a 0.4% decline. Furniture and home furnishing stores also reported a 1.1% drop.

The retail sales report is important because consumer spending makes up about 70% of the economy. The good inflation news has come at the same time that consumer spending has apparently weakened.

Following the report, the odds of a September rate cut edged up from 61.5% yesterday to 67% today. Futures traders think there’s a 66% chance that the Fed will cut rates twice this year.

The most troubling news today came from the Congressional Budget Office. The CBO increased its estimate for the U.S. budget deficit by 27% to nearly $2 trillion. The new estimate is $400 billion higher than the previous estimate in March. Last year, the deficit was $1.69 trillion. For this year, the CBO sees it reaching $1.92 trillion.

As a percent of GDP, the CBO sees the deficit getting to 6.7%. That’s up from the prior estimates of 5.3%. Last year’s deficit was 6.3% of GDP.

According to Bloomberg, “Over the coming decade, the CBO sees US deficits totalling $22.1 trillion, up more than $2 trillion from February’s report.”

The CBO listed four major reasons for the budget revisions: President Biden’s student loan forgiveness plans, aid to Ukraine, Israel and Taiwan, FDIC payments for bank failures and heightened Medicaid spending. What’s frustrating is that the CBO sees higher revenues incoming but not enough to offset the higher spending.

If world markets become convinced that the U.S. is too much of a risk to invest in, that would hit the dollar and our ability to borrow money. So far, the market doesn’t seem too concerned. I don’t know how long that can last.

Stock Focus: Nathan’s Famous

With July 4th coming up, I wanted to highlight one of my favorite unfollowed stocks which is Nathan’s Famous (NATH), the hotdog stand.

Not many people realize that the Coney Island mainstay is publicly traded, but it is. Not only is Nathan’s listed on the exchange, but it’s been a great stock for decades.

Nathan’s is currently priced at $67.65 per share. That’s not a bad valuation. Nathan’s Enterprise Value/EBITDA is currently 9.73 which isn’t bad.

The company has a market value of $282 million. Last week, Nathan’s reported earnings for fiscal 2024 of $4.81 per share. That was up by one penny per share from one year before. Sales growth is low but positive.

Currently not a single analyst follows Nathan’s. Since December 31, 1999, Nathan’s is up 3,846% while the S&P 500 is up 493%.

That’s all for now. The stock market is closed tomorrow for Juneteenth. I’ll have more for you in the next issue of CWS Market Review.

– Eddy