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The AM Call:  It’s a Mad, Mad, Mad, Mad World  

  • The weekend brought further political turmoil in the U.S., with an attempted assassination of Republican Presidential nominee Donald Trump. This follows ongoing concerns in the Democratic Party over the fitness of President Joe Biden to serve out another term following his weak debate performance. Given recent events, the polls show that it’s increasingly likely that former President Trump will be re-elected in November.
  • While market impacts from political developments can be tricky to pinpoint, we take our first stab at laying out potential features of the next Trump administration: the imposition of additional tariffs could be more inflationary, continued deficit spending could lead to higher levels of Treasury issuance and pressure on yields, and the repeal/relaxing of Biden-era regulatory policies could benefit sectors like financials and industrials, driving a sector rotation in equities. Globally, the U.S. dollar could remain stronger for longer on a more protectionist stance. 
  • Looking at the incoming macro data, last week we got CPI and PPI data for June which came in slightly better than estimates. Headline CPI was down -0.1% MoM, vs. estimate of +0.1% and 0.0% prior. On a YoY basis, headline CPI was 3.0% vs. estimate of 3.1% and 3.3% prior. On a core basis, excluding food and energy, CPI was up by 0.1% MoM (est. and prior 0.2%), and 3.3% YoY (est. and prior 3.4%). Assuming the June CPI numbers are confirmed by June PCE data, this is probably enough to ensure the Fed will cut at its in September meeting.
  • We also got PPI data for June. PPI Final demand was up 0.2% (est. 0.1%) MoM and 2.6% YoY (est. 2.3%), compared to prior month revised of 0.0% MoM and 2.4% YoY. PPI ex food and energy was up by 0.4% for June (est. 0.2%, prior 0.3%), and 3.0% YoY (est. 2.5%, prior 2.6%). PPI data tends to lead CPI data, so we would caution that this indicates price pressures may yet re-emerge.
  • Equities finished higher for the week, leading investors to increase risk-taking and rotate positions from large cap tech winners to small/mid-cap laggards as small caps gained 6%, while the Nasdaq closed higher by less than 1% on the week. We note that while info tech and communications retain the lead for the year-to-date, the equity sector leaders last week were real estate, utilities, materials, and healthcare.

With last week’s gains, real estate is no longer down YTD, and all equity sectors are positive.

  • Second quarter earnings season officially kicked off, as Wells Fargo (WFC), JPMorgan Chase (JPM), Citigroup (C) and BNY Mellon (BNY) all reported pretty standard figures mostly in-line with estimates. Delta Air Lines (DAL) missed just slightly across all figures, while providing uninspiring third quarter guidance. Pepsi (PEP) posted a mixed report, as a beat on the bottom-line driven by cost efficiency was muted by a miss at the top-line due to higher price sensitivity among U.S. consumers.
  • In other corporate news, Tesla’s (TSLA) rally came to a halt after Bloomberg reported the company will delay its Robotaxi showcase event, while Apple (AAPL) reportedly told suppliers it expects production of 90 Million iPhone 16 Units for the second half of 2024, up 10% from the iPhone 15’s 81 Million units in 2H23. Elsewhere, AT&T (T) revealed hackers were able to breach cloud data from its service provider Snowflake (SNOW) encompassing nearly the entirety of its customer base, while Cotsco (COST) increased prices of its membership program by 8% the first hike since 2017. In M&A news, Advanced Micro (AMD) plans to acquire Europe’s largest AI Lab company Silo AI for $665 million as it attempts to close ground on rival Nvidia (NVDA); Paramount Global (PARA) agreed to terms for a merger with Skydance Media; and Alphabet (GOOGL) was reported to have ended negotiation talks to acquire $27 billion valued HubSpot (HUBS).

The Week Ahead

  • Looking ahead, it is a relatively slow week for macro data. On Tuesday, we get advance retail sales and import price data for June. Estimates are for retail sales to decline by -0.3% MoM, compared to up by 0.1% in May. Excluding the volatile auto and gas categories, retail sales are estimated to be up by 0.3% compared to 0.1% in May. The import price index is estimated to decline by -0.2% compared to a decline of -0.4% in May.
  • Earnings season kicks into high gear with Netflix (NFLX), BlackRock (BLK), Blackstone (BX), Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), State Street (STT), US Bancorp (USB), Ally Financial (ALLY), Discovery Financial (DFS), United Health (UNH), Intuitive Surgical (ISRG), United Airlines (UAL), American Airlines (AA), Johnson & Johnson (JNJ) and Abbott Labs (ABT) all set to report second quarter 2024 earnings.

Market Summary – Returns and Yields

  • Lots of green last week, and for the year to date.

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

Definitions:

  • Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
  • GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
  • The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employmenthours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
  • Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
  • The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
  • The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
  • The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
  • Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
  • Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
  • The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
  • The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

Important Disclosures:

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from Amerant Investments, Inc. or any of its affiliates to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Not FDIC Insured | Not Bank Guaranteed | May Lose Value | Not Insured By Governmental Agencies | Member FINRA/SIPC, Registered Investment Advisor

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