Archive for June, 2024

• Morning News: June 28, 2024
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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
  Eddy Elfenbein, 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