Archive for July, 2024

• Morning News: July 19, 2024
  Eddy Elfenbein, July 19th, 2024 at 7:03 am

  Cubans Are Still Being Recruited by Russia to Fight in Ukraine

  South Africa to Lay Out Carbon Market Regulation Proposals

  Rio Tinto’s Lithium Patience Finally Pays Off in Serbia

  EV Charging Industry Reaches Crossroads as Competition Heats Up

  Get Ready to Pay More for Less-Reliable Electricity

  Unprecedented IT Outage Cripples Businesses Around the Globe

  What Caused Such a Widespread Tech Meltdown?

  What Is CrowdStrike?

  China Stock Traders Move on From Plenum With Few Reasons to Buy

  Japan’s Above-Target Inflation Fuels Some Rate Hike Hopes, But Caution Persists

  IMF Says Zambia’s Dedollarization Plan May Be Counterproductive

  What Presidential Election? So Far, the Stock Market Doesn’t Care

  What Trump Doesn’t Get About McKinley and Tariffs

  Fed Prepares for September Cut as Powell Shifts Focus to Jobs

  GoldenTree Sees $10 Billion Opportunity as Banks Unload Risk

  Amex Says It’s Going on Marketing Spree as Billings Growth Slows

  Nvidia’s Other Billionaire: Director Mark Stevens Joins Huang in 10-Figure Club

  The Data That Powers A.I. Is Disappearing Fast

  The Push to Develop Generative A.I. Without All the Lawsuits

  Five Questions With Apollo Global Co-Founder Josh Harris

  There Is a Time for Corporate Despots—but It Isn’t Forever

  Eurozone Businesses Expect Wage Growth to Slow, ECB Survey Finds

  Why UK Is Finally Changing Its Ancient ‘Leasehold’ Laws

  The Zombie Mall King Doesn’t Want to Be a Bottom-Feeder Forever

  What’s Chocolate Without Cocoa Butter? ‘Chocolatey’ and Cheap

  In the World of Luxury Cars, Hybrids Are the Sexiest New Thing

  Netflix’s Next Act Will Be Slower to Catch On

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• Morning News: July 18, 2024
  Eddy Elfenbein, July 18th, 2024 at 7:05 am

  China’s Leaders Offer High Hopes but Few Details for Road to Recovery

  China’s Big Policy Meeting to Disappoint Metal Bulls

  Hong Kongers Fleeing to UK Leave $3.8 Billion Trapped Behind

  Rachel Reeves Warns ‘Difficult Decisions Ahead’ to Fix UK Economy

  ECB Keeps Rates Steady, Pausing Divergence With Fed

  Where Do Economists Think We’re Headed? These Are Their Predictions

  Why the Fed Should Cut Rates Now—Not Wait Until September

  Biden Forgives $1.2 Billion in Student Loans in Latest Relief

  Trump May Find a Weak Dollar Isn’t Easy to Come By

  US Companies Boost Imports in Rush to Avoid Tariffs

  What Musk Could Gain From Trump

  Brookfield Lines Up a 36-Year-Old Rising Star as Next Billionaire CEO

  More CFOs Are Getting the CEO’s Job

  A Guggenheim Executive’s Big Plan to Build Millions of New Homes

  Blackstone Profit Misses Estimates as Real Estate Exits Slow

  How to Become a Player in the Global Mineral Trade

  TSMC Hikes Revenue Outlook to Reflect Heated AI Demand

  Google Set to Lead $250 Million Round by Mobile Startup Glance

  Nokia Cuts Sales Guidance as Market Uncertainty Continues

  Tech Giants Up Ante by Withholding Products from EU

  Novartis Raises Profit Guidance as Key Drugs Boost Sales

  US Public EV Chargers Set to Surpass Gas Stations in Eight Years

  Volvo Car’s Shares Rise on Earnings Growth, But Warns of Sales Hit From EU Duty on Chinese EVs

  Revenge Travel Runs Out of Force, Hurting Airlines’ Profit Goals

  W.N.B.A. Players, Bargaining Power Soaring, Seek Expert Advice on Labor Deal

  Bud Light Slips to No. 3 After Boycott Reshaped Beer Industry

  The Fight Over Masks in Stores Is Back—This Time With a Twist

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• Morning News: July 17, 2024
  Eddy Elfenbein, July 17th, 2024 at 7:05 am

  UK to Own Clean Energy Assets Through State-Backed GB Energy

  Hurricane Beryl Serves as Ominous Warning for Gulf Coast LNG

  BHP’s Iron Ore, Copper Production Rises

  Wall Street Wants In on America’s Battery Storage Boom

  U.K. Inflation Steady as Economists Puzzle Over ‘Taylor Swift Effects’

  Dollar Falls to Weakest Since May as Yen Rally Shakes Up Markets

  US Floats Tougher Trade Curbs in Chip Crackdown on China

  I.M.F. Sees Signs of Cooling in U.S. Economy

  New York Fed President John Williams Discusses the Interest-Rate Outlook

  Trump, in Interview, Puts ‘Lovely’ Europe on Notice for Tariffs

  Trump on Taxes, Tariffs and Jerome Powell

  Trump’s Proposed Tax Cuts and Increased Tariffs Could Hurt Poorer Households

  Trumponomics 2.0 Will Awaken Bond Vigilantes

  How a Network of Tech Billionaires Helped J.D. Vance Leap Into Power

  How J.D. Vance Seeks to Reorient the Republicans’ Approach to Business

  Citizen’s Financials Profit Beats Estimates on Strong Capital Markets

  U.S. Bancorp’s Adjusted Profit Falls as Deposit Costs Hurt Interest Income

  HSBC Names Elhedery CEO, Picking Insider for Top Job

  What Americans Invest In Now

  ‘AI Laggards’ Find Favor as Magnificent Seven Stocks Lose Luster

  ‘Finfluencers’ Have Davos Set Rethinking Future of Wealth Advice

  Prediction: Nvidia Will Climb in the Second Half Thanks to This 1 Game-Changing Move

  Musk Says He Will Move X and SpaceX Headquarters Out of California

  Daimler Truck Writes Down China Joint Venture, Puts Guidance Under Review

  Kroger-Albertsons Deal Is Haunted by ‘Spectacular’ Past Failure

  Ray-Ban Maker EssilorLuxottica to Buy Supreme Brand From VF for $1.5 Billion

  IAC Steps Up M&A Plans Amid Recent Exploration of Paramount Bid

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• CWS Market Review – July 16, 2024
  Eddy Elfenbein, July 16th, 2024 at 6:12 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.”)

  Leadership Has Changed on Wall Street

  On Thursday, the stock market closed higher for the 13th time in the last 15 sessions. The S&P 500 hit another new all-time high – (take it away, Rita!). This is our 37th new high this year, and we’re only at the All-Star break.

  What’s most striking about this rally is that the market’s leadership has abruptly changed.

  Technology stocks, especially large-cap tech, had been leading the charge while many value stocks, typically smaller industrial stocks, had been lagging behind. The gap between growth and value had gotten unreasonably large.

  

  That all changed with last week’s inflation report. What happened is that the benign inflation news has apparently given the go-ahead to the Federal Reserve to start cutting interest rates in September. The Fed has been clear that it wasn’t going to cut rates until it saw more evidence that inflation is well-contained. That’s exactly what it got.

  The important fact for investors is that lower rates change the risk profile of the stock market. Value stocks usually benefit as rates head downward.

  The current stock market has become an either/or market. The two competing camps are best represented by the Russell 2000 Index of small-cap stocks on one hand, and the Nasdaq Composite on the other.

  Each day, the stock market seems to greatly favor one of these indexes, and it hates the other. It’s like a giant, multi-trillion dollar game of tug-of-war. Before last week’s inflation report, the Nasdaq was on fire and the Russell 2000 couldn’t do anything right.

  Since the inflation, everything has flipped. Check out this chart of the Russell 2000. It went nowhere for weeks, then suddenly, it lurched forward.

  

  Here’s a chart that shows you how this has become an either/or market.

  I made a scatterplot of the daily excess gain of the Nasdaq and the Russell 2000. By excess gain, I mean how much better or worse the index did compared with the S&P 500. The horizontal axis shows the excess gain of the Russell, and the vertical is the excess gain of the Nasdaq.

  

  You can see how the dots make up a downward sloping line. In simpler terms, when one index leads the market, the other lags and vice versa. One side of Wall Street is yelling “Go Nasdaq!” and the other is yelling “Go Russell!” It’s as if there’s no middle ground. The Russell was up another 3.5% today while the Nasdaq was up only 0.2%.

  The Nasdaq did well on days when we thought rates were going to stay high, but the Russell did well on days when we thought rates would fall. Since Thursday, we’ve strongly moved from the first camp to the second camp.

  Notice the dot at the lower right? That was last Thursday, the day of the inflation report. The Nasdaq fell 2% that day and the Russell was up by more than 3.5%. That’s one of the largest spreads between the two in decades.

  Will small-caps continue to lead the market? I’m inclined to think they will, but perhaps not as dramatically as the last four days.

  It looks like the Fed may only be getting started with its rate cuts. The latest futures prices indicate a 93% chance of a rate cut in September. There’s a good chance that we may see two more rate cuts this year, plus a few more next year. It’s possible that interest rates may be 1% lower by this time next year.

  Yesterday, Jerome Powell said, “We didn’t gain any additional confidence in the first quarter but the three readings in the second quarter, including the one from last week, do add somewhat to confidence.” The fact is that the labor market has cooled off a bit and the inflation news has improved.

  The recent change in leadership has been good for our Buy List. From May to July, the Buy List had been lagging the market, but now things are looking better. That reminds me of a quote from Michael Gayed: “There are no gurus, only cycles.”

  One of our Buy List stocks that’s perked up is the Federal Agricultural Mortgage Corporation (AGM), better known as Farmer Mac. Lower rates are clearly good for its business. In the last month, the stock has gained more than 24% despite no real news being released.

  AGM hasn’t said yet when it will report earnings for this quarter, but going by past years, it will probably report around August 6. Wall Street currently expects Q2 earnings of $4.11 per share. Even after the recent rally for AGM, the stock is going for less than 12 times next year’s earnings.

  Good Retail Sales Report for June

  The stock market was helped this morning by a surprisingly strong retail sales report. Last month, retail sales, except for autos, rose by 0.4%. That’s the most in three months. Wall Street had been expecting an increase of 0.1%.

  If we include autos, then retail sales were unchanged, but that includes a 2% drop of auto dealers. Wall Street was expecting a drop of 0.3%. The retail sales number for May was revised up to 0.1%.

  

  These numbers suggest that consumers were in good health as they headed towards the close of Q2. Thursday’s numbers are good to see because the consumer hasn’t appeared terribly healthy this year. While wages have gone up, so has inflation. Also, higher interest rates from the Fed have made it more difficult to finance new buying.

  Of the 13 categories tracked by the Commerce Department, only three registered declines. Those included sales of gasoline, reflecting lower prices in the month. Sales at sporting goods stores also edged lower.

  If we exclude auto dealers and sales at filling stations, then retail sales rose by 0.8%. That’s the most since early 2023. Bloomberg notes that “sales at health and personal care stores rose by the most since October, while sales at building material and garden equipment stores increased by the most since February.”

  Shoppers were active last month. Sales for online retailers rose by close to 2%, and home building stores saw an increase of 1.4%.

  The reason why it’s good to exclude auto sales for June is that many car dealers were impacted by a cyberattack. AutoNation said it will take a big hit to its earnings report.

  The housing starts report is out tomorrow. We’re going to have lots more earnings reports coming up soon. The next big economic report will come next Thursday when the government releases its first estimate of Q2 GDP growth. I’m expecting a number that’s low but positive.

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

  – Eddy

• Morning News: July 16, 2024
  Eddy Elfenbein, July 16th, 2024 at 7:04 am

  The World Is Pushing Clean Energy. Oil Companies Are Thriving

  Oil Bulls Face Make-or-Break Moment on Price Rally

  TotalEnergies Expects Output at High End of Guidance, Warns on Weak Refining Margins

  Rio Tinto Gets Simandou Approvals

  Nobel Laureate Stiglitz Explores Ways to Boost Supply Chain Resilience

  Xi Jinping’s Great Economic Rewiring Is Cushioning China’s Slowdown

  US Tariffs at 60% Would Halve China’s Growth Rate, UBS Says

  Powell Says US Data Offer Confidence That Inflation Is on Path to 2%

  The True Bull Market May Finally ‘Wake Up’ as Investors Eye Rate Cuts

  Biden Calls for National Rent Control on Corporate Landlords

  The Housing Market Will Tell the Fed How Much to Cut Rates

  Timing ‘Trump Trades’ With an Eye on GOP Platform

  Buffett’s Berkshire Hathaway Sets, Closes at Record High

  BofA Says Net Interest Income to Climb After Quarterly Haul Misses Estimates

  Blue Owl to Buy Atalaya in Deeper Expansion Into Private Credit

  Insurers Tied to Apollo, KKR Buy Mortgages Outright in New Twist

  Goldman Joins Rivals in Setting Up New Mideast-Focused Fund

  Morgan Stanley Traders, Bankers Beat Estimates as Wealth Lags

  Hedge Fund Segantii Has Returned More Than 90% of Client Money

  Storage Firm Lineage Is Said to Seek Up to $3.85 Billion in IPO

  General Motors Backs Away from Its One Million EV Sales Target

  Tesla Is On a Hiring Spree After Musk-Ordered Mass Firings

  UnitedHealth Profit Beats Expectations as Cost Woes Persist

  Dollar General Will Pay $12 Million in Fines Over Workplace Safety Violations

  Cartier Owner Richemont Hit by Sluggish Demand in China

  Hugo Boss Joins Burberry in Warning on Luxury Spending, Cuts Full-Year Sales Outlook

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• Morning News: July 15, 2024
  Eddy Elfenbein, July 15th, 2024 at 7:03 am

  By Burning Down Buildings, Insurers Want to Change How They’re Built

  The World’s Power Grids Are Failing as the Planet Warms

  ICE Says Europe’s Diesel Contract Thrives After Russian Exclusion

  China to Boost Funding to Reduce Emissions at Coal Power Plants

  Cleveland-Cliffs in $2.5 Billion Deal to Buy Canadian Steelmaker Stelco

  Germany’s Factories Founder While Competition From China Revs Up

  China’s Economic Growth Comes in Worse Than Expected, Adding Pressure on Xi

  Global Markets Ramp Up the ‘Trump Trade’ After Rally Attack

  How Trumponomics Could Undermine the U.S. Economy

  As Policy Types Cheer the Demise of ‘Inflation,’ Inflation Arrives

  Why Small Caps Have the ‘Most Compelling Investment Case’ Right Now

  How Regulators Are Using Banks to Illuminate Shadow Banks

  North Korean Hackers Sent Stolen Crypto to Wallet Used by Asian Payment Firm

  Goldman Sachs Profit Surges as Traders Top Analysts’ Estimates

  BlackRock Hits $10.6 Trillion Asset Record, Cites ETF Boost

  How Microsoft’s Satya Nadella Became Tech’s Steely Eyed A.I. Gambler

  Alphabet in Talks to Buy Wiz in $23 Billion Cyber Deal

  Apple’s India Sales Surge 33% to Record in Shift From China

  Apple, Samsung Phone Shipments Rose in Second Quarter

  Atos Signs $1.83 Billion Finance Deal With Banks, Bondholders

  AT&T, Verizon Tangle Over 5G Service for Emergency Responders

  Hacker Says AT&T Paid About $400,000 to Erase Sensitive Data

  Amazon Sold a Used Diaper. It Tanked a Mom-and-Pop Business

  Promised Cures, Tainted Cells: How Cord Blood Banks Mislead Parents

  Burberry Replaces CEO and Rethinks High-End Luxury Strategy

  Swatch Group Posts Sales Decline on Weak Demand in China

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• Morning News: July 12, 2024
  Eddy Elfenbein, July 12th, 2024 at 7:04 am

  Xi Jinping’s Latest Food Security Push Begins in China’s Fields

  China Reaches Record Trade Surplus, Raising Alarm Abroad

  Japan Likely Spent $22 Billion on Yen Intervention Thursday

  Taylor Swift Effect May Be Latest Dilemma for BOE Rate-Setters

  Milder Inflation Opens Door Wider to September Rate Cut

  It’s Time for the Fed to End the Waiting Game

  Have Potato Chips Reached Peak Price?

  Economists Say Inflation Would Be Worse Under Trump Than Biden

  Yellen Grilled by Trump Allies in Odd Feud Over Debt Management

  Biden’s Pick to Lead F.D.I.C. Faces Little Resistance in Senate Hearing

  The Supreme Court Blows Up a Popular Small-Business Succession Plan

  The Election Muddle Aside, Investing Has Been a Snap Lately

  Tech Stocks Could See a Brexit-Like Rerun, This Fund Manager Says. A Big Test is Brewing

  JPMorgan Notches Record Profit on Visa Gain, Dealmaking Jump

  Wells Fargo’s Cost-Cutting Progress Stalls as Expenses Climb

  BNY Quarterly Profit Rises on Investment Service Fee Boost

  Why ‘Payment-In-Kind’ Debt Is So Appealing — and Risky

  Leon Black Oversees $1 Billion Wealth Shift For Apollo Fortune

  Senate Democrats Make Antitrust Case Against Corporate Landlords

  Northern Data Forecasts Sales to Triple on Cloud Computing Push

  AT&T Says New Hack Includes Records of Customer Calls, Texts

  Ericsson Posts Better-Than-Expected Sales on Licensing Revenue Increase

  Deutsche Lufthansa Cuts Guidance as Flagship Airline Struggles to Break Even

  Delta’s Sagging Profit Signals Trouble for Airlines This Summer

  Dealerships Hopeful EVs Will Bring Back That New Car Smell

  Peter Thiel’s Doping Games and Tech’s Quest for a Superhuman

  LVMH Has Already Won Gold at the Paris Olympics

  The Real-Estate Scion Behind the Saks and Neiman Marcus Marriage

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• Morning News: July 11, 2024
  Eddy Elfenbein, July 11th, 2024 at 7:07 am

  OPEC’s Bullish Oil Demand View Is at Odds With Reality

  IEA Cuts 2025 Oil Demand Forecast, Lifts Supply View

  Thinking About a Mississippi River Cruise? There’s One Big ‘If’

  France Seeks a Premier Who Can Survive in the Job

  Wealthy French Spooked by Election Explore Possible Moves Abroad

  I.R.S. Crackdown on Delinquent Millionaires Yields $1 Billion

  Republicans Are Fracturing on the Economy

  US Inflation Data to Bolster Case for Fed Interest-Rate Cut in September

  Bank of Korea Holds Rate Steady for 12th Time

  MoonPay Plans to Expand in London, Citing UK’s ‘Talent Density’

  Get Ready for More AI Mania This Earnings Season

  Private Equity’s Creative Wizardry Is Obscuring Danger Signs

  Citadel Securities Crafts Plan to Shake Up Banks’ Trading Desks

  JPMorgan Aims to Amass 15% of US Consumer Deposits, Boost Credit Card Share

  Trading Houses Lure Top Talent from BP, Shell

  Health-Care Companies Are Sending Your Data to Big Tech

  Wealth Tech Startup for Doctors Raises $200 Million, Eyes M&A

  Pfizer Advances Weight-Loss Pill in Race to Lucrative Market

  Tony Robbins Bet $200 Million on a Green-Energy Breakthrough. Proof It Works Remains Elusive

  BHP to Suspend Australian Nickel Operations Amid Glut of EV Metal

  Biden Offers $1.7 Billion to Help Factories Build Electric Vehicles

  How Rivian Became the Anti-Tesla

  Thermonuclear Blasts and New Species: Inside Elon Musk’s Plan to Colonize Mars

  Delta’s Sagging Profit Signals Trouble for Airlines This Summer

  PepsiCo Posts Weaker-Than-Expected Sales as Volume Slips

  Bread and Bullets: Some Southern Supermarkets Now Sell Ammo Out of Vending Machines

  Uniqlo Owner Raises Profit View

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• Morning News: July 10, 2024
  Eddy Elfenbein, July 10th, 2024 at 7:08 am

  China Consumer Inflation Stays Tepid, Factory-Gate Prices Continue to Fall

  Kenya on Tightrope as Options Fade to Scale $26 Billion Debt Wall

  EU Risks Inflation Pressure If Deforestation Law Takes Effect

  Europe Weighs Following US T+1 Move in Late 2027, Officials Say

  Powell Cheers Markets Looking for Signs on Rate Cuts

  Powell Flags Rising Risks to Jobs While Avoiding Rate-Cut Timing

  Treasury Yields Retreat as Fed Chair Warns on Keeping Rates Elevated for Too Long

  US Commercial Property Crash Is Set to Deepen the Pain Elsewhere

  ‘Urban Family Exodus’ Continues With Number of Young Kids in NYC Down 18%

  UBS Sees $83 Trillion Wealth Transfer Over Next Three Decades

  Quant Trader Worth $11 Billion Builds Firm to Manage XTX Riches

  Metal Thieves Are Stripping America’s Cities

  A Celebrity-Backed Climate Startup Unravels After Dubious Deals

  Britain Has Huge Clean Energy Ambitions, but Are They Realistic?

  Honeywell Strikes $1.8 Billion Deal for Liquefied Natural Gas Business

  Amazon Says It Reached a Climate Goal Seven Years Early

  Microsoft, Apple Drop OpenAI Board Plans as Scrutiny Grows

  Has Artificial Intelligence Co-Opted the Sparkle Emoji?

  Samsung Union Workers Launch Indefinite Strike

  Tesla’s Full Self-Driving Rivals Are in China

  German Carmakers Report Sales Drop and Diverging EV Fortunes

  BMW Recalls More than 390,000 Vehicles Due to Airbag Issues

  The End of the Cheap Money Era Catches Up to Chelsea FC’s Owner

  How a Distinctive Beauty Brand Fell Apart, Sinking Almost $700 Million With It

  Shoppers Have Fewer Choices. Brands and Retailers Like It That Way

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• CWS Market Review – July 9, 2024
  Eddy Elfenbein, July 9th, 2024 at 5:39 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.”)

  Powell Acknowledges the Danger of High Rates

  There’s a classic sketch from the earlier years of Saturday Night Live. In it, Chevy Chase plays President Ford in the 1976 Presidential Debate. Chase made zero effort to look or sound like the president.

  Jane Curtin plays a moderator who asks Ford a bewildering question full of facts and figures. Ford, looking overwhelmed, finally responds, “it was my understanding that there would be no math.”

  I bring this up because the issue Curtin asked about involved the Humphrey-Hawkins Act, known officially as the Humphrey-Hawkins Full Employment Act. One of the mandates of the act is that the Chairman of the Federal Reserve must testify twice a year before Congress. That came today.

  Jerome Powell spoke before the Senate Banking Committee; you can see his full remarks here. Usually, these speeches are usually pretty dull affairs. (One year I went down to the committee room and managed to get the seat directly behind Ben Bernanke.)

  As expected, Powell discussed the improvement in inflation but stressed that we’re not yet at the Fed’s target level of 2%. He said that the FOMC thinks it’s too early to start cutting rates, and they want to see solid evidence that inflation has been defeated. Powell said that the data in Q1 did not prove such evidence, but the more recent data is leaning that way.

  What was interesting about today’s remarks is that Powell also said that holding rates too high for too long could also be a problem. This is obviously true, but it’s noteworthy to hear the Fed chair acknowledge it. Specifically, Powell said “reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

  These words pleased investors. In today’s trading, the S&P 500 rose for the sixth day in a row and for the ninth time in the last ten sessions. The index is on pace for its tenth weekly gain in the last 12 weeks.

  It’s still been an amazing time for growth stocks. Since early 2023, the Nasdaq 100 ETF (QQQ) is up 90%. Value stocks aren’t doing poorly. Instead, they’re just floating along. Typically, when growth beats value, it’s a long, steady grind, but when value leads growth (like in 2022), it’s short and brutal.

  Unemployment Rises to a 31-Month High

  On Friday, the Labor Department reported that the U.S. economy added 206,000 net new jobs last month. That slightly topped expectations of 200,000. The sour note is that the jobs gains for April and May were revised downward by 111,000.

  Most of the media reported that the unemployment rate rose to 4.1% which is technically correct, but I dug a little into the numbers. Working out the decimals, the unemployment rate increased to 4.054% which indeed rounds up to 4.1%.

  

  This was the highest unemployment rate since November 2021. Over the last year, nonfarm jobs increased by 1.67%. That’s the smallest year-over-year increase since Covid.

  The most important number I wanted to see was average hourly earnings, and it wasn’t bad. For June, average hourly earnings increased by 0.3%. Over the last year, average hourly earnings are up 3.9% which is just ahead of inflation. (The CPI report for June is due out later this week.) This needs to improve.

  This report tells me that the economy isn’t crumbling but it appears to be slowing down. The broader U-6 rate, which includes discouraged workers, was unchanged at 7.4%. The labor force participation rate increased by 0.1% to 62.6%. The labor force participation rate for prime-working age adults (25 to 54) rose to 83.7%. That’s a 22-year high.

  

  I’m concerned that so much of the job gains are going to healthcare and government:

  Though June job creation topped expectations, it was due in large part to a 70,000 surge in government jobs. Also, health care, a consistent leader by sector, added 49,000 while social assistance contributed 34,000 and construction was up 27,000.

  Several sectors saw declines, including professional and business services (-17.000) and retail (-9,000).

  Long-term unemployment increased by 166,000 to 1.5 million. That’s up from 1.1 million last year. Long-term unemployed now make up over 22% of those who don’t have a job.

  This report probably won’t change the Fed’s thinking. The FOMC meets again at the end of this month. Traders think there’s a 95% chance that the Fed will leave rates alone. I think that’s right.

  The FOMC has said that it wants to see more hard evidence that inflation is under control. I think the Fed is fine with erring on the side of higher rates. Futures traders currently see a 72% chance that the Fed will cut in September. That appears to be the emerging conventional wisdom. Traders also expect a second rate cut before the end of the year but that’s far from certain.

  The next test for the market will come this Thursday when the government releases the CPI report for June. The consensus on Wall Street is that headline inflation increased by 0.1% last month while core inflation increased by 0.2%.

  Stock Focus Revisit: UFP Technologies

  In February 2023, I told you about UFP Technologies (UFPT). The shares are up 168% since then.

  I wish I could tell you that I told the world it was an amazing buy. Instead, I merely said it was an interesting stock and that the valuation was reasonable. Sometimes, that’s all you need.

  At the time, UFPT had two analysts who followed the stock. That’s now up to three. You’d think a stock like this would get some more attention. Since early 2002, UFPT is up close to 40,000%.

  

  So, what do they do? From the company:

  UFP Technologies is a designer and custom manufacturer of comprehensive solutions for medical devices, sterile packaging, and other highly engineered custom products. UFP is an important link in the medical device supply chain and a valued outsourcing partner to many of the top medical device manufacturers in the world. The Company’s single-use and single-patient devices and components are used in a wide range of medical devices and packaging for minimally invasive surgery, infection prevention, wound care, wearables, orthopedic soft goods, and orthopedic implants.

  UFP Technologies is based in Newburyport, Massachusetts. The company has a market value of $2.3 billion and about 3,000 employees. It’s not a member of the S&P 500 but it’s in the Russell 2000. Last year, it had revenue of $400 million.

  In May, the company had a blow-out earnings report, UFPT earnings were $1.64 per share compared with expectations of $1.10 per share, but I shouldn’t really call the average of three analysts a consensus. Those analysts expect UFPT to make $6.74 per share this year which gives the stock a p/e ratio of about 44. The next earnings report will probably be in early August. Expectations are for $1.53 per share.

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

  – Eddy