Morning News: August 16, 2024
Posted by Eddy Elfenbein on August 16th, 2024 at 7:02 am

“The Chainsaw Never Stops.” Milei’s Support Survives His Economic Experiment

China’s Steel Titans Are Finally Bending to Reality

China Manages to Halt Bond Bulls In Their Tracks, for Now

The War on Prices Hits the Campaign Trail

Must-Win Michigan’s Angst Over Inflation, EVs Shapes 2024 Election

Ultra-Luxury Home Sales in US Are On Pace to Set a New Record

The End of Fabulous Money Market Rates Is Near

Five Big Questions for the Fed at Jackson Hole

With US Economy Humming, a Quarter Point Will Do

Carry Trade That Blew Up Markets Is Attracting Hedge Funds Again

Man Group Quants Are Riding Private Boom for Public Stock Trades

BlackRock Says Blended Finance at ‘Turning Point’ as Deals Grow

Cash Sweep Scrutiny Threatens Wealth Managers’ Credit Ratings, Moody’s Says

The Hottest Club in Town Is… Run by Your Credit-Card Company?

Can You Solve This Insider-Trading Puzzle in Seven Clues or Less?

Buying or Selling a Home? The Rules Are Changing.

Revenues Down and Stock Battered as Data Firm Faces Scrutiny

Sports Betting Is Legal, and Sportswriting Might Never Recover

Hey Google, Time to Add China ‘Koreafication’ to Your Search Engine

U.S. Awards $1.6 Billion to Texas Instruments to Build Semiconductor Plants

How Booming Electricity Demand Is Stalling Efforts to Retire Coal and Gas, in Charts

Cheniere Energy, Enriched By a Recent Spike in Gas Prices, Boosts Spending on Buybacks

Carbon-Removal Firms Have One Very Big Backer. That’s a Problem.

JetBlue’s Third-Largest Shareholder Has One Ask: A Status Upgrade

Rivian Pauses Output of Amazon’s Electric Delivery Van Due to Parts Shortage

No Joke: The Onion Thinks Print Is the Future of Media

Olipop Breaks Into the Exclusive World of Stadium Soda

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Morning News: August 15, 2024
Posted by Eddy Elfenbein on August 15th, 2024 at 7:04 am

Migrant Workers Lured to Canada Are Being Scammed Out of Their Life Savings

Nigeria Is Turning Itself Into an Oil Market Juggernaut

America’s Promised Hydrogen-Fueled Future Is Stalled Over Tax Credits

China’s Economy Fails to Pick Up After Worst Stretch in Five Quarters

U.K. Economy Buoyed by Reports on Growth, Inflation and Jobs

Why Ethiopia Ended Half a Century of Currency Control

Philippines Central Bank Cuts Rates First Time in Nearly Four Years to Support Economy

Trump and Harris Should Focus on the Minimum Wage, Not Tips

Why Inflation Might Not Win the Election for Trump

Why Falling Mortgage Rates Aren’t a Quick Fix for Frustrated Homebuyers

What’s a Minsky Moment and Why Are There Worries About One?

Jamie Dimon Wants to Hit Millionaires With the ‘Buffett Rule’ to Tackle National Debt

Alphabet Shares Face Months of Uncertainty on New Breakup Risk

Buffett’s Apple Sale Brings Value Back to Quality Investing

Apple Pushes Ahead With Tabletop Robot in Search of New Revenue

Coming to ‘iPhone City’: An Electric Car Factory From Foxconn

Cisco Systems to Cut About 7% of Staff in Second Round of Layoffs

A Chinese Self-Driving Start-Up Is About to Go Public in the U.S.

Alibaba’s Profit, Revenue Miss Expectations Despite Growth Drive

JD.com’s Second-Quarter Profit Nearly Doubled as Revenue Edged Higher

Walmart Lifts Full-Year Outlook on Bargain-Hunting Shoppers

What is Mpox, How Does It Spread and Is There a Vaccine? All You Need to Know

U.S. Announces Prices for First Drugs Picked for Medicare Negotiations

J&J Eyes Texas as Venue for Next Round of Baby Powder Fight

Starbucks’ $113 Million Payday Makes Niccol Among Most-Paid CEOs

Brian Niccol’s Journey From Doritos Locos Tacos to Running Starbucks

Record Heat Is Testing Kraft Heinz’s Efforts to Climate-Proof Its Ketchup

The British Have Finally Learned to Love Peanut Butter

Tapestry Gains as Quarterly Profit Beats Wall Street’s View

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Morning News: August 14, 2024
Posted by Eddy Elfenbein on August 14th, 2024 at 7:02 am

To Save the Panama Canal From Drought, a Disruptive Fix

Rooftop Solar Has a Fraud Problem. The Industry Is Working to Build Back Trust

No Respite for Chinese Officials as Economy Shows New Signs of Weakness

Kishida’s Resignation Opens the Door to a Chaotic Era

Global Immigration Crackdown Ensnares Students Abroad

ECB Calls Probe of Riskiest Bank Loans of ‘Fundamental’ Import

U.K. Services Inflation Eases, Keeping Door Open for More Rate Cuts

US Inflation Data to Show Another Modest Increase, Cementing Fed Cut

The Fed Is Setting the Mood, Not Trump or Selloff

Inflation Data Is the Next Hurdle for Investors Weary From Volatility

What Is Momentum Trading and What Just Went Wrong?

US Junk Debt Investors Cautious of Leveraged Loans as Economy Slows

There’s Something Fishy About Insiders’ ‘Other’ Trades

Secretive Dynasty Missed Out on Billions While Advisers Got Rich

UBS to Sell Credit Suisse’s U.S. Mortgage Servicing Business

There’s a Gender Split in How US College Grads Are Tackling a More Difficult Job Market

Global Trade Shows Resilience Amid Recession Talk

US Considers a Rare Antitrust Move: Breaking Up Google

Google’s Stock Falls as the Government Weighs Breaking Up the Company

The Little Streamer That Could

Tencent Profit Surges as Domestic Games Revenue Resumes Growth

Texas Sues G.M. Over Collection and Selling of Driver Data

Elliott to Launch Proxy Fight at Southwest Airlines

Mars to Purchase Snack Maker Kellanova in $36 Billion Deal

‘Stress on Shelves’—the Battle for Space in Store Aisles

Narasimhan’s Ouster at Starbucks Adds Fuel to Record Firing Pace

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CWS Market Review – August 13, 2024
Posted by Eddy Elfenbein on August 13th, 2024 at 5:14 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 Continues to Rebound

Last week, the stock market fell for the fourth week in a row. Over the course of 14 trading days (July 16 to August 5), the S&P 500 lost 8.5%.

While that’s certainly unpleasant to live through, drops like that are pretty routine for the market. In fact, it’s probably on the light side. Investors should expect to see a 10% drawdown once every two years, give or take.

The shrewd investor keeps his or her head during a market downturn. After all, that’s where the bargains are. Two years ago, at the height of the inflation scare, shares of Moody’s (MCO), one of our Buy List favorites, were trading for $230 per share. Since then, inflation has faded, and shares of Moody’s have doubled.

Thanks to today’s rally, the market has now closed higher for four days in a row. The S&P 500 is currently 4.8% above its closing low from last week. We’re not at a new high yet, but we’ve gained back just over half of what we lost.

Is our summer selloff over? I can’t say, but I wouldn’t mind seeing more of my favorite stocks go for a discount. There are still a lot of threats out there. The Federal Reserve looks ready to cut rates by 0.25% in five weeks. More than a few observers think the Fed will go for a 0.5% cut.

The next test for the market will come tomorrow morning when the government releases the CPI report for July. The consensus on Wall Street is to expect a 0.2% increase for both the headline rate and the core rate. Today’s PPI report increased by 0.1%, which was less than expected.

The last CPI report showed that prices actually fell by 0.1% during June. That had not happened in four years. The drop was largely due to a big slide in energy prices.

The core rate of inflation, which excludes food and energy, increased by only 0.1%. in June. Wall Street had been expecting an increase of 0.2%. The annual increase for the core rate is at its slowest since April 2021.

I should add that one of the key inputs in the CPI is shelter costs, and those tend to lag other costs. As a result, shelter costs are probably helping to weigh down the overall CPI. We’ll get more details tomorrow.

One of the problems of this recent bout with inflation is that more visible prices are increasing. For example, since 2022, electricity costs are up more than 10%. Car insurance is up significantly. As the WSJ points out, shoppers can easily trade down with some items like food, but you really can’t do that with your water bill. Inflation is up 6% since the rate of inflation peaked.

While these numbers are moving in the right direction, the job is not quite done. If tomorrow’s numbers come in hot, that could throw a wet blanket on the Fed’s rate-cutting plans, and traders would not be pleased.

Older investors will recall just how devastating inflation can be to the stock market. Yesterday was the 42nd anniversary of the 1982 low. The Dow closed at 776.92 which is lower than it had been 18 years before; meanwhile, inflation tripled. The 10-year Treasury was going for 13.5%. For context, “Fast Times at Ridgemont High” opened the next day.

With the help of some time passing, we can see that last Monday’s panic was extreme. The carry trade fizzled, Japanese stocks plunged, and the Volatility Index soared to some of its highest levels ever recorded. Still, the hectic times didn’t last very long.

We can also see that the big drop happened a few weeks after the stock market’s peak. That’s also fairly common. Stocks don’t often crash at the peak. Instead, a gradual drop slowly turns into a mad dash for the exits. I call this the “Wile E. Coyote Effect” where the market dashes off the cliff and will hang in mid-air before realizing it’s too late.

When the Bank of Japan decided to raise rates, it was by a puny amount, but that was enough to spook investors. A positive loop can easily become a negative one. No one wants to be last, so they sell, and that causes more folks to sell.

This also raises an uncomfortable question which is, how much money is tied up in the carry trade? The answer is, we don’t know. There are estimates. Some say it’s over $1 trillion, but that’s just a guess. JPMorgan Chase said that three-fourths of the carry trades have already been busted.

The yen carry trade still lives, but it’s not quite the layup it used to be. Last year, being short the yen and long the peso was easy money. The yen will probably continue to rally from here.

Starbucks Jumps 25%

Shares of Starbucks (SBUX) soared 25% in today’s trading. I wish I could say the reason for the move is that the coffee giant is selling lots more coffee. Instead, it’s that they fired their CEO.

I have to admit that if I were CEO of a company and it gained $21 billion on the news of my firing, I’d take it personally. This looks to be SBUX’s best day since its IPO in 1992.

Starbucks has appointed Brian Niccol, the current top banana at Chipotle (CMG) to take over the reins at Starbucks. He will replace Laxman Narasimhan who’s been in charge for the last 16 months. Niccol officially takes over on September 9. Shares of CMG closed lower by 7.5% today.

This is a bold move. To be honest, things were not going well at Starbucks. In April, the coffee people cut their guidance for the second time this year. The problem Starbucks faces is tougher competition in China.

Howard Schultz, the founder and guiding light of Starbucks, was publicly critical of Narasimhan. According to the WSJ, since Narasimhan took over, shares of SBUX are down 22% while the S&P 500 is up more than 36%.

Not surprisingly, activist investors had been pushing Starbucks to make some big changes. These are firms that take a position in a struggling business and urge it to change course. In its last report, Starbucks said that same-store sales are down 3%.

Niccol has been at Chipotle since 2018 and, going by the share price, he’s done a very good job. In March 2018, the stock was going for about $6.50 per share. Yesterday, Chipotle closed at $55.87 per share.

While a lot of restaurants have been feeling the squeeze, Chipotle has prospered. About Niccol, Howard Schultz said, “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”

One of the mistakes of investment analysis is to give a CEO too much credit. It’s not that there aren’t better and worse CEOs – there certainly are. However, what you often see is a successful CEO at the right place and right time. Perhaps the business climate turned in their favor or a competitor has made some major mistake. It’s only natural that investors will see that as the magic of the CEO.

The great baseball manager Casey Stengel won seven World Series with the Yankees and had some of the worst records in the modern era with the Mets. Why? Well, the Yankees were a lot better than the Mets. Stengel wasn’t responsible for all of that.

In fact, the successful CEO is often the one who realizes that a big opportunity has come along. I’d love to own Starbucks – it’s a great business – but I want to see proof of a turnaround before I see it as a buy.

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

– Eddy

Morning News: August 13, 2024
Posted by Eddy Elfenbein on August 13th, 2024 at 7:08 am

China Goes to New Extreme in Crackdown on Bond-Market Frenzy

China’s Outbound Investing Quota Crunch Spurs Foreign Asset Managers to Get Creative

Middle East Trillions Force New Concessions From Wall Street

German Economic Expectations Nosedive as Global Slowdown Fears Bite

Can This Country Show Europe How to Compete Again?

Fed Becomes Campaign Issue as Trump, Vance Seek Political Input

Interest-Rate Cuts Rely on Inconvenient Truths About Inflation

Reminder: Inflation Still Matters More Than Anything

Stock Dump Sparked by Yen Spike Will Drag On, Says Goldman Sachs Strategist

The Unraveling of a Crypto Dream

Thousands of Bankers Are Quitting Their Jobs in India

Goldman Investment Arm Joins Firms Quitting Major Climate Club

China’s Oil-Demand Growth Slowdown Weighs on Global Outlook, IEA Says

China Puts Canada’s Mining M&A Restrictions to the Test

GM Cuts China Jobs as It Resets in World’s Biggest Car Market

Austria Sees ‘Massive Risk’ From Halt to Russian Gas Flows

Semiconductor Factory Reshapes Czech Region’s Industrial Past

US Manufacturers Hit by Soaring Property Insurance Costs

Boeing Is in Crisis. Airbus Is Struggling to Power Ahead.

It Was a Hot Real Estate Trade. Now Investors Are Worried.

NYC’s Aging Midtown Buildings Lure Property Mogul Larry Silverstein

Home Depot Cuts Outlook as Consumers Stuck in ‘Deferral Mindset’

Baxter International to Sell Kidney Care Business to Carlyle for $3.8 Billion

Hot Summer Threatens Efficacy of Mail-Order Medications

Starbucks Replaces CEO as Activist Investors Push for Changes

Federer-Backed On Sees 28% Sales Increase on Footwear Demand

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Morning News: August 12, 2024
Posted by Eddy Elfenbein on August 12th, 2024 at 7:05 am

China Touts Olympic Gold Medal Tie With US as New Sign of Power

China Regulators Tell Some Rural Banks to Renege on Bond Trades

U.S. Officials to Visit China for Economic Talks as Trade Tensions Rise

Inflation Hurts Most for the Things We Can’t Skimp On

Americans’ Refusal to Keep Paying Higher Prices May Be Dealing a Final Blow to US Inflation Spike

Tim Walz’s Investment Strategy Makes Him an Outlier

Bonds Are Back as a Hedge After Failing Investors for Years

Private Credit Enters Risky Terrain With Huge Bets on Consumers

Hedge Funds Smell Blood as Lenders Turn on Each Other

‘There Could Be Social Unrest’: Finance Veterans on the Next Big Risk

Drahi’s BT Exit Follows $1.3 Billion Drop in Stake’s Value

Adani Stocks Drop as Hindenburg Row With India Regulator Worsens

Apple and Alphabet’s Freakish Earnings Broke This Market Barometer

Sea Raises Seller Fees to Above TikTok, Temu to Lift Margins

OPEC Slightly Trims Oil Demand Forecast, Citing Softness in China

Gold Fields to Buy Osisko Mining for $1.6 Billion

Coffee Jumps Most in Five Weeks as Market Eyes Brazil Frost Risk

Why Naming Heat Waves Is So Controversial: Green Daily

AI Is About to Boost Power Bills—Who’ll Take Heat for That?

Labor Talks at US East and Gulf Coast Ports Reach an Impasse

McDonald’s Goes to Washington. And Sacramento. And Albany.

Inside Worldcoin’s Orb Factory, Audacious and Absurd Defender of Humanity

Brands Love Influencers (Until Politics Get Involved)

Bari Weiss Knows Exactly What She’s Doing

Why Schools Are Racing to Ban Student Phones

Los Angeles, Next Up for Summer Olympics, Hopes to Turn a Profit

Disney Details Vast Theme Park Expansion Projects

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Morning News: August 9, 2024
Posted by Eddy Elfenbein on August 9th, 2024 at 7:01 am

How Japan’s Central Bank Threw Out Its Playbook for Normalizing

Fed Seen Rejecting Calls for Jumbo Rate Cut in Economist Survey

Wall Street on Edge After a Week of Wild Swings

How to Cope When the Markets Panic

Finance Chiefs Lean on Commercial Paper to Trim Costs, Prepare for Rate Cuts

Trump Restates His Desire for More Say Over the Fed

Has the U.S. Economy Reached a Tipping Point?

Mortgage Rates Drop to 15-Month Low

The Swing-State Economic Realities Shaping the US Election

Who Won Big in the Supreme Court’s Latest Term? The ‘Regulated Community.’

What the History-Making Elections of 2024 Could Mean for Energy

Shale Oil Output Growth Poses Headache for OPEC+

A Lot Was Riding on This Wind Farm. Then Giant Shards Washed Up in Nantucket

The UK Energy Boss Taking (Some) Inspiration From Musk and Bezos

Musk’s Riot Tweets Spur UK to Seek Tougher Online Rules

How China Built Tech Prowess: Chemistry Classes and Research Labs

Temu’s Billionaire Founder Becomes China’s Richest Person

Goldman Partner and M&A Banker David Kamo Exits to Join Evercore

Ponzi Scheme Restitution Deserves Better Math

With US Chips Act Money Mostly Divvied Up, the Real Test Begins

Indian EV Maker Ola Electric Jumps in Trading Debut

Cellnex Sells Unit For €803 Million, Signals Share Buyback

Americans Are Skipping Theme Parks This Summer

Is a Disney Theme Park Vacation Still Worth the Price?

How the Paris Olympics Mascot Went From Bizarre to Beloved

LA Olympics Poised to Be Flag Football’s NFL Dream Team Moment

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Morning News: August 8, 2024
Posted by Eddy Elfenbein on August 8th, 2024 at 7:09 am

Central Banks Get Sand Kicked in Their Face Again

India Central Bank Holds Policy Rate Steady, as Expected

Glynn’s Take: Hawkish RBA Governor Should Brace for Storms to Come

The Fed Has Cut Rates Amid Stock Swoons Before. Not This Time

Consider Yourself Warned on Market Risks

What’s Driving the Topsy-Turvy Markets

JPMorgan Says Three Quarters of Global Carry Trades Now Unwound

As Markets Rock, a Reporter Stays Steady

Cathie Wood Goes on Dip-Buying on Tech Spree as ARKK Hits 2024 Lows

Balyasny Goes on New Hiring Spree With $200 Million in Payouts

A Walzonomics Primer

$800 Billion Gulf-Wealth Fund Can Face UK Suits After Court Loss

As AI Costs Surge, Investors Embrace Less-Is-More Data Strategy

What Works in Taiwan Doesn’t Always in Arizona, a Chipmaking Giant Learns

Social Media Platforms Show Little Interest in Stopping Spread of Misinformation

Texas Energy So Bountiful, They Pay You to Take It Away

Startups Are Racing to Make Water Out of Thin Air

China’s Sales of EVs, Hybrids Surpass Conventional Cars in July

Indeed and Glassdoor Owner Posts Profit Rise

Eli Lilly Lifts 2024 Sales Outlook as Zepbound Demand Drives Quarter

What Happens When Ozempic Takes Over Your Town

Warner Bros. Discovery Takes $9 Billion Write-Down on Cable Networks

Boeing’s New CEO Is Hands On. He’s Being Handed a Company in Crisis.

Air Canada Says Paris Olympics Are Hurting Sales This Summer

Simone Biles’ Leotards Ignite Sales of Made-in-America Brand

Supplying Saks Was a Soapmaker’s Dream Until He Got a $74 Check

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Morning News: August 7, 2024
Posted by Eddy Elfenbein on August 7th, 2024 at 7:03 am

German Trade Balance Drops on Shrinking Exports

China Export Growth Slows But Recovery Seems Intact

New Zealand’s Jobless-Rate Rise Opens Path to Interest Rate Cuts

Uganda Cuts Key Interest Rate for First Time in a Year

What’s Behind All the Stock Market Drama?

Three Days That Rocked Japan’s Markets

Japan Morphs Into the Center of Worry for Global Investors

BoJ’s Message Shows How Markets Keep Bullying Central Banks

There’s No Way ‘Recession Fears’ Drive the Market Carnage

Claudia Sahm: My Recession Rule Was Meant to Be Broken

Steven Mnuchin Says It’s Time to Kill the New Treasury Bond He Created

Trump’s Plan for US Bitcoin Stockpile Alarms Forfeiture Experts

Citigroup Whistleblower Denied Share of $400 Million Penalty

To Avoid a Recession, Consumer Spending Is Key

Shopify Tops Views and Sees Growth Accelerating

Adani Is Said to Plan Raising $1.2 Billion for Flagship Firm

Even Switzerland Is Discussing How to Tax the Super-Rich

Brookfield Asset Management Profits Rise, Assets Hit $1 Trillion

The True Cost of Corporate Layoffs

Apple Workers Approve Contract at First Union Store in U.S.

Google’s Search Dominance Faces Limited Risks Despite Antitrust Ruling

Glencore Sticks With Coal, Cites Pendulum Shift on ESG

Huge Fire Sparked by a Mercedes-Benz EV Adds to Safety Concerns Dogging Industry

CVS’s Medicare Woes Continue to Fuel More Cuts to Its Outlook

The Olympics Have a Gap That Netflix Is Trying to Fill

Disney Results Show Parks Weakness Countering Streaming Profit

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CWS Market Review – August 6, 2024
Posted by Eddy Elfenbein on August 6th, 2024 at 6:20 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’s Worst Day in Two Years

Yesterday was the stock market’s worst day in nearly two years. The S&P 500 plunged to a loss of 3%. At the start of trading, things were looking even worse. The Nasdaq opened lower by more than 1,000 points, or 6%. The Volatility Index shot up to a high of 65. That’s one of the highest levels it’s ever been. To be fair, it didn’t stay there long.

Many large-cap tech stocks got pummeled yesterday, the Mag 7 in particular. The market managed to rally a bit after a terrible open but by midday, the bears took control again and sent share prices downward. The Nasdaq 100 is having its worst start to a month since 2008.

We should remember that pullbacks are very normal, and they happen all the time. By historic measures, this isn’t a big one.

By general consensus, the problems started in the Asian markets, especially in Japan. On Monday, the Japanese stock market had its worst day since 1987. Then on Tuesday, it had its best day since 2008. The Nikkei was up more than 10% today. I don’t think that market will settle down soon.

The story begins last week when the Japanese Fed decided to raise interest rates. Well, sort of. More accurately, the Bank of Japan raised rates to “around” 0.25%. That’s up from the previous range of 0% to 0.1%.

That may not sound like a lot, and it’s not, but it’s the highest rate since 2008. The Bank of Japan also said it will reduce its monthly purchases of Japanese government bonds.

Unfortunately, in the U.S., we had a weaker-than-expected jobs report on Friday. This led to speculation that the U.S. economy is slowing down. I’ll discuss that in more detail in a bit.

Combine these two and you have fears that the “carry trade” is unwinding. Let me take a moment to explain, because the carry trade is what currently drives the world.

The carry trade is when investors can borrow money in a low-rate currency, such as the Japanese yen, and invest it in a currency with a higher interest rate, such as the U.S. dollar. The investors “carry” the money across the borders, and presto! It’s instant money.

The carry trade has been hugely popular in recent years, and many investors have cashed in. Bear in mind that as recently as April, Japan still had negative interest rates. The carry trade was a simple and easy path to free money.

Well, sort of. The carry trade is all fine and dandy as long as the currencies are far apart. Once that gets tripped up, you suddenly have a mad dash towards the exits, and that’s what happened. I’m sure many hedge funds had margin calls on their carry trade positions. There’s an old saying on Wall Street: “if you can’t sell what you want, sell what you can.” That’s pretty much what happened.

Kit Juckes, the chief foreign exchange strategist at Société Générale, said, “You can’t unwind the biggest carry trade the world has ever seen without breaking a few heads.” Indeed. Over the last three weeks, the global stock market has lost $6.4 trillion.

The Japanese yen had been gradually sliding against the dollar, until a few weeks ago. Then, all of a sudden, the yen started soaring versus the dollar (see the chart above).

What happened is that the weak jobs report caused investors to think that interest rates in the U.S. will soon go down.

Oddly, the carry trade isn’t over just yet, but a lot of folks are quickly closing their positions. No one wants to be the last one standing when the music stops.

The July Jobs Report Was a Big Miss

Let’s take a closer look at last week’s jobs report because that was another catalyst for the recent unpleasantness. On Friday, the Labor Department said that the economy created 114,000 net new jobs last month. That was a big miss. Wall Street had been expecting a gain of 185,000. The number for June was revised downward to a gain of 179,000.

The unemployment rate rose to 4.3%. That’s still quite low, but it’s the highest rate since October 2021. The U-6 rate, which includes discouraged workers, increased by 0.4% to 7.8%. That’s also the highest since October 2021.

Average hourly earnings increased by 0.2%. That was also below Wall Street’s forecast for 0.3%. That’s bad news for workers, but it will probably help lower inflation. Here are some more details:

From a sector standpoint, health care again led in job creation, adding 55,000 to payrolls. Other notable gainers included construction (25,000), government (17,000), and transportation and warehousing (14,000). Leisure and hospitality, another leading gainer over the past few years, added 23,000.

The information services sector posted a loss of 20,000.

While the survey of establishments used for the headline payrolls number was discouraging, the household survey was even more so, with growth of just 67,000, while the ranks of the unemployed swelled by 352,000.

Wall Street has quickly shifted from being bullish because rates are going lower to adopting a cautious outlook due to a fragile economy, and that’s sending rates down.

The change in sentiment has been dramatic. Now I hear investors complaining that the Fed is acting too slowly and that the elevated rates are hurting the economy.

Traders don’t believe the Fed’s forecasts anymore. Wall Street now narrowly expects a 0.5% rate cut next month. That would be followed by 0.25% cuts in November and December. After that, the market expects an additional three cuts before the end of April 2025.

Add it all up, and Wall Street sees the Fed targeting short-term rates between 3.50% and 3.75% within nine months. A few weeks ago, that outlook would have seemed looney. Now it’s the conventional wisdom.

What was interesting about yesterday’s stock market is that the biggest gap wasn’t between growth and value, as we’ve seen with the big rotation. Instead, the gap was between cyclical stocks and defensive stocks. In other words, traders were arguing about the health of the economy, and the bears were getting their way.

Wall Street bounced back some today. The old Wall Street rule is that you walk back one-third of a big move, and that proved fairly accurate today. Both the S&P 500 and Nasdaq rose a little more than 1% today.

Interestingly, the stock market peaked on July 16 which seems to be a popular time for market peaks. In 2022, the S&P 500 peaked at 4,130.29 on July 29 and then sank 13.4% to 3,577.03 on October 12th.

In 2023, the S&P 500 peaked at 4,607.07 on July 27th and then sank 10.6% to 4,117.37 on October 27.

In 1990, the S&P peaked at 368.95 on July 16th and then fell 20% to 295.46 on October 12th, mostly in response to Saddam Hussein’s invasion of Kuwait on August 2.

Then, in 1998, in a carbon copy of 1990, the S&P peaked at 1,186.75 on July 17th and then fell 19.2% by October 8th.

Broadridge Rallies on Earnings and Guidance

I wanted to touch on Tuesday’s earnings report from one of our Buy List stocks, Broadridge Financial Solutions (BR). I’ll have more details on it in our premium issue later this week, but the company is doing so well that I wanted to share it with you.

The company runs a great business. This is how Barron’s described Broadridge two years ago:

The company has a near monopoly in the business of managing and distributing investor communications for practically every public company in the U.S., plus mutual funds, exchange-traded funds, and more. That includes proxies, regulatory disclosures, and other reports and filings required of all U.S. securities issuers. Those are non-discretionary communications that companies and funds need to distribute no matter what the world is doing. That segment tends to grow at the pace of overall stockholdings in the U.S., with Broadridge able to eke out higher profit margins thanks to a continuing shift from printed documents delivered by mail to digital investor communications.

Broadridge’s fiscal Q4 earnings rose 9% to $3.50 per share. That matched Wall Street’s consensus. The company also raised its dividend by 10% to $3.52 per share. This is BR’s 18th annual dividend hike in a row. It’s also the 12th double-digit increase in the last 13 years.

For the coming year, Broadridge sees recurring revenue growth of 5% to 7%, and adjusted EPS growth of 8% to 12%.

Broadridge has been a great stock for us. The shares got a nice 4.8% jump in today’s trade. Since the start of 2023, Broadridge has gained 67% for us.

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

– Eddy