Morning News: July 12, 2024
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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

Morning News: July 9, 2024
Posted by Eddy Elfenbein on July 9th, 2024 at 7:02 am

Biden and Macron’s Domestic Turmoil May Overshadow NATO Summit

Political Gridlock Will Raise the Economic Stakes in France

Biden Pushes Back Against Big Donors

Britain’s Non-Dom Population Rose 7% Ahead of Tax Revamp Plans

Asset Managers Are Snubbing UK’s ESG Labels, Morningstar Says

A Wall Street Law Firm Wants to Define Consequences of Israel Protests

Russia’s Crude Shipments Drop by the Most Since Ukraine Invasion

BP to Book Up to $2 Billion Impairment, Warns of Lower Refining Margins

Solar Firm Gets Millions in US Tax Credits Despite Chinese Labor Questions

Chinese EV Giant BYD to Build $1 Billion Plant in Turkey

Hurricane Beryl Makes a Mockery of Texas Climate Deniers

China Updates Its Monetary Toolkit

EU Watchdog Warns of Data ‘Black Holes’ Amid Efforts to Uncover Shadow Bank Risk

What Happens When Your Bank Isn’t Really a Bank and Your Money Disappears?

How to Invest During a High Interest Rate Era

A ‘Triple-Whammy’ Threat is Building for U.S. Stock Investors, Strategist Warns

Mutual Funds See Win in Fight to Blunt SEC ‘Swing Pricing’ Plan

Pershing Square Starts IPO Roadshow for US Closed-End Fund

Bobby Jain’s Complex Hedge Fund Debut Spawns Fans and Doubters

OECD Expects Cooling Jobs Markets, But Continued Recovery In Real Wages

Singapore’s CEO Hell Camps Teach Value of Teamwork and Resilience

Seeing Workplace Misery, They Offer Company

At SpaceX, Elon Musk’s Own Brand of Cancel Culture Is Thriving

Generic-Viagra Safety Called Into Doubt After False Data Found by FDA

Music Catalog Giant Hipgnosis Is Sold, and Merck Mercuriadis Exits

A Diminished Hollywood Welcomes a New Mogul

America’s Biggest Nonalcoholic Beer Brand Doubles Its Valuation

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Morning News: July 8, 2024
Posted by Eddy Elfenbein on July 8th, 2024 at 7:06 am

Hong Kong’s Commercial Property Deals Fell to Lowest Since 2008

The Yen Is Plunging. So Is Japan’s Defense Budget

France Suddenly in Gridlock After Surprise Election Result

French Gridlock Makes UK Stability Look Even Better

Crushing Debts Await Europe’s New Leaders

BOE’s Haskel Warns of Inflation, Signals Vote for Rates Hold

Biden’s Wall Street Donors Are Increasingly ‘Concerned’

Investors Chart Possible Moves as Pressure Mounts on Biden

Post-Covid-19 Higher Prices Have Donald Trump’s Fingerprints All Over Them

Powell to Face Fed Critics in Congress on High Rates, Bank Rules

Big Bond Bet Favored by Citi, JPMorgan Gets Boost Before CPI

The Rich Investor Club Is Getting Crowded

How Stocks Became the Game That Record Numbers of Americans Are Playing

Old School FX Traders Are Being Replaced By Algos With Names Like Viper

‘Nuclear’ Jury Verdicts Rise Alongside American Anger

Fight Against Misinformation Suffers Defeat on Multiple Fronts

Microsoft Orders China Staff to Use iPhones for Work and Drop Android

Thousands of Samsung Workers Walk Out for Three-Day Strike

Artificial Intelligence Boom Lifts Paychecks for CIOs

Lilly Agrees to Buy US Biotech Morphic in $3.2 Billion Deal

Foreign Carmakers Fight to Survive in China as Market Share Dwindles

China Allows Robotaxis Without Operators in Shanghai

Air Travel Demand Is Breaking Records. Airline Profits Are Not

Boeing to Plead Guilty to Fraud for Violating Deal Over 737 Max Crashes

Paramount Agrees to Skydance Deal, Ending Redstone Era

Meet David Ellison, Paramount’s Future Boss and Hollywood’s Newest Mogul

College Credit for Working Your Job? Walmart and McDonald’s Are Trying It

Carlsberg to Buy Soft Drink Maker Britvic for $4.23 Billion

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Morning News: July 5, 2024
Posted by Eddy Elfenbein on July 5th, 2024 at 7:03 am

Saudi Crude Shipments Plummet to Pandemic-Era Levels

Canada Approves Glencore-Led Deal for Teck Coal Assets

Shell to Take Up to $2 Billion Impairment Hit, Expects Weaker Gas Trading

Turkey Poised for $1 Billion EV Plant Deal With China’s BYD

Political Unrest Worldwide Is Fueled by High Prices and Huge Debts

Politicians Usually Moderate When in Power. Britain’s Starmer Could Be Different

Starmer Vows Quick Action to Fix Britain in First Speech as Prime Minister

Marine Le Pen Betrays Her Past to Capture a Bigger Prize: France

At a Key Juncture, Biden Again Gambles on ABC’s George Stephanopoulos

One Obstacle for Trump’s Promises: This Isn’t the 2016 Economy

Fed Officials Keep an Eye Out for Cracks in the Job Market

US Jobs Report to Show a Substantial Slowdown in Hiring in June

Investors Bet on Rate Cuts as Recent Data Suggests Slowdown

Bonds Are Boring Again. But Political Turmoil Could Change That

China’s Central Bank Borrows ‘Hundreds of Billions’ of Yuan in Government Bonds

Bitcoin Falls to Lowest Since February as Fears of Sales Persist

Japan’s GPIF Loses Status as World’s Biggest Pension Fund

Goldman and Citi Predict More Gains for Nvidia Supplier Hynix After 90% Rally

Samsung Electronics Expects Surge in Second-Quarter Profit

Musk’s X Risks Fine as EU Steps Up Crackdown on Big Tech

Europe’s Cheap Airline Stocks Fail to Get a Peak Season Boost

Amazon Takes a Page From Temu’s Bargain Playbook

Saks’ Online CEO Says Amazon to Help ‘Future-Proof’ Neiman Deal

Gen Z Discovers Costco, Sam’s Club and the Joy of Buying Groceries in Bulk

Peter Thiel’s Pro-Doping Olympics Alternative Seeks to Raise $300 Million

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Morning News: July 4, 2024
Posted by Eddy Elfenbein on July 4th, 2024 at 8:35 am

Australia’s Nuclear Debate Is a Costly Distraction

Fight Over Seabed Agency Leadership Turns Nasty

Bird Flu Is Latest Wild Card for Dairy Farmers

Europe Tells China’s Carmakers: Get Ready to Pay Tariffs

Putin Pushes New China-Aligned Security Order to Challenge US

How Raiffeisen’s Bet on Russia Took It to the Brink

What an Independence Day for Biden and Britain

Democrats’ Economic Message Was Always a Hard Sell. Now It Has a Wounded Salesman

The Biggest Political Risk to Markets May Lie in Japan

Swiss Price Regulator Puts UBS Under Observation

UK’s Barclays to Sell German Consumer Finance Business

Dublin Office Market Shows Early Signs of Revival

US Jobs Report to Show a Substantial Slowdown in Hiring in June

Apartments Could Be the Next Real Estate Business to Struggle

Judge Backs Challenge to F.T.C.’s Noncompete Ban, at Least for Now

For All the Fear of Black Swans, the Stock Market is Acting Roughly the Same

US Money-Market Fund Assets Rise to Record $6.15 Trillion

The Bigger Economic Meaning of Willie Mays In the Army

Meta’s Threads Seeks Relevancy to Become True Rival to Musk’s X

Ericsson Intends to Book $1.1 Billion Charge for Latest Quarter

Paramount and Skydance Near Merger Deal

Saks Owner Nears $2.65 Billion Neiman Deal With Amazon Help

Investor Group Raises Macy’s Buyout Offer, Again

Want an Iced Coffee? Brands Want You to Make Your Own

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Morning News: July 3, 2024
Posted by Eddy Elfenbein on July 3rd, 2024 at 6:50 am

China’s Investment Bankers Join the Communist Party as Morale (and Paychecks) Shrink

US Allies Allege China Is Developing Attack Drones for Russia

How China and Russia Compete, and Cooperate, in Central Asia

World Stocks Rise on Rate Cut Bets, Yen Flounders at 38-Year Lows

High-Tech Cash: Japan Launches Banknotes with Hologram Portraits

Hedge Fund’s Secret Adani Short Revealed in Blow-by-Blow Account

Macron’s Rivals Say They’ll Fix France’s Economy, but Economists Are Skeptical

Sweden’s Riksbank Sees Scope for Three Interest Rate Cuts With Inflation Near Target

Powell Welcomes Recent Data But Fed Needs More Confidence to Cut

Markets Are Raining on Biden’s Fourth of July

America’s Divided Summer Economy Is Coming to an Airport or Hotel Near You

Home Affordability in the US Sinks to Lowest Point Since 2007

Student Loan Borrowers Owe $1.6 Trillion. Nearly Half Aren’t Paying

The Jiggle Is Up: Bosses Bust Workers Who Fake Computer Activity

How Microsoft and Nvidia Bet Correctly to Leapfrog Apple

Pentagon Has a Huawei Dilemma Congress Doesn’t Want to Solve

Investors Pour $27.1 Billion Into A.I. Start-Ups, Defying a Downturn

GSK to Buy CureVac’s Covid-19, Flu Vaccine Rights for Up to $1.56 Billion

Philips’ Second-Biggest Investor Raises Stake After Apnea Deal

Ex-Goldman Banker Reported to US Authorities for Junk Carbon Offsets

Jim Ratcliffe’s Ineos Puts Electric SUV Plan on Back Burner

Tesla Deliveries Slump but Not as Much as Feared

GE Appliances Spins Stronger Sales from Supply Chain Overhaul

Vodafone-Three to Sell Spectrum to VMO2 If UK Merger Is Approved

Skydance Media Reaches Preliminary Paramount Merger Agreement

Dragons and Sex Are Now a $610 Million Business Sweeping Publishing

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CWS Market Review – July 2, 2024
Posted by Eddy Elfenbein on July 2nd, 2024 at 5:51 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.”)

Wall Street Wraps Up an Historic First Half

On Friday, the stock market closed out a very good June along with a very good first half of 2024. The S&P 500 gained 14.48% for the first half of this year. Including dividends, the index was up 15.29%. This makes 2024 one of the best starts to an election year in the last century.

The S&P 500 closed today at another all-time high.

Historically, this has been a good time for stocks. From June 27 to July 17, the S&P 500 has gained an average of 1.97%. That’s a good amount for an average of 70 years.

The market was up again yesterday. The stock market has a nice habit of starting out the second half of the year on a good note. Here’s a remarkable stat via Ryan Detrick: the S&P 500 has been higher on the first trading day of July for 14 years in a row, and for 18 out of the last 19. I should also remind you that that the S&P 500 still hasn’t posted a daily drop of more than 0.75% since April.

As I’ve mentioned many times, this year has been a tale of two markets. Growth stocks have done very well, but value stocks are only up modestly. For the first half of this year, the S&P 500 Growth ETF (SPYG) gained 23.54% while the S&P 500 Value ETF (SPYV) was up 5.69%.

Monday’s trading saw another wide gap between growth and value. Alas, what’s been going on is still happening, only more so.

I don’t want to give the impression that value stocks have done poorly. Quite the opposite. Value has done well in historical terms. The problem is that a small number of stocks have distorted the whole market. If we were to take Nvidia out of the S&P 500, then the index would still be up close to 11% this year. If we were to exclude the entire Mag 7, then the S&P 500 would be up 6% this year. On average, that’s not bad.

The Rate Cuts That Never Came

The important point to understand is that the driver of this two-tiered market is interest rates. Or, to be more specific, it’s the interest rate cuts that never came. A little over a year ago, in May 2023, the yield on the two-year Treasury fell to 3.75%. That’s a good indication of how widely rate cuts were expected. Well, they never came. Instead, the two-year currently yields about 4.7%.

Years from now, investors will look at a chart of interest rates for the last year and wonder what the big deal was. Nothing changed! We’ve nearly gone a full year without any changes to interest rates. While this is superficially accurate, it eludes the fact that nearly everyone thought the Fed would be madly cutting by now. Instead, it hasn’t done any.

The reason that interest rates haven’t changed is that inflation is still a problem. True, inflation is not as severe as it was two years ago, but inflation is still above the Federal Reserve’s target.

On Friday, the Commerce Department said that the Core PCE Price Index rose by just 0.1% last month. This is an important number to watch because it’s the Federal Reserve’s preferred measure of inflation. The reason to favor the PCE is that it’s a “broader inflation measure and accounts for changes in consumer behavior, such as substituting their purchases when prices rise.”

Over the past year, the Core PCE Price Index is up by 2.6%. That’s the lowest year-over-year rate in three years. The non-core rate, which includes food and energy, was flat last month. Both numbers matched Wall Street’s expectations.

The good inflation news hasn’t gone unnoticed. Earlier today, Federal Reserve Chair Jay Powell said he’s encouraged by the inflation numbers, but he wants to see more evidence that inflation is under control before the Fed acts.

Powell said that the last two inflation reports “suggest that we are getting back on a disinflationary path.” That’s unusually optimistic language from a Fed chair. Bear in mind, central bankers are paid to look dour and concerned.

Powell was asked if the Fed is going to raise rates in September. He elegantly sidestepped the question, but he said the Fed will be focused on more data. The Fed meets again at the end of this month, and you can forget about any rate hikes, but there’s a good chance we’ll see one in September. Futures traders currently think there’s a 70% chance that the Fed will cut in September. They see two cuts before the end of this year.

Manufacturing Has Declined 19 Out of 20 Months

Ideally the Fed can raise interest rates without damaging the economy. However, the evidence suggests that won’t happen. We’re getting some small signs that the economy may be getting stretched thin. I don’t want to overstate this, but there are some concerning signs.

On Monday, for example, the latest ISM Manufacturing Index said that the factory sector of the economy contracted. For June, the ISM Manufacturing Index was 48.5 which is down a tad from 48.7 in May.

From Reuters:

Manufacturing is being pressured by higher interest rates and softening demand for goods, though business investment has largely held up.

“We expect the manufacturing sector to remain weak over the next couple of quarters,” said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. “The retreat in corporate bond yields since late last year … seems to have provided some support to investment spending, but not enough to get manufacturing growing again. A much more significant loosening in financial conditions is required to change that.”

The ISM Manufacturing Index has been below 50, meaning it’s contracting, 19 times in the last 20 months.

We’re also seeing some signs of weakness in the labor market. For example, the number of job openings per each unemployed person has fallen sharply over the past few months. Tuesday’s JOLTS report showed 1.2 job openings for each unemployed person. Two years ago, the ratio peaked at 2.0. Also, the “quick rate” has fallen. That suggests that workers are less optimistic that they can easily find a new job.

The next big test for the market will come this Friday when the government releases the June jobs report. Wall Street is cautious. The consensus is that the economy added 200,000 net new jobs last month and that the unemployment rate stayed at 4%.

Stock Focus: Constellation Software

Yesterday was Canada Day so in honor of our friends in the north, I wanted to feature a Canadian stock this week that’s not well-known south of the border. The company is Constellation Software (CSU.TO) of Toronto. The ticker symbol is CSU, and it trades on the Toronto Stock Exchange.

Officially, Constellation Software describes itself as a diversified software company, and that’s accurate, but the company is also like a publicly-traded venture capital firm that buys up smaller software companies. It’s hard to find a company that’s grown that consistently for that long.

Most of Constellation’s purchases are small. Since the company was founded 30 years ago, it’s bought up more than 500 companies. I can’t think of a company that’s been such an astute investor.

Constellation had its IPO in 2006, and it’s been a big success since then. Since then, the stock has gained 26,800%.

Constellation is run by Mark Leonard who prefers to keep a low profile—a very low profile. Outside of his shareholder letters, there’s not much info on him.

What we do know is that Leonard tries to keep Constellation very decentralized. He prefers to have small business units. The company aims to buy niche businesses and it owns them for a long time.

Leonard is a fan of Illinois Tool Works (ITW) because that company has been able break down larger acquisitions into smaller business units.

Constellation is currently followed by five analysts. For 2025, the consensus expects Constellation to earn $136.89CDN per share. That means the shares are going for 29 times earnings.

That’s all for now. The stock market will be closed at 1 p.m. ET on July 3, and it will be closed all day on July 4 for Independence Day. I’ll have more for you in the next issue of CWS Market Review.

– Eddy