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Market Update
Finance 1

June's Economy & Stock Market Update

Well, that was fast! The long-awaited correction we got in April lasted only 3 weeks before the markets would reverse and climb the next 5 weeks straight. May gained every bit of the correction back and would even go on to set new all-time highs for all 3 indexes. We want to give an honorable mention to the Dow: As America’s oldest stock index, the DJIA hit 40,000 for the first time ever in history in May. How significant is that? Well 40,000 is better than 39,999 but not quite as good as 40,001. That’s not to be flippant but it’s just a number. One day we’ll see 50,000 on the DJIA, then 60,000, and so on. The numerical number itself gets bigger but the actual percentage of gains is still what matters for perspective, and for the DJIA specifically, that has been lackluster to say the least. (More on the indexes in a moment).

 

Corporate earnings season has mostly concluded with the majority of companies largely exceeding expectations. That’s good news since earnings & profits are what drives the markets in the long run. Big Tech still dominates and it’s all about AI. Nvidia especially continues to top all expectations with no end in sight (yet). At some point the world can only use so many semiconductor chips but right now Nvidia is simply printing money. There were several notable companies that missed their earnings estimates and were taken to the woodshed. Salesforce (software), Bank of Ozark (regional bank), Shopify (e-commerce), Deere & Co (big green tractors), and Starbucks (over-priced coffee) all missed and posted huge losses for the day.


Back to the indexes, you may notice in the chart below the DJIA did not finish the month at 40k or even 39k. As soon as it hit 40k it promptly reversed course while the S&P and Nasdaq continued to climb. The DJIA is now only up 2.6% YTD while the S&P is up nearly 10% and yet the Equal Weight S&P is only up a paltry 4%. That’s a lot of disparity. Unfortunately, we’ve had to address this topic for over a year and half now but just when this market was feeling like it was beginning to broaden out, it’s gotten even more narrow than it had been. The Mag 7 is now the Mag 5. (Some will still say Mag 6 but Tesla is -40% and, until last month, Apple was down as well so I’m sticking with Mag 5 for now). In fact, over half of the gains in May came from only 4 stocks: Nvidia, Microsoft, Google & Apple. A Bank of America analyst said equity breadth was at the lowest levels since 2009. That’s significant and should be noted. This will eventually work itself out, it always does, but we will feel more conviction when other areas of the markets are progressing on their own without having to ride the back of AI to do it.

Here are the YTD numbers:

 

performance 624 | Signature Wealth

Brokered CD Rates

rates 624 | Signature Wealth

 

May’s economic data continued to give us many of the same mixed signals it’s done the past 2 years. If you’re tracking inflation, then you were happy to see inflation do a reversal of the past 3 months and tick down again. The Fed’s favorite measure for inflation is Core PCE and it came in a bit lower than expected, giving us the lowest annualized number in 3 yrs. Used cars and food prices have both pulled back. Goods are mostly in deflation territory. One interesting takeaway from recent corporate earnings calls was the number of CEO’s that referenced the consumer being tapped out and beginning to “trade down”. (Read that as switching to cheaper brands to save money). McDonald’s & Wendy’s both mentioned bringing back value menus. Target, Walmart, & other retailers announced they were cutting prices on thousands of daily goods. Businesses will always charge what they can get away with but it’s looking like they’ve pushed the average consumer too far.

If you’re tracking the overall economy, then we saw several indicators moving further towards contraction territory. 1st Qtr GDP, while still positive, was revised lower as were forecasts for 2nd Qtr GDP. The number of job openings for every unemployed American has come down this year but just to the same level it was in Oct 2019, right before the pandemic. (And that number was considered fantastic at the time). We are currently walking a fine line with modest growth, inflation trending lower, a softening labor market, and a consumer that is appearing to be stretched but necessarily struggling. The Fed is probably pretty happy with this scenario for now, as it reinforces the hopes of a soft landing. In our view, things are simply normalizing or at least trying to find what the new normal is after everything was turned on its head during the pandemic. Ultimately, normal needs to happen and we’re closer to getting there now than we were 2 years ago.

In closing, Memorial Day last week marked the unofficial beginning of summer. Here’s a one-liner for you to use at cookouts to impress everyone:
Since 1971 the S&P 500 has been up 70% of the time during the summer months.

 


Useless Fact of the Month

Speaking of cookouts, Costco is notorious for their hotdog and soda combo in its food court for $1.50 (with free refills even). It’s been that price for nearly 4 decades and has never changed. (Adjusted for inflation it should be closer to $4.50). Apparently, it’s a symbol of pride for the company as the CEO of Costco once pointed out to one of the original founders, Jim Sinegal, “Jim, we can’t sell this hot dog for a buck fifty. We are losing our rear ends”.

Jim famously responded, “If you raise the effing hot dog, I will kill you. Figure it out.”

The CEO would figure it out. And Costco stock would hit an all-time new high this past month. Is it because of the $1.50 hotdog? I like to think so.

We wish all the dads out there a very Happy Father’s Day this month!

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