Internal | July 8th, 2024

GOOD MORNING

Here's everything you need to know this week: After a holiday-shortened week, investors are gearing up for a packed agenda that promises to provide significant insights into the U.S. economy and financial markets. Here’s a look at the top five things to watch in the markets this week.

1. U.S. Inflation Report

The highlight of the week is the U.S. inflation report for June, scheduled for release on Thursday. Last month, the overall U.S. consumer prices rose by 3.3% year-over-year, slightly less than expected. This week, economists expect a 3% rise in overall consumer prices, with the core measure holding steady at 3.4%. Lower inflation could nudge the Federal Reserve closer to cutting interest rates. However, the Fed remains focused on its 2% target, meaning traders do not expect a rate cut until September, with another possible cut in December.

2. Federal Reserve Chair Jerome Powell's Testimony

Federal Reserve Chair Jerome Powell is set to testify before the Senate on Tuesday and the House on Wednesday. While the focus will be on monetary policy, questions regarding regulatory changes, including Basel 3 Endgame, long-term debt for regional banks, and liquidity requirement changes, are anticipated. Powell's responses could provide valuable insights into the Fed’s regulatory and monetary policy outlook.

3. Q2 Earnings Season Begins

The Q2 earnings season kicks off this week with major banks like JPMorgan Chase, Wells Fargo, and Citigroup reporting on Friday. Expectations are high, with projections suggesting an 8.6% increase in earnings for S&P 500 companies compared to the same period last year, and a 4.7% rise in revenues. This anticipated growth is the highest since Q1 2022 and could set the stage for a broader market rally.

4. Labor Market Trends

Last week’s nonfarm payroll report showed a slight moderation in job growth, with 206,000 jobs added in June compared to 218,000 in May. The unemployment rate edged up to 4.1%, slightly above the Fed’s 4% projection. Annual wage gains slowed to 3.9% from 4.1%. These signs of a moderating labor market could support the case for the Fed to start cutting rates later this year if inflation continues to ease.

5. Other Key Economic Data

In addition to the CPI report, investors will watch the weekly jobless claims and the Producer Price Index (PPI) report, both due later in the week. These reports will provide further insights into the health of the labor market and inflation trends.

Political and Market Sentiment

President Joe Biden faces increased skepticism from within his own party regarding his potential 2024 reelection campaign. Recent public calls from Democratic lawmakers for Biden to reconsider his candidacy add to the uncertainty. Additionally, global market sentiment will be influenced by geopolitical developments and economic data from Europe and China.

Global Markets Overview

Europe: Inflation in the eurozone decreased slightly in June to 2.5%, but core and services inflation remain high. This could delay the European Central Bank’s next rate cut until at least September.

Asia: China’s factory activity shrank for a second consecutive month, with the manufacturing PMI falling to 49.5 in June. Non-manufacturing activity also dipped, suggesting challenges in meeting the 5% economic growth target.

The Week Ahead

Expect a volatile week as markets digest key economic reports and corporate earnings. Keep an eye on the inflation report and Powell’s testimony for cues on the Fed’s next moves. The start of the earnings season could also provide early indications of whether corporate America is set for a robust performance in the second half of the year.

Let’s dive into more detail below.

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POLITICAL TRADING

The Pelosi’s are Back on the Trading Floor

The Biden administration’s recent $504 million tech investment could align with Pelosi’s significant purchases in Broadcom and Nvidia

BREAKING NEWS
Infamous traders Paul and Nancy Pelosi are back in the market, purchasing approximately $1-$5 million in Broadcom (purchased 20 call options with a strike price of $800 and an expiration date of 6/20/25) and $1-$5 million in Nvidia (10,000 shares).

Additionally, Pelosi sold around $250,000 - $500,000 of Tesla and $500,000 - $1 million of Visa. These transactions were disclosed in her latest Periodic Transaction Report.

WHAT HAPPENED
Nancy Pelosi’s husband, Paul, is the active trader behind their substantial stock market activities. As a member of Congress, Nancy Pelosi must disclose these transactions publicly, although Paul Pelosi makes the investment decisions and executes the trades.

This week, their portfolio reached an all-time high. Estimates suggest she has made $23 million in the stock market this year. For context, her annual salary as the United States House of Representatives Speaker is $223,500. Her net worth has seen a dramatic increase since 2016, more than doubling from $93 million to $255.45 million.

Broadcom recently reported a solid fiscal second quarter, with revenue up 43% year-over-year to $12.5 billion and an adjusted EPS of $10.96, surpassing Wall Street expectations.

Nvidia has also been performing well, raising its full fiscal-year revenue forecast to $51 billion, with AI-related revenue projected to exceed $11 billion.

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ECONOMICS

June ADP Report Shows 150,000 Job Gain, Construction and Leisure Sectors Lead

Despite the slowdown, construction and leisure sectors show strong resilience, highlighting a possible critical role in economic recovery

BREAKING NEWS
The June 2024 ADP National Employment Report reveals a 150,000-job increase in the U.S. private sector, with annual pay rising by 4.9% year over year.

Notably, the construction sector added 27,000 jobs, while the leisure and hospitality sector saw a substantial gain of 63,000.

WHAT HAPPENED
According to the ADP National Employment Report, the private sector added 150,000 jobs in June 2024. This growth, while positive, reflects a slowdown in job creation for the third consecutive month, suggesting a cooling labor market. Notably, the service-providing sector led the way with 136,000 new jobs, driven by substantial gains in leisure and hospitality (63,000 jobs), professional/business services (25,000 jobs), and trade/transportation/utilities (15,000 jobs). Conversely, the goods-producing sector added a modest 14,000 jobs.

This sectoral divergence indicates a robust demand for services amidst a weaker industrial performance, potentially reflecting ongoing structural shifts in the economy.

The modest overall growth, however, raises questions about the sustainability of the current economic expansion, especially given the significant declines in manufacturing and mining. These declines may be attributed to global supply chain disruptions and shifting towards more sustainable energy sources.

Regionally, the South saw the highest employment gains, with 80,000 new jobs, underscoring its economic dynamism and attractiveness for businesses. The Northeast added 31,000 jobs, followed by the Midwest with 26,000 jobs. The West, however, lagged significantly, adding only 4,000 jobs, highlighting regional disparities in job creation.

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1. Jobs Report Exceeds Expectations but Unemployment Rise Signals Cooling Labor Market

The U.S. economy added more jobs than expected last month, marking the 42nd consecutive month of job growth. However, unemployment inched up to 4.1%, suggesting potential cooling in the labor market.

2. Bitcoin Prices Rally Nearly 6% After Plunging to Lowest Since February

Bitcoin prices recovered today, rallying nearly 6% after falling to a more than four-month low below $54,000 due to various factors including the latest news from Mt. Gox.

3. Jeff Bezos to Sell $5 Billion in Amazon Shares: Could He Be Raising Cash for Seattle Seahawks Purchase?

Amazon founder Jeff Bezos is selling another portion of his stake in the company, worth $5 billion, sparking speculation that he might be raising cash to purchase the Seattle Seahawks.

4. Discovery Shareholders Win $125M Settlement of Lawsuit Alleging AT&T Merger “Wasn’t Entirely Fair”

Warner Bros. Discovery will pay $125 million to settle a shareholder lawsuit over the 2022 merger with AT&T, which shareholders claimed was not entirely fair to most investors.

5. China's BYD Acquires 20% Stake in Thai Dealer Rever Automotive

China's BYD will acquire a 20% stake in its local distributor Rever Automotive in Thailand, its largest market outside of China, enhancing its presence in the Southeast Asian market.

6. Six Flags Completes $8 Billion Merger with Cedar Fair

Six Flags has completed an $8 billion merger with Cedar Fair, creating the largest amusement park operator in the United States with 42 parks across 17 states.

7. Target to Stop Accepting Personal Checks as of July 15

Target announced that it will no longer accept personal checks starting July 15, following the end of its popular Circle Week sales event.

8. GM to Pay $145.8 Million Fee for Excess Emissions

GM has been ordered to pay $145.8 million by U.S. regulators after a multi-year investigation found that the automaker's vehicles exceeded emissions limits.

9. John Deere to Lay Off Roughly 600 Employees from Three US Factories

John Deere announced it will lay off about 600 employees across three U.S. factories as it shifts production to a newly planned facility in Ramos, Mexico.

10. Skydance Media Gets Board Committee Approval for Control of Paramount Global

Skydance Media has gained board committee approval for its proposed acquisition of Paramount Global controlling shareholder National Amusements, marking a significant step in the merger process.

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