Truce (noun)
1: a suspension of fighting especially of considerable duration by agreement of opposing forces
2: a respite especially from a disagreeable or painful state or action
Going into the weekend, investors just want to hear one thing coming out of Japan: Truce! If there is an announcement that the United States and China are rekindling talks, delaying tariffs on $300.0 billion in goods, and the latter buying a giant batch of soybeans, the stock market should rally on Monday.
Of course, there will be those folks that twist themselves into a pretzel wondering what renewed trade talks means for the Federal Reserve. I’m sure there isn’t going to be a grand deal over the weekend that alters the Fed’s plans. Moreover, the Fed has used tariffs as a smokescreen for irresponsible rate hikes last year that are coming home to roost. They need to cut to save their reputation and avoid a self-induced recession.
Powell cannot, and doesn’t want, to let it get too close before panicking with a string of 50 bps cuts.
But before the Federal Reserve stops taking money out the system and turns the spigots back on, Big Banks are going make it rain.
No Stress & $173 Billion
After the close, the results of the so-called Stress Test were announced and all the banks, except Credit Suisse (surprise), and can unleash big money to shareholders. (It’s a great thing the news came as Democrats were prepping for their debate, because there would have been some seriously angry people.)
Returning Capital | Buyback | Dividend |
USB | $3,000,000,000 | $0.42 +13.5% |
GS | $7,000,000,000 | $1.25 from $0.85 |
MS | $6,000,000,000 | $0.35 from $0.30 |
C | $,17,000,000,000 | $0.51 from $0.45 |
WFC | $23,100,000,000 | $0.51 from $0.45 |
JPM | $29,400,000,000 | $0.90 from $0.80 |
BAC | $30,900,000,000 | $0.18 +20.0% |
Investors must have guessed Big Banks would pass the test to make sure they had a lot of money. So when the next disaster hits taxpayers, it would have a smaller bailout bill. But the financials are still among the worst performing sectors of the year, so we could see continued momentum.
The banks are already out with dividend hikes and authorizations to repurchase their shares:
- Bank of American (BAC) from $0.15 to $0.18, share repurchase up to $30.9B
- Citigroup (C) from $0.45 to $0.51, share repurchase up to $21.5B
- Goldman (GS) from $.85 to $1.25, share repurchase up to $7B
- JP Morgan Chase (JPM) from $0.80 to $0.90, share repurchase up to $29.4B
- Wells Fargo (WFC) from $0.45 to $0.51, share repurchase up to $23.1B
Portfolio Approach
There are no changes to the model portfolio. Although we sold one Consumer Discretionary, we added one today.
Communication Services | Consumer Discretionary | Consumer Staples |
1 | 4 | 1 |
Energy | Financials | Healthcare |
1 | 2 | 1 |
Industrial | Materials | Real Estate |
2 | 3 | 1 |
Technology | Utilities | Cash |
2 | 0 | 2 |
Today’s Session
The equity markets are pointing to higher open as we end the month and the second quarter. June has been the best performing month since January for the Dow and S&P 500.
Personal Income and Outlays for May were largely unchanged from April. Wages and salaries added 0.2% to personal income. Consumers are still buying new cars as it was the largest goods expenditure, and on the service side, they are still eating out and traveling. However, overall the report shows that growth was flat and is slower than in the first quarter. This data furthers the case for a July rate cut.
- Personal income +0.5%
- Disposable personal income (DPI) +0.5%
- Personal Consumption Expenditure (PCE) +0.4%
- PCE price index +0.2%
- Core PCE Price Index, which excludes food and energy, +0.2%
- Real DPI +0.3%
- Real PCE +0.2%
- Real PCE +2.7% yr/yr
- Personal savings rate as a percentage of disposable personal income + 6.1%
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