Markets Finally Turn Up, While Dollar Dips

Okay, so we finally got an ‘up’ session on Thursday with positive market breadth. Although it was not the stuff of legends for sure, and far too little volume – but, it was a win, and I’ll take it.

The Heat Map was also very encouraging, with just a few specks of red here and there.

Sector & Industry Watch

Consumer Discretionary (XLY) was the best performing sector in the S&P 500 with strength in housing. Amazon (AMZN) was a drag - more on that later. Check out the past five years - and yet, many professionals ignore the sector, complaining they would need to keep up with fashion trends.

Meritage Homes (MTH) posted a monster beat. Still, our Hovnanian Enterprises (HOV) position enjoyed a bigger rally, as the SPDR S&P Homebuilders (XHB) broke above key resistance. I’ve openly worried about homebuilders – I am feeling better today.

Lots of Cash Out There

Lots of money has been authorized and printed to keep the nation afloat since the Pandemic. The combined effort from the executive branch, legislative branch, and the Federal Reserve adds up to $13.12 trillion. 

A bunch of cash still hasn’t been disbursed, including trillions in facilities created by the Fed that went begging.

Remaining Cash

• Administrative: $15.1 billion
• Legislative: $1.53 trillion
• Federal Reserve: $3.03 trillion

Yesterday, President Biden announced they would dip into some of the cash to get folks to take the vaccine jab. I’m not sure $100 will do the trick, but if you’re unvaccinated and need a quick C-note, you don’t have to call your brother-in-law.

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Dollar Dips

The Dollar Index (DXY) tripped into freefall the day after a dovish performance by Jay Powell and big misses on the Gross Domestic Product (GDP) and the Initial Jobless Claims.  

So, like they used to say in the military: “Smoke ‘em if you got ‘em.”

The federal government might as well tap those unused dollars for infrastructure and other lingering issues. This way, taxes don’t have to be raised, and lawmakers can skip on the horse-trading. 

I don’t think Washington, D.C. will gain that kind of foresight overnight, so look for efforts to print more money. However, I’m worried some will attempt to use the spread of the Delta variant to ram the $3.5 trillion through reconciliation.

Back to the DXY – I think this is good news for the stock market in general and domestic companies, particularly as imported goods become even more expensive.

Amazon

After the close, Amazon (AMZN) laid a dinosaur egg, missing the consensus on revenue and operating income. As a result, the stock got smacked in after-hours trading, but it’s not unusual. Shares of the behemoth were slammed in four of the last five earnings releases.

Portfolio Approach

There are no changes in sector allocation in our Hotline Model Portfolio.

Today’s Session

Looks like a bit of a tough morning for the markets, especially for the Nasdaq  on the back of Amazon’s (AMZN) earnings miss. Stay at home stocks, which benefited last year from people staying indoors due to the pandemic, such as Netflix (NFLX), Alphabet (GOOG/L), and Facebook (FB), are also taking it on the chin, down between 0.6% and 1.2% in pre-market trading.

While consumers may be spending less online, they are spending more in other areas and places as evidenced in the consumer spending data, up 1%, in June and topping analyst expectations for +0.7%. 

On the economic front, PCE prices increases were less than anticipated, and speak to Fed Powell’s position that the inflation is transitory. The 10 year is down to 1.25% on this news.

Key data:

-PCE inflation for June unchanged +4%y/y vs +4%y/y consensus.

-Core PCE +3.5% y/y vs. +3.7% y/y.

-June personal income +0.1% vs. +0.3% consensus. Prior month revised down from -2% to -2.2%.

-Personal spending +1% vs. +0.7% consensus.

-Real personal spending +0.5% vs. +0.3% consensus.

-Personal savings rate back to 9.4%, lowest since February 2020.

-Employment Cost Index softer than expected for second quarter, rising +0.7% vs. +0.9% consensus.