Last Week's Recap
On Friday, the Dow Jones surged by 700 points or 2.1%, the S&P 500 grew by 1.4%, achieving its highest level since August 2022, while the Nasdaq exceeded its April 2022 highs with a gain of 1%. For the week, the Dow Jones saw a rise of 2.4%, while the S&P 500 and the Nasdaq advanced by 2.6% and 3.4% respectively.
The S&P 500 broke above 4200 - an important psychological barrier the index had not been able to breach for close to a year. The bulls called it the start of a bull market while the bears called the rally a tech bubble, as the index's move was larger driven by a small group of megacap tech stocks.
The market boost was propelled by a mixed payroll report, indicating higher-than-anticipated payrolls, an unforeseen increase in unemployment, a deceleration in yearly wage growth, and a debt-ceiling deal which averted a global financial crisis.
The Debt Ceiling
President Biden signed a significant bipartisan bill on Saturday to raise the U.S. debt ceiling until 2025, thus preventing a default that could have led to a recession. Apart from raising the debt ceiling, the legislation also establishes spending caps, repurposes unspent COVID-19 relief funds, imposes work requirements for certain recipients of government aid, and withdraws some funding allocated to the IRS via last year's Inflation Reduction Act.
It is worth noting since 1960, the US has raised its debt limit 79 times, this time with the limit being uncapped until 2025. Despite the debt ceiling's intended purpose of limiting US debt levels, the country is currently borrowing at a rate that exceeds the historical average by more than tenfold.
These mixed indicators may sway the Federal Reserve's decision to keep the Federal funds rate stable, as they may need a clearer understanding of the economic situation. Nevertheless, the probability of a .25% increase in rates this month has seen a slight uptick.
The Week Ahead
The ISM survey for May is expected to indicate a surge in service sector growth, its highest in three months. Investors are keenly watching the index that tracks price pressures due to apprehensions about service-led inflation, which could prompt central bankers to adopt a tightening bias. Additionally, the trade deficit for April is projected to have expanded, owing to reduced exports and increased imports.
In international news, China's trade balance and inflation rate for May will provide further insights into the country's post-COVID performance, given that recent data has been undermining prior recovery forecasts.
A New World Order
At a meeting in Cape Town, the BRICS nations (Brazil, Russia, India, China, South Africa) discussed the creation of a potential new shared currency, intended to shield member countries from the impact of sanctions, such as those imposed on Russia, made easier with the global financial system dominated by the U.S. dollar. This effort is part of the bloc's broader strategy to challenge US global influence.
Argentina and Saudi Arabia are also considering joining the BRICS New Development Bank.
In a bid to reduce dependence on the US dollar, Brazilian President Luiz Inacio Lula da Silva proposed the establishment of a common currency for South America. The proposal came ahead of the BRICS Foreign Ministers meeting and amidst growing efforts by several countries including Saudi Arabia, China, Brazil, and India to bypass dependence on the US dollar and trade in local currencies.
While the idea of a common BRICS currency has been suggested, experts believe member countries will not agree to this. However, the Brazilian president has proposed creating common credit in trade and reducing dependence on extra-regional currencies to bolster the region's monetary policy identity.
Expert Projections Debunked
In May, the United States economy outpaced forecasts by adding 339,000 jobs, marking an impressive 78% increase over the predicted 190,000. This positive trend represents the 14th month in a row that job reports have exceeded expectations, an unprecedented streak.
The average reported number of jobs over these 14 reports has exceeded expectations by 48%, while the median surpassed expectations by 36%. The January jobs report, in particular, was a staggering 172% above predictions.
The unemployment rate saw a slight uptick, rising to 3.7% from expectations of 3.5%. Despite this, the unemployment rate remains near a half-century low. Interestingly, this robust job market performance has held up even in the face of the quickest rising interest rates in recorded history.
A Divided America
The Biden administration is facing a major issue: while the U.S. economy has added around 3.8 million jobs from the pre-COVID highs, all of the new jobs have gone to foreign-born workers. Native-born workers, on the other hand, have not been able to surpass their pre-COVID highs of 131.7 million set in October 2019.
As per the latest data from May, the number of native-born workers fell by 369,000 to 130.744 million, which is still below pre-COVID highs and only slightly higher than the beginning of the year. This decline was balanced almost perfectly by a 297,000 increase in foreign-born workers, which reached a record high of 30.359 million. This is the biggest monthly drop in native-born workers since November 2022
In a concerning trend, nearly 40% of Americans have accumulated more credit card debt than they have in savings. Each American family now holds an unprecedented average of $10,000 in credit card debt.
In a historic first, the total credit card debt in the United States has surpassed the $1 trillion mark. This milestone coincides with record-high average interest rates on credit card debt, currently at 25%.
This has occurred amidst the total household debt hitting a record high of $17.1 trillion.
Significant components of this total household debt include mortgage debt, now $12 billion, and auto loan debt, which has reached $1.6 trillion. These figures correspond with record-high auto loan rates and a 7.1% rate for mortgages, further intensifying the financial burden on American households.
Last Week's Top Events
China's Big Hole
China, as part of a 457-day project, has started drilling its deepest ever oil borehole, which will reach a depth of 10,000 meters. The project, overseen by China's National Petroleum Corp., aims to penetrate over 10 layers of rock to reach the cretaceous system in the earth's crust, about 145 million years old. The venture will help advance underground drilling technologies.
During an OPEC+ meeting in Vienna, members agreed to extend crude oil production cuts into 2024, with Saudi Arabia volunteering for a 1M bpd additional cut. Although the exact extent of the future supply cuts remains undisclosed, this decision came despite certain African OPEC members initially expressing reservations about the proposed production quotas.
Prior to the meeting, oil prices increased, with Brent crude trading between $75-$80 per barrel, reflecting a price range that the cartel appears keen to maintain.
Never Underestimate the Power of Spandex
Shares of Lululemon soared 11.3% after the company beat earnings estimates and increased its full-year forecast. EPS came in at $2.28 vs $1.97 expected. Revenue of $2 billion for the quarter topped estimates of $1.9B.
Chips But No Dips
Broadcom, a chipmaker and infrastructure software provider, exceeded Wall Street's Q2 predictions and provided a positive outlook for the current quarter during their earnings call Thursday afternoon. AVGO saw a 2.8% rise on Friday, marking over 30% increase in the last month and more than a 40% growth in the past year.
In the quarter ending April 30, the company reported an adjusted earnings of $10.32 per share on sales of $8.73 billion, outperforming analyst forecasts. This represents a year-over-year increase of 14% in earnings and an 8% rise in sales.
Broadcom also projected a 5% increase in sales for the quarter ending July 30, forecasting $8.85 billion against analysts' expectations of $8.72 billion. This anticipated growth is attributed to the company's continued leadership in networking, along with a controlled expansion into large-scale AI networks.
The earnings beat comes after Nividia also beat earnings expectations and forecasted revenues growing faster than expected due to demand from AI platforms.
Amazon Goes Mobile
Amazon, the e-commerce giant, is reportedly in discussions with major wireless carriers, including Verizon, T-Mobile, and Dish, about launching a mobile service for its Prime members. While Amazon has not confirmed the plans, the talks have been ongoing for several weeks, potentially leading to a new mobile offering for Prime members in the future.
Palo Alto Networks Added to S&P 500
Cybersecurity firm Palo Alto Networks was added to the famed S&P 500 index. In keeping with typical 1D moves, the stock was up 6% on the news afterhours.
Being added to the index provides constant demand for the shares as well as instant demand following addition as all of the ETFs which copy the S&P 500 index have to buy shares in the company.
CASE STUDY: GEVO
Gevo, a renewable chemicals and next generation biofuels company, announced a $25 million stock repurchase program Tuesday morning.
"Gevo is a company that is on a strategic path that we believe will produce sustained profitability and growth in the future. We see this stock repurchase program as a tool that could further enhance the value of our Company in the years ahead," said Gevo's CEO.
LevelFields users were alerted to the Stock Buyback announcement at 9am on Tuesday, resulting in a +21.62% 1D jump in share price. Gevo is now up +37.34% in the last month.
- Science Applications (SAIC)
- Cracker Barrel (CBRL)
- J.M. Smucker (SJM)
- Campbell Soup (CPB)
- United Natural Foods (UNFI)
- Gamestop (GME)
- DocuSign (DOCU)
- FuelCell Energy (FCEL)
- Signet Jewelers (SIG)
- Consumer Credit
- Jobless Claims
This is not financial advice. All information represent opinions only for informational purposes.
The LevelFields Team