By Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
Today is a typical Summer day in the markets. Low conviction to most moves, and a few 'big plays' to keep people interested while most of (us) are vacationing.
Interest rates are inverting. The long duration US Treasury securities are up, having recovered fully from their June falls. Short-term interest rates continue to rise, with bank deposit rates over 2%, FDIC insured, with $1 or $100 minimum deposit.
Retail showing more strain. Walmart $WMT is down almost 10% pre-market as they warn that their $60B in inventory will require a sale to clear, and that consumer demand is down due to fuel and food costs. We are not sure there isn't some 'labor market' stress in there as well reducing sales in the stores. We personally saw retail suffering due to labor shortages with reduced hours of operation, messy stores, and longer lines in all retail we visited on our vacation.
Other 'safe' dividend stocks have been much weaker than normal. AT&T $T and Verizon $VZ are both down significantly based on concerns that consumers will give up their expensive plans for phone and internet. Another worry is they keep their plans, but they do not pay their bills (or pay them later).
We also see weakness in old tech and old financial services ($IBM $INTC) and ($AMP).
We do see strength in regional banking, with bank stocks rising on stronger earnings and higher interest rates (short rates) which will allow them to make more profitable loans (in theory). Also, the decline in longer interest rates allows them to lower the price of their mortgages while still maintaining their profit margins. Banks like an inverted yield curve, but not a recession. This could be a short-term bounce higher. We track $KRE as an ETF that tracks US regional banks.
We see fixed income getting stronger on lower long-term interest rates, while the Federal Reserve Board FOMC is likely to continue raising short-term interest rates. This could break the system and cause an inverted yield curve, but the market seems to be saying 'What, me worry?'
US Covid numbers are up to 120k new cases per day and about 6k new hospital admissions per day. Even our President has Covid.
Finally, we comment on President Biden's industrial policy of hope and prayer. This is not encouraging. We suggested the President create a 10-point action plan to recover our US economy, assign 100 Federal Employees to implement each step of the plan, and to track and report on progress to the American people monthly and quarterly. He should also present the plan and open up his Twitter lines to comment and feedback. Did he miss anything? Anything to remove? Will it work? Fine tune in the churn of the market and public opinion. This will help us all work together to recover our economic growth.
It is our opinion that a politician should not change the definition of 'Recession' just because we might be in one. That is changing the goal posts in the middle of a Chicago Bears football game, or lowering the basketball hoops in the middle of a Chicago Bulls game. Maybe making the goal larger during a Chicago Blackhawks game. Sure, we would love it to see our teams win for a few moments, but then everyone else gets the same treatment, and all we did was make the games easier...and that is not the point.
We will run our model tonight to look at market volatility and update our website with new data.
Good luck in the markets and watch out for the slow days of Summer.