Good morning investors!
Given it's Father's Day and I'm just a few weeks away from becoming a first-time father myself, I decided to take the day off from writing an intro for this week's newsletter. I guess that's a bit of a misnomer since what you're reading is technically an intro and I did write up all the other content for the newsletter (which I hope you continue to enjoy!). It's just not the usual intro I would write.
Regardless, I hope you have a great Sunday and that you spend some time with your dad if you still have the privilege.
-Brian
In Today's Issue:
π₯ Markets Are Feeling The Heat
π₯ Deal-ception (a deal to make a deal)
π₯ Inflation is Running Late to the Party
Markets
Signs of Stress
Last week, the S&P 500 decreased 0.39%, while the tech-heavy Nasdaq fell 0.63% and the usually more stable Dow Jones index dropped 1.32%. Although the S&P 500 is up 1.62% for the year, much volatility remains as investors eye economic updates and global events very closely.
Friday brought more uncertainty as Israel and Iran exchanged volleys of missiles into each other's capital cities, with the initial strike by Israel sparking a selloff in stocks going into the weekend. There are a lot of unknown implications: Will this drive oil prices higher or lower? Will interest rates spike, or will the fed cut rates to preempt an economic shock from potentially higher oil prices?
As of this writing, overnight market futures, which are financial products that can be traded outside of normal business hours, are flat. In fact, they opened lower about 0.3% and have climbed to breakeven since then, signaling that investors are dismissing the economic impact of expanded conflict in the Middle East.
Trade
Let's Make a Deal (...to make a deal...)
Last week, US and Chinese delegates met to hammer out a new trade deal before President Trump's so-called retaliatory tariffs are set to take effect in July. Following the talks, Trump posted the above to his social media platform.
At first glance, any reasonable person would think this is positive news, we have a deal with China and we can finally move past all this trade stuff. Not so fast. As with the "deal" previously announced with the U.K., this agreement is now being referred to as a "framework," which is a way of saying the two countries have agreed to reach an agreement in the future.
And this agreement (again, in line with the U.K. agreement) seems to be mostly a "nothing burger." According to an analysis by Bloomberg, the framework "largely formalized terms agreed to last month in Geneva, many of which are still shrouded in mystery." Markets responded in kind, dropping about $320B or 0.63%.
Inflation
Fashionably Late
May was supposed to be a big month for inflation. Many (including myself) were expecting to see higher prices show up in the reported data as May was the first full month with higher tariffs in place. According to the latest data however, that has yet to be the case.
The overall Consumer Price Index increased just 2.4% year over year, while the core reading which excludes food and energy was up 2.8% over the same period. Some of the biggest declines were driven by food categories like eggs, gas prices, and airline ticket prices. The biggest increases were seen in categories such as appliances, other foods like peanut butter, coffee and ice cream (the good stuff honestly), and toys.
However, I can't help but read these reports and headlines and think to myself, "in what world is 2.8% inflation low...?" The target rate for a healthy economy is 2%. And while 2.8% might not seem that much higher than 2%, it's almost a 50% difference relatively speaking. And putting that difference aside, we still seem to be one economic shock away from a large recession. So I personally wouldn't celebrate just yet.
One thing is for certain though: the U.S. is one hell of a resilient economy. For now...
Responses