Macrosynthesis

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Last Week's Recap

The closing day of the second quarter witnessed a surge in bullishness, providing much-needed relief to investors who were worrisome about more interest rate hikes. The Dow Jones soared, finishing the day over 280 points higher, while the S&P 500 and the Nasdaq Composite experienced gains of 1.2% and 1.4%, respectively. This momentum was largely attributed to easing inflationary pressures.

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In particular, the personal consumption expenditures index, which serves as the Federal Reserve's preferred inflation indicator, reported a 0.3% month-on-month increase, aligning with market predictions and representing a decrease from April's 0.4% figure. Moreover, the annual core rate of inflation witnessed a deceleration, settling at 4.6%, while the headline PCE rate reached its lowest level in nearly two years. These numbers further reinforced the notion that inflationary forces were subsiding, offering a sense of safety to investors.

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Turning to equities, Apple emerged as a standout performer with a 2.3% rise in its share price, propelling the company's market capitalization to surpass the extraordinary milestone of $3 trillion. Nike faced a setback, with its shares declining by 2.6% following a quarterly profit that fell short of expectations.

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Zooming out to the broader picture, the second quarter proved fruitful for major indices. The Dow Jones Industrial Average posted a gain of 2.5% during this period, while the S&P 500 surged impressively, marking its third consecutive quarter of growth with a robust 7% increase. The Nasdaq Composite outperformed its counterparts, skyrocketing by 13.3%, resulting in year-to-date gains of 3.8%, 16.4%, and 32.8% for the Dow Jones, S&P 500, and Nasdaq, respectively. This extraordinary performance was largely driven by a rally in AI-related shares and the prevailing belief that the Federal Reserve had concluded most of its aggressive interest rate hikes.

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As the second quarter drew to a close, Wall Street exhaled with optimism, supplemented by easing inflationary pressures and impressive gains across the board.

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The Week Ahead

Next week in the United States, investors will closely monitor several important releases. These include the FOMC meeting minutes, the US jobs report, and ISM PMI surveys for June. The FOMC meeting minutes will provide insights into the Federal Reserve's monetary policy. The jobs report is expected to show a modest increase in non-farm payrolls but a high unemployment rate. Additional data to watch includes job openings, factory orders, trade data, ADP employment change, and final PMI readings. These releases will shape market sentiment and provide valuable indicators of economic performance.

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Personal Spending

Personal spending in the United States experienced a slight uptick of 0.1 percent in May 2023, falling short of market expectations of a 0.2 percent increase. This increase was driven by a $52.0 billion rise in spending for services, with notable contributions from healthcare, "other" services related to international travel, and transportation services, specifically air transportation.

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However, this growth was partly offset by a $33.1 billion decline in spending for goods, primarily due to reduced expenditure on motor vehicles, parts, gasoline, and other energy goods.

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Riots in France Continue

Rioting continued in France for a fifth consecutive night after the police killing of a teenager sparked widespread unrest. The rioters, with a burning car, targeted a mayor's home, causing injuries to his family members. However, there was a noted decrease in overall violence compared to previous nights. The recent rioting has resulted in over 3,000 arrests, with 719 made just in the latest night, following a massive security deployment. This social upheaval, the most severe the country has seen in years, has put President Emmanuel Macron's leadership to the test.

Commodity Movers

Copper

• 1.87% (1-Day)
• 3.79% (YoY)

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Soybeans

• +5.01% (1-Day)
• +19.91% (1-Month)

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Cocoa

• +10.62% (1-Month)
• +45.09 (1-Year)

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Natural Gas

• +2.91% (1-Day)
• +17.88% (1-Month)

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Last Week's Top Events

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Noteworthy Events  

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SCOTUS Upper Cut

In a significant blow to borrowers, the Supreme Court has invalidated President Joe Biden's federal student loan forgiveness plan. The ruling, anticipated due to the conservative majority on the court, denies millions of Americans the opportunity to have up to $20,000 of their debt forgiven. The 6-3 majority determined that one of the Republican-led states that contested the loan relief program had the legal standing to do so, leading to the ruling against the plan. This decision is a disappointment for student-loan borrowers who the Biden administration previously promised forgiveness. It's also likely to curtail spending patterns.

Trouble Getting Up in the Air

United Airlines' CEO, Scott Kirby, has expressed concerns about its ability to manage frequent congestion at its Newark hub in New Jersey due to limited gate availability. This statement follows a series of flight delays during the July Fourth holiday weekend. United Airlines offered 30,000 frequent flyer miles to customers who experienced the most significant disruptions to address the situation.

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• +2.14% (1-Week)
• +13.13% (1-Month)
• +47.46% (6-Month)

Budlight Suffers Another Blow

Bud Light, the popular beer brand under Anheuser-Busch, experienced its largest weekly decline in sales. According to NielsenIQ, sales of Bud Light dropped by 28.5% compared to the same period last year

No Stress

Last week, the Federal Reserve finished their stress test of the U.S. banking system - a hypothetical test of bank performance during a recession. Overall, the banking system passed, leaving big banks free to increase their dividend rates and resume their buyback programs. In the test, Capital One would suffer the biggest loan losses - projected to be 15 percent of loans. On the other end, Charles Schwab performed the best in the test, with loan losses projected at just 1.3 percent.

Among credit card card providers, Goldman Sachs posted a nearly 25% loss rate, while Capital One showed a potential 22% loss rate.  They represented the worst performers in this scenario.  CEO David Solomon dropped plans for consumer credit card offerings last year.

AirBnB Bubble? (a sample from our Level 2 report)

The Airbnb collapse is causing significant impact, with revenues declining nearly 50% in cities like Phoenix and Austin. This situation may lead to a wave of forced selling from Airbnb owners later this year, especially in areas most affected by the revenue decline.

The large number of Airbnb rentals, estimated at 1 million, compared to only 570,000 homes for sale, raises concerns for the US housing market. Cities like Phoenix and Sevierville, with abundant short-term rentals and declining revenues, are particularly at risk.

The potential for massive forced selling results from a surplus of Airbnb properties and reduced income. While some owners may switch to long-term rentals, this option faces challenges due to an already saturated market, with a significant increase in long-term rentals, especially in cities like Nashville.

The broader trend of the Airbnb crash may not yet be fully recognized by owners, but the impact is becoming increasingly evident.

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CASE STUDY: ATOS

Atossa Therapeutics Announced a $10M Stock Repurchase Program.

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LevelFields Users were alerted to the event at market open June 27th. ATOS rose 5% between then and its close.  Other new outlets announced the buyback mid-day.

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But more patient investors following guidance on this scenario would have realized a +9% 1-day gain from buying the dip just after the market open.

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Interestingly, the company announced enrollment to clinical trials for a new drug therapy the next day, sending the stock up another +18% on the news. Was the buyback a foreshadowing of the good news to come? It's certainly likely.

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Upcoming Catalysts:

Notable Earnings

Thursday

• Levi Strauss (LEVI)

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Friday

• AZZ (AZZ)

Economic Reports

Tuesday

• July 4th Holiday

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Wednesday

• FOMC Minutes

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Thursday

• Initial Jobless Claims
• Job Openings

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Friday

• US Unemployment Rate
• US Hourly Wages

This is not financial advice. All information represent opinions only for informational purposes.

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The LevelFields Team