Good morning contrarians!
For some reason Substack is not allowing me to upload anything (get it together, folks). You can get the audio here.
Stocks rallied yesterday and stand to conclude their first winning week in a month.
As of 0630, stock futures are continuing their advance. Tech is leading things again with the Nasdaq up 1% and other U.S. indexes up a little less.
Not much to report in other asset classes. Commodities, bonds, and cryptos are all roughly unchanged this morning.
Economic Data
New home sales from the U.S. Census Bureau are out at 1000. Economists expect 588,000 sales, down from 591,000 seen a month ago and the sixth straight month of declines.
It’s no secret that higher mortgage rates are eating in to demand for new and existing homes alike. This will eventually cause a drop in prices. As Americans see the value for their primary asset drop they will understandingly become less willing to spend money on discretionary goods and services. That will take a toll on the global economy.
So goes the simple explanation at least. And of course nobody can know exactly when this will all come to pass.
We also have the University of Michigan’s consumer sentiment survey but that is the revised one which basically confirms what we got two weeks ago, and therefore uninteresting.
Earnings
CarMax (KMX) and Carnival Cruise Lines (CCL) report before the open at 0930.
The Bottom Line©
The doom and gloom that we saw a week ago now appears to be a distant memory. A week of gains from stocks will do that. We’re looking at an increase of 4% for the Nasdaq week-over-week and 3.3% for the S&P. It was sorely needed after all the beatings stocks have taken this year. Can it continue? That’s the big question.
Nobody has the answer of course. What we do know is that with the Fed raising interest rates at an aggressive rate, it is likely to remove liquidity from the system. That will leave businesses and consumers with less capacity to expand spending. That is how you get an economic slowdown.
When, how, and for that matter if this happens is open for debate. According to some reports, this is already happening. That would counterintuitively be good for stocks because it will relieve pressure on the Fed to raise rates aggressively for much longer.
There are no signs of stress yet in labor markets however. That makes it difficult to cut into inflation. We’ll get more of a clue on this next week with the Personal Consumption Expenditures data, the Fed’s preferred inflation gauge.
But that will be next week’s story. For now, enjoy the weekend.