DIASTOLE ECONOMIC AND MARKET COMMENT
July 1, 2024

Friday marked the end of the first half of the year in markets, and the Standard and Poor’s 500 logged in a gain of 14.5% for the period. Chipmaker Nvidia was responsible for more than a third of that gain. The Nasdaq Composite Index, which also contains Nvidia, rose 18% in the first half of 2024, while the Dow Jones Industrials lagged, gaining just 3.8% for the first six months of 2024.

The Dow is suffering from too-much-value-in-a-growth-world - meaning that the Index contains no Nvidia, which is driving markets these days. Nvidia is benefitting from the artificial intelligence (AI) explosion, for which it makes microchips.

But there are other stories affecting markets. Yes, the Federal Reserve is one of them. The Open Market Committee will meet at the end of this month and decide whether or not to raise or lower interest rates. The Fed’s preferred inflation measure, the Personal Consumption Expenditures Index, was released last week and showed that there was no increase in prices from April to May, and that prices increased by just 2.6% for the trailing 12 months. Yay! (The Fed’s stated target for inflation is 2%.) That probably takes a rate HIKE off the table (nothing is for sure, but…). Will we see an interest-rate reduction? No predictions until we get the all-important Fed leak. Chairman Jerome Powell is very good at telegraphing what the Fed is going to do before it acts. He knows that the stock markets don’t like to be surprised (unless it’s cake. Everyone loves cake.)

But to put it in perspective: according to CNN, inflation was at 4% a year ago, and 9% two years ago. This year is better! Leading inflation downward are lumber costs, which have fallen by 27% SINCE MID-MARCH. You will remember that lumber got very expensive during the pandemic, when we worked remotely and decided to build home offices and decks.

Analysts are not united in their Fed forecasts. Some say July is a possibility for a rate reduction. Some say September. And others say not until after the election. While a strong first half of the year usually is followed by a strong second half anyway, a rate cut would fuel further rallies.

But always remember that there are two sides to every story. Big corporate borrowers will grin at rate cuts, but big banks won’t. They will be forced cut the rates they charge, and even if they also cut the interest they pay, it will leave them with a smaller profit margin.

According to Bloomberg, U.S. retail sales barely increased in May, and earlier months’ sales were revised downward. Normally this would be bad news for the economy, because we like Americans to shop. But in the current situation, where we’re hoping for inflation to moderate, this bad news is good news.

CDK Global is the data and software provider which is used by most car dealers to handle sales, records, and scheduling. It was hit by cyber attacks on June 19th and forced to shut down most of its systems. Automobile dealerships have resorted to workarounds that involve pencils and calculators. CNN anticipates that car sales may be so affected that our GDP is reduced. CDK says that it is paying a ransom demanded by hackers and that services will resume shortly. I hope so.

Housing remains a problem spot in the economy. Prices for homes are growing even more expensive (home prices have risen by about 50% since 2019), while sales of single-family homes are falling. From April to May, new home sales fell by more than 11%. Those sales hit an annualized rate of 619,000 while economists had expected 647,500.

More bad news is good news: the unemployment rate for bachelor’s degree recipients aged 20 to 29 has risen to 12% - almost four points higher than last year, according to the Bureau of Labor Statistics. Nobody likes to see people out of work, but the Fed is watching the labor market for signs that it is slowing down so that it can thread the needle and reduce interest rates before we fall into a recession. Again, fingers crossed.

For the week ending on June 28th, the S&P 500 finished at 5,460, the Dow at 39,118, and the Nasdaq at 17,732. The yield on the ten-year Treasury Note closed at 4.37%. U.S. crude oil cost $81.54 per barrel, N.Y. gold cost $2,339.60 per ounce, and one Euro was worth $1.07.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, CNN, CNBC, The New York Times, USA Today, The Washington Post, Axios, Yahoo Finance, Business Insider, Morning Brew, Barron’s, MarketWatch, The Economist, Fortune, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

Happy Fourth of July! Enjoy your hot dogs and sparklers and be grateful for our freedom!

DIASTOLE ECONOMIC AND MARKET COMMENT
July 8, 2024

We only had three and a half days of trading last week, due to the Fourth of July holiday. (If you didn’t eat 58 hot dogs in ten minutes, you weren’t really trying.) And yet still the S&P 500 and the Nasdaq Composite Index both managed multiple record-high closes. The Dow finished higher for the week too, but didn’t hit a record.

And in a classic case of bad-news-is-good-news, Friday’s June jobs report, which saw unemployment rise from 4% in May to 4.1%, propelled equity prices higher as market-watchers rubbed their hands together in glee and imagined a Federal Reserve rate cut in September. Actual net-new jobs created came in slightly higher than expected at 206,000, but prior months were revised downward.

The Fed has the sometimes-contradictory responsibilities of maintaining full employment while also keeping inflation low. At this point, it is clearly focusing on inflation, and is willing to tolerate higher unemployment in order to reach its inflation goal. Of course, 4.1% unemployment is historically low, so maybe I’m being unduly critical. The long-term average unemployment rate is 5.69% according to YCharts.

Inflation is not a new problem. It was tragically high in Germany after World War I, for example. But we can also look a little further back than that. In ancient Rome, inflation was such a concern that rulers had a Draconian cure for it: executing anyone who was found to be raising prices unnecessarily. Yikes! (They also had a cure for a declining population: encouraging women to be promiscuous.)

If you’re following Bitcoin (BTC), you already know that its price has fallen drastically over the past few months - now down about 25% from its March high. Despite the recent halving, which is a reminder that only a limited number of Bitcoin will ever be mined, the currency is suffering from basic lack of interest as well as a recent notice from the Mt. Gox website that despite the failure of Mt. Gox, distributions to depositors would begin this month. Bitcoin investors fear that those who receive BTC from Mt. Gox will turn right around and sell it, driving prices further down.

Next week: more news, more words.

For the week ending on July 5th, the S&P 500 finished at 5,567, the Nasdaq at 18,352, and the Dow Jones Industrials at 39,375. The yield on the ten-year Treasury Note closed at 4,272. U.S. crude oil cost $82.43 per barrel, N.Y. gold cost $2,388.60 per ounce, and one Euro was worth $1.08.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Hustle, Business Insider, Yahoo Finance, Bloomberg, Axios, The New York Times, The Wall Street Journal, The Washington Post, USA Today, Fortune, The Economist, Barron’s, MarketWatch, CNN, CNBC, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

A horrible accident might result in a limb being amputated to save the life of the… ant? Turns out that some ants perform amputations on their little ant buddies who get hurt - in order to extend the lives of the cute little fellas. Ants are sweet! At least at YOUR house.

DIASTOLE ECONOMIC AND MARKET COMMENT
July 15, 2024

The Dow Jones Industrial Average closed last week at a record high of 40,000, up 1.6% for the week. The Standard & Poor’s 500 rose 0.9% last week, while the Nasdaq Composite was higher by 0.3%. It was an unusual week, with the tech-heavy indices lagging the Dow, which is full of good, old-fashioned value companies.

It could be that some of the Artificial Intelligence (AI) naysayers are finally being heard as they discuss the dangers of deep fakes (AI-created false narratives), invasion of privacy, and the machine-driven end of the world. Or, more likely, investors are noticing that AI-related stocks are still not realizing their potential in terms of revenue. A lot of AI infrastructure is being built by a lot of AI companies, but they won’t all survive. There will be some shakeout in the new industry because there always is.

There’s shakeout in used cars right now, with prices down 8.9% from a year ago. Electric vehicles are faring worse than the average, with prices for used EVs down 16%. And worst of all are some Tesla Model 3s, whose value has fallen 40% in one year. Consumer prices down, and stock prices up? Yes, please.

It’s not just stock prices that are rising. Bond prices rose last week, too. Why? Because of the Federal Reserve. The answer is always the Fed! On Thursday, the June Consumer Price Index (CPI) was released, and showed that prices fell from May to June. Actually fell. Year over year, inflation was 3.3%, but for the last three months, core CPI, which excludes food and energy and is preferred by the Fed, rose just 2.1%. That’s awfully close to the Fed’s target of 2%.

Additionally, June’s jobs report, which we received earlier in July, showed that unemployment rose to 4.1%. This indicates a tightening labor market, in which jobs are a little harder to find, and more people can’t find one. Combined with the inflation news, analysts speculated that the Fed would have to move this year to lower interest rates - possibly as soon as September. Possibly THIS month, when the Open Market Committee meets on the 30th and 31st. Remembering that the Fed is charged with keeping inflation down AND employment high, this unemployment number is yet more encouragement for Jerome Powell and crew to start easing up, lest unemployment worsen.

And, in fact, employees are less likely to quit their jobs now than during “the job-switching frenzy of the pandemic years,” as the Wall Street Journal puts it. New jobs are harder to find. According to Robert Half, a workplace consulting and recruiting firm, about 35% of U.S. adults plan to look for another job in the second half of this year, down from 49% a year ago.

An interest rate cut will benefit companies that carry loans, people who carry loans and credit card balances (although credit card companies are loath to lower rates, it is possible to shop cards, find a better offer, and transfer your balance), and banks. But banks may get caught in the middle for awhile as rates settle down. They’ve just started paying more for deposits, as consumers demanded it, and will be unable to lower them as fast as they will have to lower interest rates on mortgages and other loans. Poor banks.

Boeing is stuck in a nightmare that keeps getting worse. According to CNN, Boeing sold just three 737 Max jets in the past month, plus eleven 777 freight planes. Gross sales were down 70% from the same period last year. And then came the guilty plea that Boeing entered to one charge of conspiracy to defraud the United States - related to its role in the two fatal 737 Max crashes. Boeing agreed to pay $487 million in fines - far less than families of victims wanted it to pay. In many other industries, a company like Boeing would be toast, but because of the worldwide monopoly that it shares with Airbus, Boeing keeps going.

China, whose GDP is not quite as high as it would like, and whose old one-child policy is causing an ongoing population crisis, is also facing tanker-gate. (Or whatever that would be in Chinese.) It turns out that some trucks used for transporting fuel or chemical liquids were also used for edible liquids like cooking oil or syrup - without cleaning in between. The large companies which are implicated in the scandal say that an investigation is ongoing.

For the week ending on July 12th, the S&P 500 finished at 5,615, the Nasdaq at 18,398, and the Dow at 40,000. The yield on the ten-year Treasury Note closed lower at 4.189%. U.S. crude oil cost $82.37 per barrel, N.Y. gold cost $2,404.67 per ounce, and one Euro was worth $1.09.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable including, but not limited to, The Wall Street Journal, The New York Times, The Washington Post, USA Today, The Economist, Fortune, Barron’s, MarketWatch, Business Insider, Yahoo Finance, Axios, Bloomberg, The Bureau of Labor Statistics, CNN, CNBC, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

Billionaire Peter Thiel, who made his fortune in PayPal, Facebook, and other endeavors, has a new idea: The Enhanced Games. This is a version of the Olympics in which doping is welcome. He is assuming that doping is rampant anyway, and this will level the playing field - despite the potential for physical harm to the participants. It may remind you of an old Saturday Night Live sketch called “The All-Drug Olympics”, in which one weight lifter attempts to lift an enormous barbell, only to have his arms rip off at the shoulder. The announcer says, “That’s gotta be disappointing!”

DIASTOLE ECONOMIC AND MARKET COMMENT
June 24, 2024

Last week was quiet in the investment world, with a rare Wednesday holiday (Juneteenth!). Stock prices rose tepidly.

But we’re approaching the midpoint of 2024, so let’s take stock. Year-to-date, the Nasdaq Composite Index, led by Nvidia (a chip maker) and other tech giants, is up 19.8%. The Standard & Poor’s 500 is higher by 15.2% - also led by Nvidia, which accounts for about one third of the S&P’s gains for the year. The Dow Jones Industrial Average is up 3.8% in 2024 (probably because it doesn’t contain Nvidia).

Nvidia, which briefly became the largest-capitalization company in the U.S. last week, before slipping back into third place, makes the chips that artificial-intelligence creators favor. Company number one is once again Microsoft, while Apple take second place.

For the year so far, the ten-year Treasury Note has barely moved in price, and it is paying just 0.31% more in interest than back in January. Bonds have been holding their breath all year while waiting for the Federal Reserve to make a move. The next Fed Open Market Committee meeting comes in late July.

Bitcoin, which we rarely talk about, has risen 51% this year to $63,973. Its highest ever value was over $73,000. That doesn’t mean that it’s a good investment. (Warning: high horse rant coming.) It’s not an investment at all, but rather a gamble which has no earnings, no accountability, and a large risk of theft.

The Euro has fallen to $1.07, which means that the dollar is strong. Americans are flying to the Continent in droves to take advantage of the exchange rate. Given the crazy price of Taylor Swift tickets, it is cheaper to fly to Europe and see her Eras Tour there. The tour is over in December, so start making your plans!

Real estate, both bought and rented, continues to be a strong headwind for inflation reduction. For the eleventh straight month, the median price of existing homes rose again, bringing us to $419,300 in May, up 5.8% over May of 2023. Home sales slipped from April to May and from the prior May. Low inventory of homes for sale is propelling the higher sales prices. Baby boomers with attractive mortgages are still sitting in their homes, unwilling to sell and take on a new and expensive home loan.

This problem could be solved by portable mortgages, but no one is talking about the feasibility of such a notion. Even a transferable mortgage might help first homebuyers get into their dream fixer-uppers, but hardly anyone is talking about that either.

And it’s not just high interest rates that plague homeowners in certain locations. Plenty of homeowners are facing home-insurance rates that have doubled or tripled. In fact, according to a Harvard study, monthly payments on that generic median-priced home now cost about $3,100 per month, which is affordable only by households with incomes of at least $120,000. Just 6% of renters have that much income, making home-ownership out of reach to many. In 2019, 5% of homeowners had no home insurance, but today that figure is 12%.

The French are doing a better job with renewable energy sources than we are. And last week, French electricity prices turned negative as their electric grid was flooded with power from renewable sources. That means that there was so much electricity available that the power companies just wanted rid of it and were willing to pay you to take it. Given the timing, you’d think that air-conditioning usage alone would solve the problem, but the French don’t like to use air conditioning, and most homes, even in Paris, don’t have it. Here, we had oil prices go negative once during the pandemic when demand fell to next to nothing, but normally we pay plenty for our energy.

Are you looking for a new way to make money and find panning for gold a bore? Maybe you’d like to traffic in Hermes Birkin bags. The rare handbag has a starting cost of over $11,000, but there aren’t enough to meet demand. Customers are encouraged to spend on other Hermes products in order to “earn” the right to buy a Birkin, but some people buy their Birkin and immediately turn to a non-Hermes reseller to sell their Birkin bag at a huge profit. Maybe $30,000? Maybe $100,000 if the materials and color are rare? Hermes disapproves of the secondary market, but it’s big business. And if you’d rather spend your $75,000 on a Birkin than on an Hermes sofa (hoping for Hermes to award you with the chance to buy a Birkin) a new-with-tags Birkin from a reseller might be the ticket. Or you could just buy 1100 “normal” purses on sale from Kate Spade.

For the week ending on June 21st, the S&P finished at 5,464, the Dow at 39,150, and the Nasdaq at 17,689. The yield on the ten-year Treasury Note closed at 4.257%. U.S. crude oil cost $80.73 per barrel, N.Y. gold cost $2,326.07 per ounce, and one Euro was worth $1.07.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information provided here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Yahoo Finance, Bloomberg, Business Insider, Axios, The Economist, Fortune, CNBC, CNN, Barron’s, The Wall Street Journal, MarketWatch, The New York Times, The Washington Post, USA Today, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

If you were in Europe to see Taylor Swift, you might have wanted to stop in at London’s Kew Gardens where the “corpse flower” recently bloomed. Singular because it only blooms every two years, is the tallest known flowering plant (10 feet!), and because it smells like rotting flesh, the titan arum plant is a celebrity at the Gardens, which extended visiting hours because the bloom only lasts one day. One BBC reporter described the stench: “When I put my face up close to the flower, I got a whiff of unwashed lavatory with strong undertones of something that went off at the back of the fridge."