Strong Economy Gives Fed Ammo To Hike

Especially Apple AAPL which is on the cusp of making history by becoming a $3 trillion market cap company. Apple hit $3 trillion in early 2022, but didn't manage to close there. The stock is up 51% year-to-date. Will Apple keep soaring to new heights?

Market

Prices as of 4 pm EST, 6/29/23

Macro

Homeowners are reluctant to part ways with their low-rate mortgages.

• At least that’s the message pending home sales—which fell for the third straight month—are sending us.

• That, and limited supply isn’t keeping up with demand.

• After a 2.7% drop in May, pending home sales are at their lowest level of the year and are now down 22% on an annual basis.

• Separately, Redfin reports new listings were down 27% YoY in June while active listings dropped by the most (11%) since April 2022.

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The labor market is still too tight for the Fed’s liking.

• The 3-week stretch of record-high initial jobless claims came to an end this week.

• Filings for unemployment benefits fell 26,000 to 239,000 for the week ending June 24 in the biggest drop since October 2021.

• Continuing claims, meanwhile, dropped to their lowest in 4 months which suggests unemployed workers are quickly finding new jobs.

• All signs point to tighter monetary policy.

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Q1 GDP was revised significantly higher.

• The final estimate shows the economy grew at 2% in Q1, up from the second estimate’s 1.3% and well above expectations for 1.4% growth.

• Revisions were driven by strong consumer spending and net exports.

• Like jobless claims, resilient consumer strength and an expanding economy give the Fed more ammo to support further rate hikes.

@lizyoungstrat

Stocks

Treasury yields surged yesterday on the back of positive economic data.

• The yield on the 2-year Treasury–which is the most sensitive to Fed policy–is approaching highs set in March (just ahead of the regional bank failures).

• A rising 2-year yield poses a headwind for stocks, which are negatively correlated.

• It also means traders are embracing the Fed’s higher-for-longer message.

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Airlines canceled thousands of flights this week just as we head into peak travel season.

• That’s not stopping shares of airliners like Delta and United from rallying, however.

• Even so, stock prices for airlines remain well below pre-pandemic levels despite TSA checkpoint data showing passenger levels have normalized.

• Are strong demand and capacity constraints enough to drive the industry’s rally further?

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Banks and regional banks are down roughly 24% and 31%, respectively, in the aftermath of March’s collapses.

• They’ve since clawed back some of those losses, but could their recent recoveries be in jeopardy?

• According to Goldman Sachs, hedge funds are the most bearish on regional banks since December 2019.

• They are also the most short banks overall in over 5 years.

• We’ll only know if bank stocks have already bottomed in hindsight, but for now, they will have to battle extreme bearishness to do so.

Goldman Sachs

Energy

Oil prices have seen better days.

• WTI crude is on track for its second straight quarterly loss for the first time since 2019.

• Brent crude is headed toward a 4th consecutive down quarter, the first such occurrence in data going back more than 30 years.

• Money managers, meanwhile, remain pessimistic:

@jkempenergy

Earnings

Yesterday’s highlights:

Nike NKE: $0.66 EPS (vs. $0.67 expected), $12.83 billion in sales (vs. $12.59B expected).

• Nike missed profit estimates for the first time in 3 years as it faces margin pressures and elevated inventory levels.

• Revenue guidance for the 4th quarter was below analysts’ expectations.

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What we’re watching today:

• Constellation Brands STZ

Top Headlines

• Eurozone inflation: Headline Eurozone inflation fell more than expected in June but core prices rose to 5.4% from 5.3%

• Chinese manufacturing: Manufacturing activity in China contracted for the third straight month.

• Espionage: US counterintelligence officials say a new espionage law raises the risk of doing business in China.

• European stocks: European stock funds have seen 16 straight weeks of outflows and total YTD withdrawals of $27 billion.

• Italian stocks: Among the cheapest in Europe, Italian stocks are nearing 15-year highs.

• RRP: Use of the Fed’s overnight reverse repo facility dropped to its lowest level in a year.

• Insider trading: Three Florida men were charged with insider trading in 2021 ahead of a proposed Trump Media SPAC merger.

• NACS: Polestar joins the growing list of EV companies adopting Tesla’s North American Charging Standards.

Crypto

Prices as of 4 pm EST, 6/29/23

• Fidelity re-files: Fidelity is hopping back on the spot Bitcoin ETF bandwagon.

• Institutional demand: Open interest in BTC futures on CME is nearing all-time highs.

• ETH/BTC: CME Group plans to launch Ether/Bitcoin ratio futures in July, pending regulatory approval.

• Court date: The SEC vs. Coinbase case will be heard earlier than expected, on July 13, thanks to “creative” defensive tacts by Coinbase.

• Out of bounds: The Blockchain Association claims that, according to federal law, Gary Gensler must recuse himself from digital asset enforcement matters.

Deals

• M&As & IPOs: Global deal volumes are down 42% from last year at $1.3 trillion.

• Underdog winner: Bed Bath & Beyond’s auction for Buy Buy Baby was won by a relatively unknown New Jersey retailer, tentatively.

• Inflection AI: An AI startup with a sympathetic chatbot named Pi raised $1.3 billion at a $4 billion valuation.

• UK probe: The UK’s competition regulator is considering a deeper probe into Adobe’s $20 billion Figma acquisition.

• Energy drinks: Monster Beverage is nearing a $362 million acquisition of bankrupt Bang Energy.

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