"One today is worth two tomorrows."
- Benjamin Franklin
"Do not dwell in the past, do not dream of the future, concentrate the mind on the present moment."
One of Those Days
On the surface, markets appeared close to still. The three major U.S. large cap indices inched along, the Nasdaq Composite leading the way, up 0.19% as that index and the S&P 500 continue to cruise along at record levels. Eight of the 11 S&P sector SPDR ETFs, however... closed lower for the Tuesday session. Technology (XLK) led the way as hardware, software and semiconductors all individually outperformed the rest of the broader marketplace even if isolated. Speaking of the Nasdaq Composite... that market measure has continued with the potential technical breakout that we discussed here on Monday, and on higher trading volume too.
Still. Losers beat winners, this time by more than 800 issues up at Times Square despite advancing volume besting declining volume quite decisively. This would be indicative of weakness in small- to mid-cap type stocks that outnumber large-cap "growthy" type stocks at the Nasdaq, but can not outweigh those stocks.
Perhaps. For if large-caps, and in this case... technology based large-caps don't rally, but hold their line at elevated levels, while the foundation of the equity marketplace erodes beneath, then we may have to admit (not saying it just yet), that our "rally" which at record highs, we must acknowledge remains in a confirmed uptrend, then we must also admit that this rally is no longer broadening, but narrowing instead. Ever play Jenga?
Not a prediction. Can not and won't say that with the "smallish" bipartisan infrastructure bill appearing to have at least a good shot at finding passage across the nation's two legislative bodies, and beyond that, at least the possibility of an irrationally large fiscal spending package potentially passing through strictly partisan means. Oh, share prices would rise on such news. One would think probably not share prices alone. That brings us to the U.S. dollar.
Have I been wrong about the U.S. dollar? Well, I most certainly have not been right. The greenback has maintained a higher level of relative strength versus its peer reserve currencies than I would have thought. That could still change, especially if the nation's fiscal future proceeds as aggressively as laid out. Currency traders have instead of focusing on potentially unfunded fiscal policy, interpreted currency valuations through the prism of the trajectory of monetary policy. While one could hardly refer to Federal Reserve Bank guidance as "hawkish", one must also admit that the FOMC is further along in their thinking than are their peers in Europe, Japan, or China. Hence, should all fiat in theory weaken simultaneously, then there should be little change in relative valuation. Again, I think of Jenga.
As the U.S. Dollar Index, the Dixie (DXY) as some traders call, it not only hangs on to the 91 level, but flirts with 92 this (Wednesday) morning, some commodities, including gold have found some tough sledding in recent days/weeks. This strength in the currency has had an adverse effect on a number of commodities, including gold. I see gold front month futures trading with a $1754 (per ounce) handle early this morning. This takes gold prices back to mid-April levels. FYI, gold in continuous front month futures contract pricing bottomed for 2021 in the $1670's back in March.
It is at these levels and below that I feel I must increase my suggested gold (physical + paper) capital allocation from the 7.5% of investable funds (where it has been for quite some time) up to 10%, and to do so out of cash as long as a cash balance of at least 10% to 15% can be maintained. What has really surprised me, and I must admit, is that the action remains quite constructive for Bitcoin valuations.
No, I have not been won over. I still do not see Bitcoin or any independent cryptocurrency as the future of global commerce, or even eventually widely used as a medium of exchange at any level. That said, if one considers these assets to be crypto-commodities instead of cryptocurrencies which really better describes the entire asset class, then one must be impressed with the apparent support that Bitcoin has found above the $34,200 level. In the face of dollar strength, in the face of the UK's Financial Conduct Authority having banned Binance Markets Limited, and in the face of comments made by JP Morgan global market strategist Nikolaos Panigirtzoglou. Panigirtzoglou, if you missed it, said on Tuesday that institutional interest in Bitcoin has "dried up." Expect $34,200 to be tested from above on Wednesday.
Labor market demand? Yes, but no. Temperatures in the Pacific Northwest? Boston, Massachusetts? Yes, and yes, but no. The Housing market? Ding, ding ding. On Tuesday, the S&P Case-Shiller 20 city composite Home Price Index for April hit the tape at 14.9% year over year growth. This was up from a 13.4% clip in March, and the fastest annual growth reported for any one month by this series in 30 years. As I have mentioned often, rising home prices have stunted the potential pace of household formation for an entire generation (or two).
There is some hope. You may recall that the U.S. Commerce Department did report a 5.8% year over year increase in the supply of new homes for May, up from 3.1% earlier in the year. Is there enough hope for an entire younger generation that has really been prevented from developing normally? You know my argument. The central bank needs to stop supporting the market for mortgage backed securities, while also suppressing free market price discovery for credit over time.
One might argue that keeping mortgage interest rates low is helpful in creating demand, and that is true. This has also forced home pricing to accelerate at an unnatural pace. We have tried it your way, and taken it too far. Time to let those markets swim on their own. Time to see if that allows at least some stabilization in home pricing. Time to cut the under 35 crowd a break. This is not about forgiving debt already borrowed and spent. That's a different argument. This is about permitting a market to function normally.
Pie in the Sky
On Tuesday, Tesla (TSLA) CEO Elon Musk addressed the Mobile World Congress. SpaceX (Space Exploration Technologies), also run by Musk, has now launched more than 1,500 "Starlink" satellites and has operations in "about" a dozen countries. SpaceX expects to offer broadband internet service to possibly as much as 5% of the earth's population where there is no alternative (fiber/wireless) way to access the web.
The plan will cost SpaceX somewhere in between $5 billion and $10 billion before cash flow becomes positive, according to Musk. I don't know about you, but I just can't wait to see what kind of valuation that either a SpaceX public offering or a Starlink spin off might drive. This will be, whenever it comes, an event of epic proportions.
The Gang That Still Can't Shoot Straight
Intel (INTC) is delaying the release of the next generation "Sapphire Rapids" data center platform from sometime this (2021) year until Q1 2022 when production should begin. Even under new management, it appears that delays have become synonymous with the Intel brand name in recent years as this next generation product joins the ranks of the 10nm and 7nm chips that have failed to hit the market on schedule for this firm.
Can Intel ever overcome itself? As new CEO Pat Gelsinger plans to invest $20 billion+ in becoming a player as a global foundry? Or do the likes of Advanced Micro Devices (AMD) and Nvidia (NVDA) continue to steal Intel's lunch? You all know that I will bet on Lisa Su and Jensen Huang every day of the week. All day long.
Hip Hip Hoo-Ray
It appears that in small early phase study, that the Moderna (MRNA) COVID-19 vaccine does produce neutralizing antibodies against all variants of the virus tested. Yes, this includes the Delta variant first identified in India, as well as the Kappa and Eta variants that have been found in Uganda and Angola.
In addition, the stock traded up to a record high on Tuesday as the Indian government granted the messenger RNA based vaccine "Emergency Use" authorization. No, I am not long the name. I took those profits a while back. This does however bode well for humankind if at least the messenger RNA vaccines and perhaps others can successfully fend off even the latest variants of the SARS-CoV-2 virus and that does seem to be the case.
Economics (All Times Eastern)
08:15 - ADP Employment Report (June): Expecting 585K, Last 978K.
08:55 - Redbook (Weekly): Last 3.9% y/y.
09:00 - Pending Home Sales (May): Expecting -1.0% m/m, Last -4.4% m/m.
09:45 - Chicago PMI (Weekly): Expecting 70.4, Last 75.2.
10:30 - Oil Inventories (Weekly): Last -7.614M.
10:30 - Gasoline Stocks (Weekly): Last -2.93M.
The Fed (All Times Eastern)
08:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
13:00 - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (MU) (1.71)