Trade The Journey

Trade The Journey

A Resilient Labor Market and Consumer!

Top of the Morning! I hope everyone is enjoying their weekend and preparing for the week ahead. Although a batch of econmic data with the potential to move the market is being released this week, I am most looking forward to a fight that has been in the making for years. Terrance Crawford takes on Errol Spence in what is set to be a legendary between two great fighters. Usually I watch the fights with friends or a at a bar, but this time I might buy this fight to enjoy it in the comfort of my home.

This past week showed that while the labor market remains resilient, economic growth seems to be slowing although still relatively strong. This coming week, the Fed will annouce its rate decision. Currently there is 99.8% probablity of the Fed raising rates another twenty-five basis points to 5.25%-5.50%. The September probablity of another twenty-five basis point rate hike stands at 15% with a 84% probability of rates being raised remaining unchanged from July’s proposed hike.

The November meeting shows 70.8% probability of rates remaining unchanged at 5.25-5.50%, and 26.6% probability of rates being raised another twenty-five basis points. Bond Yields rose again towards the end of the week as intial claims fell showing a resilient labor market. The two-year and ten-year yield halted their ascent, stalling at the 20 SMA. The dollar rose from its most recent lows as Gold staged a short retreat.

This coming week: Up first is the consumer confidence report on Tuesday which could set the tone for the week.  On Wednesday, New homes sales and the Fed Rate decision will take center stage. On Thursday, intial claims, GDP 2nd quarter: first estimate, and durbale goods. Finally on Friday, the PCE report and University of Michigan Consumer sentiment report will be released.

Economy

Manufacturing, Business Inventories and Production

Empire State Manufacturing: July

Business Activity held steady with general business conditions edging down, with a higher percentage reporting lower. Conditions fell six points to 1.1. New Orders barely budged, rising 0.2 points in July. Shipments fell 8.6 points, with a slightly higher percentage reporting worsening conditions and lower percentage reporting better conditions. Unfilled orders fell to -8.8 points, declining for a third straight month by 0.8 months.

The Inventories Index declined for a second consecutive month, with a lower percentage reporting better conditions and a lower amount reporting worsening condition. Prices paid declined 5.3 points to 16.7 points, with a higher percentage reporting lower prices. Prices received were much lower, with a lower percentage reporting higher prices received and a slightly higher percentage reporting lower prices. The number of employees entered a positive territory for the first time since January, rising 4.7 points.

The average employee workweek rose by 6.1 points into positive territory after steadily rising over the past few weeks. Delivery times improved for the second consecutive month. Overall, the tone seems to be cautious in manufacturing for New York.

For expectations six months ahead: General business conditions edged down to 14.3 points with a lower percentage reporting higher conditions and respondents remaining about the same for lower conditions. Shipments fell 5.9 points with a higher percentage reporting worsening condition, but overall shipments are expected to improve. Capital and technology spending plans remain soft, and delivery times are expected to continue improving.

Philadelphia Manufacturing Index: July

Manufacturing in this region remained weak, with activity declining for the eleventh straight month. 49% reported no change in activity and only 17% of the respondents reported an increase in activity. New Orders declined five points to 15.9. Shipments drifted into contractionary territory after registering a positive reading last month.

Employment remained steady and the average workweek worked improved. Wages remained high, with no firms reporting a decrease in wages offered over the past three months. 57.5% reported increasing wages and 42.5% reported no change in the wages. 34.2% reported increasing wages by 3-4% which is where the bulk of respondents expect costs to increase for wages.

Future activity is expected to increase with general activity increasing by 16.1 points to 29.1. New orders are also expected to increase, rising sharply by 24 points. Shipments, prices, and employment are also expected to improve while capital spending moderated.

Industrial Production & Capacity Utilization: June

Industrial production was virtually unchanged, declining by 0.5%. Final products declined for a second consecutive month, falling by 0.9%. Consumer goods declined sharply from the previous months’ negative reading to 1.3%. Production for consumer durables and nondurables both declined. Business equipment reading was flat after declining in May. Nonindustrial supplies declined for a sixth consecutive month, falling by the same amount as in May, 0.2%. Construction production rose for a third consecutive month, rising by 0.3%.

Utilities production includes extraction, distribution, generation and production for electricity, natural gas, and water supply. Mining production includes extraction of minerals (like coal, copper, and gold), metals and fossil fuels.

Materials production declined for a second consecutive month, falling by 0.4% in June. Manufacturing declined for a second consecutive month, falling by 0.3%. Durable and nondurable manufacturing both declined. Mining and Utilities production both declined, with utilities falling sharply for a third consecutive month.  Utilities production has declined 6.2% year-over-year.

Capacity Utilization declined by 0.5% to 78.9%, remaining below the 49-year average for a second consecutive month. Manufacturing capacity utilization declined by 0.3% to 78.0%, also below the long-run average. Mining declined slightly but remained above the long-run average. Utilities capacity utilization is well below the long-run average, declining by 2.1% to 68.5%. The long-run average for utilities is 84.7%.

Business Inventories: May

Business inventories improved slightly, rising 0.2%. Sales rose by the same amount. Manufacturers’ inventories fell slightly but rose in sales. Retailers’ inventories improved as did sales. Inventories rose sharply for Motor Vehicle & parts dealers and improved for furniture, home furniture, electrical & appliance stores.  Food & beverage stores, clothing & clothing accessory stores, department stores inventories improved slightly. Merchant wholesalers’ inventories and sales fell. The Inventories/sales ratio remained about the same for the categories above.

Retail Sales

Retail sales rose albeit at a slower pace than the May level, rising 0.2% in June. Excluding motor vehicles & parts, retail sales rose by the same amount. Motor Vehicle & parts retail sales slowed noticeably from the June level, rising only 0.3%. Food & beverage stores fell 0.7% after reporting flat sales in May. Food Services & drinking places declined to 0.1% from 1.2% rise in May. The largest improvement in sales occurred in Miscellaneous store retailers, nonstore retailers, and furniture & home furniture stores.

Year-over-year retail sales rose 1.5% in June after rising 2% in May, showing that retail sales are slowing. Gasoline stations are down 22.7% from a year earlier.

Housing

Housing Starts & Building Permits: June

Building permits stalled in June, falling 3.7% while single-family permits rose 2.2%. Single-family permits are at their highest levels over the past year, while multi-unit permits are at their lowest level in the past year. Housing starts dwindled, falling 8% in June.

Single-family housing starts also declined, falling 7%. While single-family starts fell from their highs last month, starts are still relatively high compared to the levels reached over the past year. Housing completions fell 3.3% with single-family housing completions also declining by 2.8%. Single-family completions are near the lowest level over the past year.

Existing Sales: June

Existing home sales fell 3.3% and are down close to 20% from the prior year.  Single-family home sales declined by 3.4%. The median existing-home sales price is at the second-highest price ever recorded, registering at $410,200. The all-time high is $413,800. The inventory of unsold existing homes is unchanged from the previous month, which is at a 3.1-month supply at the current monthly sales pace. The inventory of existing homes is tight with most unwilling to move partly due to the higher rates and home prices. Homes remained on the market for an average of 18 days.

Initial & Continuing Claims

Initial claims declined by 9,000 to 228,000, much lower than expectations of 240,000 signaling a still tight labor market. Continuing claims rose by 33,000 to 1.754 million. With wages still high and a healthy job market, the Fed may be induced to further raise rates. However, the current initial claims level suggests that a soft-landing isn’t unlikely like most thought at the beginning of the year. The four-week moving average also fell by 9,250 this past week to 237,500.

MBA Mortgage Applications Index

Mortgage applications rose 1.1% from the prior week. The refinance index rose 7% and the seasonally adjusted purchase index fell 1% from the previous week. The refinance applications share of mortgage applications rose 1.6% to 28.4% from the previous week. The 30-year fixed rate for confirming loans fell 0.2% to 6.87%. The 30-year fixed rate for jumbo loans fell 0.15% to 6.89%.

Leading Indicators: June

The Leading Economic Index (LEI) fell further, declining by 0.7% in June. The LEI has fallen 4.2% over the last six months after falling 3.8% over the six months prior to the most recent six months. The coincident index was unchanged but was up 0.2% in May. The lagging index was also unchanged after rising 0.1% in May.

The non-financial components of the LEI contributed to most of the decline, with new orders and average consumer expectations for business conditions falling 1.40 and 1.43, respectively. The financial components fell slightly, with the leading credit index falling 0.37 and the interest spread (10-year t bonds less fed funds) falling 0.85. The LEI remains below the recession signal level.

Earnings

Tesla

Tesla beat on earnings and revenue forecasts, but the stock fell on lower margins and a cloudy outlook from management. Operating margins came in at 10%, lower than last quarter, as Tesla lowered its sales price for most of its vehicles. During the call, Musk mentioned that the supercharging network stands at over 50,000 connectors and over 5,000 locations. There charging standard was adopted by other carmakers like Ford, GM and Mercedes. Its energy generation, which includes solar installations and battery storage, revenue rose 74% year over year.

Recently, Tesla outpaced productions and deliveries of its vehicles. Tesla research and development cost rose $172 million from the pervious quarter. Its revenue from its core automotive business rose 6.5% from the first quarter. Net Income for the second quarter was $3.7 billion, which is higher than the first quarter but much lower than the 3rd and 4th quarters of last year. There’s no clear-cut date on when deliveries for the Cybertruck will begin.

Netflix

Netflix beat on earnings and missed on revenue forecasts. Netflix continues to crack down on password sharing as its subscriptions rose 8% in the second quarter. They added 5.9 million subscribers this past quarter. Netflix added an additional ad-supported membership with a lower price of $6.99 to lure new subscribers. They also offer members the ability to add a member to their account for an additional $7.99. Revenue climbed 3% from the prior year. They also expanded their paid sharing policy to over 100 countries which accounts for a large part of its revenue.

Both operating income and net income rose, 6.58% and 13.98% respectively. Netflix increased it repurchase of its common stock, while its cash flow position improved from the previous quarter. Netflix issued positive guidance although it said it was too early to give remarks concerning revenues from its ad-supported tier. The next quarter, Netflix said it will be able to tabulate its revenue from this membership tier.

JB Hunt Transport

JB Hunt missed on both earning and revenue forecasts. Revenue is down 18% and operating income is down 23%. Each of their business segments drifted lower with its largest segments, intermodal and dedicated contract servcies, down 19% and 2% respectively.Operating income declined to lower customer rates & load and absorbing the costs of network and equipment costs. Intermodal volume refers to the quantity of freight or cargo that is transported using intermodal transportation methods. Revenue per load drifted lower, towards the 2021 levels. Operating Margin decreased year over year due to higher wages & benefits, and equipment related and maintenance costs. 

Truckload volumes were down 3% and higher costs for maintenance continue to eat into the bottom line. JB hunt was still able to conduct a stock buy back and sees customer demand as strong although inventory uncertainity still exists. Like the retail companies, JB hunt is preparing for a better second half of the year. It’s stock rose on a positive outlook towards JB hunt’s future.

Intermodal transportation involves the movement of goods using multiple modes of transportation, typically combining different types of carriers, such as trucks, trains, ships, and sometimes airplanes, in a seamless and coordinated manner.Dedicated Contract Services (DCS) is a type of logistics and transportation service offered by third-party logistics (3PL) providers or transportation companies to meet the specific transportation and distribution needs of a single client or customer. In DCS, the 3PL or transportation company dedicates its resources, equipment, and personnel exclusively to serve the requirements of that particular client, providing a customized and integrated transportation solution.

Goldman Sachs:

Goldman Sachs missed earnings forecasts by a wide margin and slightly beat revenue forecast. Although Goldman Sachs suffered from a decline in investment and banking revenues, they faced an impariment with Greensky and a writedown in its commercial real estate investment. Revenue fell 8% this past quarter.

An impairment is when the value of an asset falls sharply and the holder of an asset is unable to recapture the full value of the asset. The impairment for Greensky totaled $504 million and the writedown for the commercial real estate sector totaled $485 million. While equity trading revenues were unchanged, fixed income trading revenue fell 26%. Investment bankin fees fell 20% as merger & acquistion and IPO deal making slowed.

Technical Story:

Past Weeks’ Cash-flow in review:

This past week went well as I adjust to a higher income and more opportunities. Being that this is the highest salary I’ve earned to date, I’ll be watching for any changes in my expenses. So far, I’ve adhered to my spending plan and I expect this coming week to be about the same.

Grade: C

Reason: Some Improvement

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