Stocks fell yesterday as a key jobs figure showed no signs of weakness in the labor market. Some Fed doves tested their wings yesterday, soothing some market worries, but those doves have yet to really take flight.
Keeping eyes on roads. Last night, WHILE YOU SLEPT, Congress approved the debt ceiling package agreed upon by the President and House Speaker McCarthy. It was heartening to see, for a change, bipartisan approval in the lower chamber. Markets had already begun to factor in a resolution to the pending crisis earlier this week. The package must now be passed by the Senate before it can go before the President for signing. What that means is that IT AINT DONE YET… almost though. Last week Janet Yellin warned that she would run out of money BY TODAY, but… um, surprisingly (tongue-in-cheek), she revised that drop-dead date to Monday, so Senators have the next 4 days to get the resolution passed. Thankfully, this weekend is not shaping up to be a beach weekend here in the Northeast, so lawmakers should be able to focus on the job at hand.
The most important part of the deal is that the US will avoid the potential for default. Though, to be clear, there have already been costs for the Congressional brinksmanship that got us here, and there still may be costs levied in the future. There can still be a credit downgrade in response to the reckless close call. Further, buyers of US Treasuries may think twice after getting their arm hairs singed in this recent close call. You know, “once bitten, twice shy,” as the saying goes. Additionally, with the Treasury’s wallet nearly empty, it will have to sell lots of bonds in coming weeks to refill it. More supply in a short amount of time can push yields higher making the Treasury’s… THE US’s costs of borrowing, indeed higher. So, yes, there will be costs.
This wonderful first day of June, which is also the start to meteorological summer, would not be complete without my putting on my thick economist’s spectacles. Pay close attention now. GDP, or Gross Domestic Product, is the way that we measure the success of the economy. There are lots of data points, but we like to think of GDP as… let’s call it, the final grade. When it is growing, we say that the economy is growing, and that is good. If it is falling, or contracting (the technical term), the economy is shrinking, and that is bad. More on either side is really good, or really bad. Less on either side not so good or not so bad. Agreed?
I talk often about consumption, the things that you and I purchase, and investment which is essentially the stuff that companies buy. Together those two make up the bulk of GDP, so they are important… very important. What I don’t often speak about is government expenditure, which is also part of the GDP equation. Go on, make the leap. It is true that if the Government spends more, it contributes to GDP growth, and vice versa for when it spends less. A large part of the past weeks’ debt ceiling negotiations has been limiting the growth of government spending over the next 2 years. Yes, spending prudently is… um, prudent, but it all comes down to timing. According to a large group of top Wall Street economists (66 of them, to be exact), 2024 will be a year of modest GDP growth, +0.8%, down from this year’s expected +1.1% growth. According to the forecast, consumers will tone down their spending (+0.9% from +1.1%), companies will pick it up a bit (+0.9% from -3.1%), and the Government too will cut back a bit (+1.0% from +2.5%). HOWEVER, these forecasts have yet to factor in the spending caps agreed upon by lawmakers. While spending caps may not push the economy into a recession, it will certainly not help the already close call that is being set up for 2024. Ok, take a breath, thick glasses off, enjoy the first day of meteorological summer. It’s a beautiful day.
WHAT’S SHAKIN’ THIS MORNIN’
Dollar General Corp (DG) shares are down by -8.44% in the premarket after the company announced that it missed EPS and Revenue estimates. The company, further, cut its full year guidance attributing it to ”macro headwinds” and business conditions being “more challenging” than previously anticipated. Dividend yield: +1.17%. Potential average analyst target upside: +18.9%.
Salesforce Inc (CRM) shares are lower by -6.32% in the premarket after it announced that it beat EPS and Revenue estimates for last quarter. The company reaffirmed its full year guidance, but the fact that it did not raise guidance did not sit well with investors… in the premarket, at least. Potential average analyst target upside: +6.0%.
YESTERDAY’S MARKETS
Stocks declined yesterday as the JOLTS Job Openings number came in hot, jolting investors into fearing further anger from the Fed. The S&P500 slid by -0.61%, the Dow Jones Industrial Average fell by -0.41%, the Nasdaq Composite Index was off by -0.63%, and the Russell 2000 Index dropped by -1.00%. Bonds gained and 10-year Treasury Note yields declined by -4 basis points to 3.64%. Cryptos fell by -2.46% and Bitcoin gave up -2.36%. The S&P500 ESG Index declined by -0.69%.
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