Stocks traded higher yesterday after Producer Price Index / PPI came in slightly lower than expected. PPI is considered a leading indicator of Consumer Price Index / CPI which is on deck this morning – THE FED IS WATCHING.
Breakfast club. I start my morning routine when the owls in the small woods behind my garden are still… um owl-ing… hoot hooting. I like that time because it gives me a real opportunity to assess not only what happened yesterday but also how the rest of the world responded to the news and market cycle overnight. Pro tip: as you may have learned last week, there are other stock markets beyond the one in my beloved New York; don’t ignore them 😉. So, I am an early riser. That served me well this morning as I was fortunate to be on Bloomberg TV discussing the markets with Manus Cranny and Mike McKee, who made an early appearance. It’s ok if you missed it because I am going to give you the crib notes while you take your tea and toast at a more fashionable breakfast time.
So why did they drag McKee in so early? Well, of course, because today is CPI day. You know, that inflation thing again. Yesterday, the Producer Price Index / PPI came in lower than expected, and it is considered a leading indicator of inflation. Remember, producer costs impact the prices they charge consumers. The technical term for that is supply push inflation. Yesterday’s lower than expected number was behind yesterday’s stock rally, which topped off 4 straight sessions without a pullback in the S&P500. I will be looking at this morning’s release with a magnifying glass and searching for more signs that inflation is on the ebb. Specifically, services and its controversial implied rents, which has been the last sticky stronghold of this recent spate of inflation. It has been slowly… really slowly dis-inflating, and we would like to see that trend continue.
A few luxury-name, bulge bracket banks just upped their recession probabilities, which was also a topic of discussion. On that front, I am closely monitoring… I am sure you know… CONSUMPTION… my obsession… because it makes up 2/3 of GDP. Specifically leading indicators of its health, like consumer confidence, and the job market. People who are worried about their job security are less confident and spend… er, consume less. Are we worried? Not quite yet, but we must keep a weather eye on it. Though I didn’t have a chance to bring it up, we might have a nibble on some well-priced Consumer Staples stocks and some Utilities. Neither sector offers significant upside, but they do mostly pay dividends, and the good ones are stable. Utilities will get some wind at their backs as interest rates continue to come down.
Speaking of growth stocks… and we did, we discussed how last week’s pullback was an opportunity to get into some of those highflyers. Many of their growth stories have not changed, they are just cheaper…like, on sale. What I didn’t have a chance to tell Manus, was that not all of them are created equally. For example, Alphabet, a great stock with some great AI upside is under increased scrutiny from the Department of Justice which is reportedly looking into breaking up the company. While this may not be a bad thing for shareholders as you would still own the assets, though in multiple stocks, Alphabet may lose the competitive edge that it enjoys now.
That brings up another topic which we discussed. Cranny brought up the M&A market which is bubbling. He wondered if all this recession-talk and market volatility would have an impact on the M&A scene. That allowed me to segue into the Presidential election which is certainly already having an impact on the markets. There have been some key dividing lines between Dems and Republicans on regulation. Clearly, the latter is broadly against them while the former has a bit of a penchant for them. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) are behind many of those “trust busting” activities, cancelling mergers and suing some healthy companies. Obviously, those are dampeners for stocks in our portfolios… like Alphabet. Republicans would be looking to restructure the FTC and would certainly install new leadership both there and the DOJ which will have an impact.
Further on the election, Manus rightly pointed out that VP and Candidate Kamala Harris has yet to give an interview and provide her vision on what her economic policies might look like. You have heard me bring up similar points over the past few weeks. Manus asked me a great question on that topic. He asked me what I would like to hear Harris say if she were to be interviewed. Well, the portfolio manager in me would like to hear her be sympathetic to corporate income taxes, similar to what Republicans have been quite clear on. The Milton Friedman economist me is a staunch proponent of free-market capitalism. Successful corporations’ competitive edges should not be blunted by excessive government regulation. We left it at that.
So, here are your takeaways. The market looks healthy, but more volatility is afoot. The upcoming economic numbers will set the tone. Some, NOT ALL, growthy tech stocks look like they have some upside, but with more volatility. If concerns rise about the economy, some Consumer Staples and Utility stocks may provide ballast to a portfolio. And finally, Ms. Harris, if you are listening, please be nice to our winning corporations, they are the backbone of the largest economy in the world. With that, I am going to sign off and leave you to the very capable reporters on Bloomberg TV. If you missed it and want to know what I looked like (bowtie-clad) on the tube, get on over to Siebert’s Instagram and check out my Malek Market Minutes, which are posted most days. You can find those in the stories. Follow us to get the latest: https://www.instagram.com/siebertfinancial
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