Slow down

“We’re a species that rushes through everything, then complains that time flies.” – Steve Maraboli

The Buzz

The S&P 500 closed higher Wednesday after a summary of the Fed’s policy meeting last month reinforced hope for rate cuts starting next month. The index added 0.42%, its ninth winning session of the last 10. Four of its 11 sectors made 52-week highs during the session. The Nasdaq rose 0.57%, also marking its ninth positive day of 10. The Dow Jones finished up 0.14% for its sixth winning day of the last seven. The Russell 2000 was the best performer, with the small-cap focused index climbing more than 1%.

source: CNBC

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Let’s wait…

DIY’s and buyers of fixer-uppers have adopted a “deferral mindset” as a result of economic uncertainty according to Home Depot’s CFO Richard McPhail. The company recently warned that it’s bracing for a drop in sales of as much as 4% this year, compared to earlier estimates of -1.0%. The average cost per visit was down last quarter along with sales.

Lowe’s also reported flagging sales, down 5.1% year-over-year and expects same-store revenue to drop as much as 4% for the year, more than previously anticipated. Lowe’s and Home Depot believe that consumers are waiting for interest rates to fall before taking out loans for rehabs and expensive renovations.

Wayfair said that its furniture sales have taken a record hit that mirrors the drop in demand during the GFC of 2008. For a “look on the brightside” take, analysts expect consumers to begin purchasing more eagerly should the Fed deliver a widely anticipated rate cut at its September meeting.

To be fair, consumer are buying some non-essentials. Spending on “non-house” items such as cars and electronics were up last month. However, consumers have also been increasingly turning towards bargain hunting as evidenced by Walmart’s staggering sales last quarter.

sources: Bloomberg, WSJ, CNBC

Bonds

Bond traders are taking on record amounts of risk as they bet on a Treasury rally fueled by expectations of a September rate cut. Open interest in futures, or the amount of risk taken by participants who can be long or short, peaked at a record 23 million 10-year futures equivalents as of last week. This is equal to approximately $1.5 billion dollars of risk per one basis point move in the underlying note.

sources: WSJ, Bloomberg, CME Group

China

While the country’s stock and housing markets slow and concerns about consumer spending persist, one thing in China as been rallying, its government bonds. Prices for the bonds keep rising as yields fall (as bonds do). The economic slowdown has pushed 10-year yields below 2.2% vs. 2.6% only a year ago.

source: WSJ

(S)lumber

Falling lumber prices are causing a number of mill shutdowns. Interfor is the latest company to announce it’s closing sawmills due to low prices for Southern Yellow Pine Boards. High interest rates have slowed home building and renovations (see above). The boards are widely used in decking and fencing, two areas that have slowed dramatically.

source: WSJ

VC

It’s been tough to raise money of late, especially for newer, less well known firms. Investors in VC funds, known as Limited Partners or LPs, are becoming increasingly selective and cautious according to PitchBook. One reason, is that except for AI, returns in the space have stalled. Most investors in the 2015-2021 vintage haven’t broken even yet.

As of 2023, almost one-third of funds launched in 2017 had not returned capital from a single investment. As a consequence, investors in the space are turning to larger established firms like Kleiner Perkins, Andreessen Horowitz and Iconiq, especially the ones that have recently returned capital. The rich get richer!

sources: Bloomberg, PitchBook

In other news

• Cisco Systems is planning to lay off 7% of its employees as it shifts its focus from its traditional business lines to AI, cybersecurity and other growth areas.

• Schwab’s biggest money maker is its bank but it’s may also be its biggest problem to fix. Schwab was making money the easy way on customer deposits when rates were low but this model was turned upside down once short-term rates rose and clients went in search of higher yields. Now the broker is considering shifting its strategy to earn more from services and financial advice.

• Call Her Wealthy: Podcaster Alex Cooper is picking up her Call Her Daddy podcast, along with its 4 million followers and leaving Spotify for the greener fields of SiriusXM and a $100 million, 3-year deal. Shares of Sirius were up 7.2% on the news.

source: WSJ, Bloomberg

The stinger

Disclaimer

This letter is not offering investment, trading, or investment advice nor is based on any individual portfolio or business operation. We are are not a registered investment, stock nor commodity advisor. One should consult with their own registered advisor to discuss investment strategies that are appropriate for their business or personal goals, risk tolerance and financial situation. Information in this report and on any website is derived from a variety of source believed to be reliable however no representation is made that the information is accurate, complete or correct. These lessons, newsletter and site content is not intended nor shall not constitute or be construed as an offer or recommendation to “buy”, “sell”, “trade” or invest in any securities, commodities, futures, options or other asset referred to in said lessons, reports or newsletters. Rather, this research is intended to identify situations and circumstances that those in the trading community should be aware of to better help assess and improve their own risk management skills.