The Week Ahead: Is the Country Just Jacked up on Stimulus?

SPEAKERS

Lenore Hawkins, Chris Versace

Chris Versace  00:00

This is the week ahead brought to you by Advisorpedia and powered by Tematica Research I'm Chris Versace Tematica as Chief Investment Officer and joining me as always, but especially though so this to break down all the important economic data we received is Tematica as chief macro strategist Lenore, Hawkins, Lenore,

Lenore Hawkins  00:22

How was the week? in the markets, it was kind of a yawn. Not much going on you know, except so overall the major indices were really pretty boring. Basically, everyone was not changed a lot less than 1% on the week. That said not the same for those usual meme stocks. Those guys are having a blast again. They're back. No one's gone in there through close Nokia up 10.7%. But you know, think like in a week that's that seems meaningful. Beyond is a 20.4%. Costco, Costco see that five times fast Corp Corp carport. Really coffee that's just not necessary. It's up almost 50% blackberry up almost 70%. And then the big boy, the one and only the one that even issued new shares and yet still pump up. Wait to be declared a popcorn dividend Don't forget, declared a popcorn dividend. The one the only the AMC entertainment. Yeah, that's crazy. 160 160.

Chris Versace  01:42

So I agree with you that, you know, all in all, despite the economic data that we got, it was kind of a meh week. But but that's kind of where we are.

Lenore Hawkins  01:51

I mean, you know, the last season. I think that's the technical term for it like June, July, August is sort of me. Although it can get depending on central banks. August can get a little exciting. And we do have the Fed talking about, you know, sort of a taper ish.

Chris Versace  02:05

Yeah, that's true. But I think there's four months of the year in particular June being one of them, where we're just coming off the onslaught of earnings season. We're in this as we'll talk about later in this conference, season, wind, people are waiting to hear what's going on and how's the quarter going to close and, and all this other stuff. And we tend to drift a little sideways, at least on the news front. And I wouldn't be surprised that that's the case.

Lenore Hawkins  02:30

Plus, this is also this year, we have so much enthusiasm built up for this blockbuster second half of the year that I still just don't think we're going to get Oh, I agree with that. The the markets even even Bitcoin was kind of me this week, after a very volatile time last week where it's gone from an initial high of almost 64,000 dropped down to under 30,000. This week, it managed to kind of hold it, it's a little bit of a rebound between like 37,030 8000. But it's still despite all that it still manages to be at about 33% year to date, and we're gonna hold gold interestingly enough, while it had last August broke above 2000 it's still below 1900 hasn't really shown a whole lot of enthusiasm this year.

Chris Versace  03:26

Yeah, well, you know, I'm thinking what you said about these mean stocks and I'm looking at the rest of the market. You know, the NASDAQ's up about a little over, you know, just shy of 6%. s&p is up close to 12,013. Russell's up almost a little over 15% being the strong performer at least today basis. Yeah. And I'm sitting there and I'm thinking if we slow down through the summer, I think we're likely to have what can only be called like a groundhog day, summer where we know that we're going to get data, we know that people are going to be looking, trying to interpolating, how strong is the economy going, but we know we have supply chain constraints. We know input prices are rising. And I think we're just going to cycle through that until as we talked about your previously like largely September, when we might actually see something breakthrough whether it's because the the pandemic lead federal jobless benefits totally expire and people are forced to get off their couches right and go forward. Or perhaps that's when the Fed thinks we might finally see signs that these inflation comments that we keep hearing about are truly transitory I just think there's gonna be a lot of sideways if you will, until the September timeframe. Almost put it in context to if we weren't all jacked up on stimulus.

Chris Versace  04:43

Wait, wait, wait. Are you talking? Are you talking about that caffeine? Are you talking about monitoring a little bit about still early in the morning for me?

Lenore Hawkins  04:51

The having the s&p up 11.6% that's pretty good for a year here, let alone just five months and that's basically what we're Talking about here, the rustle at 15.4%. You wouldn't look at that and go, Oh, kind of a down year, right that that's pretty good for an entire year. And here we are trying to do another knock it out of the ballpark after last year, the markets went completely bonzo. In light of the worst crisis, the world is known and over 100 years, so you know, there's that. So moving on.

Chris Versace  05:24

So let me let me ask you this, I know you're on Twitter, I'm on Twitter, I wrestled with Twitter quite a bit. I can't decide if I really want to be on it, if it's a total time suck, or whatever. So because it's making you blue. Could be could be but blue is an interesting comment. Because they they're they're talking about a subscription offering for Twitter. And there's been a lot of talk about the little blue called Twitter blue. That's right. And I just can't decide like, Is it worth paying for? What incremental services are they going to give me that is really worth it. And then on the flip side, you know, are they going to charge enough to make it worthwhile for themselves as a real revenue stream? And I I just can't figure it out. But But what do you think? Because I know they made some news about Twitter blew last week? Well, I think that Twitter doesn't know.

Lenore Hawkins  06:17

Because Twitter, isn't it, I think it's very telling that that Twitter is going to launch Twitter blue in Canada and Australia to not exactly massively populated areas, right, um, to try and better understand what users want. They're going to charge about $3 a month and give some enhancements. You can undo a tweet within 30 seconds, I haven't really found that to been like some terrorizing thing I can I can see my typo, copy the tweet, delete the tweet, redo the tweet, things, my typo, which is basically what …

Chris Versace  06:49

That's that I thought would be the biggest feature that they could add anybody has the ability to edit …

Lenore Hawkins  06:54

… or giving extra bookmark folder, organizing and all that and a reader mode so that you can go through threads a little bit easier. I think what is interesting is that according to a survey, I just read that about 90% 90 92% of the tweets out there come from about 10% of users. So that would mean maybe at most you'd get 10% of users to sign up for so that's kind of interesting economics.

Chris Versace  07:30

Well, will say this that, you know, I've had TweetDeck up from time to time. And I do wonder about some of these people who they appear they appear to tweet like every 10 minutes, and I how do you hold down a job and do that? I just don't get it.

Lenore Hawkins  07:44

They have to use a tool to do it. Like they're not actually tweeting. They're just they just act at their tweets ahead of time. I heard? I don't know.

Chris Versace  07:52

Anyway, tell me about Costco, because I heard that they blew it out again, in May double digits. Do you think this is a sign that the consumer is still spending those stimulus checks, and we're more comfortable with the economy?

Lenore Hawkins  08:05

So what I have from talking to people in various industries, what I have heard is there seems to be a kind of a shift instead of the demand. Right. We've been hearing about lumbers the new gold, because everybody's been doing all this home improvement is that the shift? It's starting to shift away from the home improvement. It's starting to go towards travel, because it's like,

Chris Versace  08:25

Yes, we can. You're free. You're free. Yes, yes. Yes.

Lenore Hawkins  08:28

Right. So there's, I, I think what we're probably with Costco is a party at my house. People can get together right, you can have that backyard barbecue, and we can all finally get together and see one another. Closer to six feet away, and where I can see more than just your eyes. kind of exciting.

Chris Versace  08:49

I think that's right. With that note, I did see something that makeup sales are going through the roof as the mask is removed. Gotta get lipstick now. There you go. There you go. Lipstick. Alright, so let's move on real quick. So last week, cyber security stocks man that is yet another confirming data point for cybersecurity stocks. When meat processing company JBS sa, was hacked both in Australia and in North America. disrupting meat production and that doesn't sound like a big thing. But when we think about how we have to eat every day, and the ripple effect of in terms of a pricing perspective, when those plants go down, I mean, it's tremendous. It's, it's, it's, uh, you know what I call it, I call it a sneak attack. That's what I call it.

Lenore Hawkins  09:36

You know, if I was gonna hack it, wheat packing plant, I think I'd have pop up on everybody's screen. Where's the beef?

Chris Versace  09:43

Where's the beef? Or maybe if it's a beef processing plant, you have them steal from chick fil a, you know? Yeah, eat more chicken. Yes, yes. So but but so all all kidding aside, that is just the latest and current growing number of high profile ransomware attacks. And I think it's fair to say that it keeps us very bullish on cybersecurity stocks. And I'm not saying that because we have a cybersecurity and data privacy index, but just more confirming data points.

Lenore Hawkins  10:14

Yeah, no, it's just it's it's it's a the hacking is everywhere. More and more pronounced. But something near and dear to my heart. I was. Yes, super excited about this. So United Airlines is looking to bring back the supersonic jet. Fantastic. They've ordered to 15 aircraft from Denver based startup boom supersonic that are capable of flying get this at 1.7 Mach, that's almost twice the speed of sound. They're cruising altitude be about 60,000 feet really high. And they're expected to potentially be passenger ready as early as 2029. They're expected to carry around 65 to 88 passengers and it will cut the time they're going to do because you can't it's still illegal to fly supersonic over the continental US. So they will be doing me transatlantic and transpacific. So there'll be going from like New York, to London, from San Francisco to Tokyo will cut the time roughly in half.

Chris Versace  11:18

That's awesome. I agree to talking about that. And I just think of that old print commercial for Memorex. Yeah, the guy's got his hair all blown back. So world, I look forward to that too. And the only other the other thing that I would point out is Mark your calendars folks. Amazon has announced Prime Day is going to be a two event June 21 22nd. That helps explain why Amazon gave such bullish guidance for the current quarter. But they've already promised something like 2 million deals, and Rumor has it someone might be in the market for a new Kindle. So we'll, we'll be sure to report back on that. Now. Let's let's break down the economic data last week. as we as we hinted last week, it was the it's the first full week of the month, a lot of key data, what did you make of it?

Lenore Hawkins  12:05

Okay, first off was Friday's jobs report, which came in just like last month, it came in weaker than expected 559,000 new jobs versus expectations for 671,000. So that's a pretty big Miss. But it was up considerably from last month. 266,000. So significant Miss, but definitely faster paced than last, the unemployment rate did drop to 55.9, from 6.1. But the broader measure, which really is looking at the unemployment rate is just those people actively looking for the job for jobs, the broader measures, people who are like part time, they don't want to be part time or who just said, and I'm even gonna bother trying right now, that said about 10.2%. So what that tells you is that there's still a lot of slack in the job market. Now, the markets were pretty pleased by that, which is sort of a surprise, right? Because what we've seen is when the economic data comes in weaker than expected, the markets have been not so pleased about that. Now, my suspicion on this is we want some stimulus. And we've talked about how the markets wants more stimulus.

Chris Versace  13:16

They love the little stimulus. I'm sorry, were you just hitting your arm like you needed, like, fresh out of junk flow a little serious?

Lenore Hawkins  13:27

We've had this strange conversation going on in DC, where you have Janet Yellen, on the one hand, saying we might need to raise rates to cool it overheating economy, and you have the buyer. On the other hand, saying we need more stimulus, right. That's a unique combo. I think when you see a weaker than expected jobs number, it gives the market hope that at least the Fed is unlikely to be doing anything dramatic and potentially give a little bit of a tailwind to the potential for more. More stimulus. And what we did see on that stimulus front, we'll talk about that a little bit later. Is Biden willing to, he's willing to do an awful lot to get the spending that he wants?

Chris Versace  14:13

Because the comment I heard real quick about the jobs report is that it was Goldilocks. Yeah, you know, just enough to keep everything going the way it is.

Lenore Hawkins  14:24

I really wish we could get rid of that Goldilocks comment in the market like that, I swear. It's like everything is like, are we gonna get Goldilocks? No, I know. But speaking of the Fed, so on Thursday, we heard from fed official Dudley, he wrote in a Bloomberg column about the inflation and so these are things just just keep in mind because this is kind of what the feds looking at. For us to really have inflation that we need to worry about. First, you need a booming labor demand market. Reality is that we've got more than 10 million jobs shy of where we would be had the pandemic not happened. So that's a lot of slack in the labor market. So not their second you Need to see wage growth, which has to not just accelerate but has to accelerate to a point where any sort of productivity gains are kind of wiped out by the rise. So if if wages go up to 2%, but productivity goes up 6%. Alright, the improvement in productivity is wiping out any of the increased cost of wages. So far, we haven't seen that. And third, we really have to see inflation expectations just go bonkers where people are really panicking. So far, despite all of the headline hand wringing, the actual metrics are not there that inflation expectations are really getting out of control. So the reality is, our output gap remains, we've got just about 75% of industry compacity utilization, which means there's still a lot of room there. And at 10.2%, you six unemployment rate, dropped down from 10.4 previously, but that's also tells you plenty of slack in the labor pool. So bottom line, still need to be keeping an eye on this. It's not something that we can ignore. But for now, I'm still in the transitory camp.

Chris Versace  16:03

Well, hang on one second, hang on sec, you just said that inflation isn't really concerning you. But at the same time, we've seen, you know, global food prices really move higher.

Lenore Hawkins  16:15

Yep. Because not all rising prices are because of inflation. So if we dig in to what's going on with food prices, and it is it's, it's, when you see a significant rise in food prices, that's a pretty brutal, regressive tax, meaning those who are at the lower income levels get hit a lot harder than those that are at the higher income level. So it's definitely not something you want to see. The UN Food and Agricultural organizations monthly index actually jumped 40% in May. Now what happened here is one we've talked about this a lot rise and transport costs, right, as we tried to get the supply chain sorted out, you have boats in the wrong places, and you have empty cargo containers in the wrong places. So trying to get stuff shipped around the world where it needs to go is still working out the kinks on that. We've seen a material increase in oil prices, right. And that's the cost of moving stuff around as well. that's affecting it. China's rising demand for grain and soybeans, that population over there, right, China's the biggest importer of raw materials. Rich, really hurting it so hard is a severe drought in Brazil, because that's the they're the biggest exporter of corn and soybeans. So you had a huge cut to supply and also a growing demand for vegetable oil for biodiesel. So here we see where that push for a kind of cleaner environment is also affecting food. Right. And that's, that's not ideal. So you're seeing a demand shock, more demand for vegetable oil for biodiesel, feel a supply shock with Brazil, sorting out the supply chains, oil price that's going to stabilize those as well. Because if you recall, we had just last year or a barrel of oil went negative. So that's another one that's kind of working advocate.

Chris Versace  18:12

So yes, we're seeing these spikes still gonna stay still gonna call this one transitory even despite what we're seeing in housing, which still seems to be elevated, or is that or is that just in your thinking a bubble?

Lenore Hawkins  18:19

I think it's more a bit of a bubble. house prices worldwide are up 7.3% in 2021 through March, that's the fastest pace since the end of get it guess this Oh 2006. We all know what happened after that not not a great time to be buying a house. So when you look at us housing, let's just do a little reality check. Homeowners pulled out 49 billion out of their equity in the first quarter. That's the highest level since here's another number, you might recall 2007 Oh, right. Now that's up nearly 80% over 2020. That's a lot of cash flow support for household spending that came in q1. Now when we think about consumer spending in q2, right, because we keep hearing, oh, the savings rate. It's all of this dry kindling. And that just means consumers are going to spend a tenant that spending has been subsidized by people pulling money out of their homes, not likely to continue to be able to do that at that pace we've seen and we're not going to see quite the same level of stimulus. So with that consumer spending, these are some reasons to really questions super strong consumer spending. We also saw mortgage applications for the week of May 28. The latest data, the mortgage applications continue to drop the level of mortgage applications are right now down to where it was February 21 2020. Not a good time. We're seeing all kinds of indications in in housing with purchases with mortgages signal that things are starting to slow there does it do.

Chris Versace  19:59

Getting a little worried. I'm just thinking out over what you just said in some of the data points you rattled off, that we could see a mini housing issue crop up in, let's say, 2022, where people are no longer using their homes as ATMs again, and the spending spigot stops and infrastructure possibly stalls. Does that make you nervous?

Lenore Hawkins  20:24

Yes, I think we are going to see something like that. But we're not going to see anything that will be like what we saw in Oh, six or seven, because volume is completely different. But it is something to keep an eye on.

Chris Versace  20:38

It's just the magnitude of the pain will not be at the level we saw back what it would likely result in a far slower economy, just given the influence of the consumer and consumer spending on the overall economy.

Lenore Hawkins  20:50

Yeah, it's just it's one more headwind, people not pulling money out of their homes to spend, right, people not getting the stimulus checks to spend, right. So that's the second half. I'm not thinking second half is going to be knock it out of the ballpark. So the other two big things, manufacturing PMI both came in stronger than expected. Global manufacturing activity has reached the highest level since 2010. Not a surprise, right? We had basically lock downs last year, not a whole lot going on. It everything has really clamped down. So you're going to see just to kind of evened out, you're going to see well above normal levels of production. Some promising news on the inflation front there and with manufacturing's that prices rose at a slightly lower pace in May than in April, still at elevated levels, but getting better service sector which you would this one he would not not at all surprised to see because if you think about for the pandemic services hit a lot harder than manufacturing, right, because services is more people intensive. So the steepest pace of expansion in the service sector since data collection began back in 2009. pace of job creation weekend though, so that kind of gave us a little bit of a heads up that jobs number was not going to be as strong as expected. firms are continuing to report difficulty filling positions and in service sectors while you're saying input cost inflation for the seventh consecutive month. So what's the bottom line? So we're already starting to see estimates for the economy for q2 GDP coming on to the ninth a month ago, the Atlanta fed now cast was at 13.6%. Now it's down to 10.3. The Citigroup economic surprise index, the ceci, which is something I follow pretty tightly that rolled over to where it was last June when the economy was on lockdown mode. And we were five months away from getting any kind of announcement on the vaccines. Overall, the economic recovery showing signs of slowing.

Chris Versace  22:53

Great, just as we go into the second half of the year, the markets up depending on the indicator double digits, the question becomes what's the stimulus to drive it higher or not stimulus sorry, catalysts to drive it significantly higher. All right. Well, that was last week. What couple data points are you looking for in the week ahead?

Lenore Hawkins  23:10

So Tuesday, there's, we get the trade balances. So last month, the when we got the report on this, the trade deficit in March had widened to a new record high of 74 point 4 billion up from 70 point 5 billion in February, that was driven primarily by 6.3 increase in imports to a all time high. We'll be looking to see if that kind of import level are we continuing to see if that pace and also want to say well, you're gonna get the jolts report, that's the job openings, labor turnover. What are we looking for there is job openings. Now job openings rose almost 600,000 to over 8.1 million in March. That's the highest level on record going back to December of 2000. way above expectations for for 7.5 million. I'll be looking to see what's going on with this job openings at versus hirings. Because we continue to see where we've got a lot of people on the sidelines that want a job. We have a lot of job openings, and employers are not finding the right match. That's a really big problem for the economy. On Wednesday, like we were talking about looking at the MBA mortgage applications index, seeing if that's continuing, we've seen a 4% drop after a 4.2% drop seeing if that's going to continue. The wholesale inventories for April growth there has been slowing right. So the wholesale inventories first get to get and wholesale for yet retail. So we'll be looking to see that's kind of an earlier indication of the economy. Thursday, obviously the usual jobless claims. Also, on Thursday comes the May Treasury budget. So that's the budget for the federal government and frankly, at this point does anyone but what was interesting this week is it. The Biden administration has indicated a willingness to drop demands for an increase in US corporate tax. Rates if they can get enough Republicans to agree to support the surge in infrastructure spending so now that that's telling me a few things one still more and more people not giving a damn about the the deficit. Yeah. And also clearly Biden's having a tough time pushing this through.

Chris Versace  25:18

Agree No, right now Thursday also brings the May consumer price index, are you going to be concerned with that we're looking for the follow through for price increases to consumers …

Lenore Hawkins  25:28

But keeping an eye on it, but I'm still not going to be overly fussed until like, August, September, that's when I'll start thinking it's a little bit more meaningful.

Chris Versace  25:39

Okay. Okay. And anything else to round out the week?

Lenore Hawkins  25:42

We get Michigan consumer sentiment index on Friday. Always good to hear how the consumer is feeling.

Chris Versace  25:48

Okay. All right. Well, let's rip through some earnings and other things to watch in the week ahead. Monday we got Marvell of companies leading supplier to Samsung, Nokia and Ericsson. So we're gonna want to see what is Marvell experiencing on the chip shortage front? Is it it? Is it? Yeah. Is it impacting its business? And when does it see any shortage if there is one, coming to an end, also to the timing of this report is pretty interesting. There'll be one of the first chip companies to really discuss what it sees about the back half of the year. We'll be listening very closely for what it says on the 5g front. That's Monday, Tuesday, the eighth Navistar, heavy truck manufacturer engine company. Look, you and I talked about this quite a bit. You know, trucks are one of the lifeblood of the economy. And I want to know, is Navistar seeing a rebound in new truck orders? And when we dig into those orders, is that because they're seeing continued order strength for the existing types of trucks, ie gas and diesel? Or are we seeing a pivot towards e trucks? That's the one thing I really want to know.

Lenore Hawkins  26:56

And then that's kind of putting a little noise into the system. Because is it? Is it that they're buying e trucks to replace? Or is it that we're increasing fleets? Because those are two very different messages? Correct? Absolutely. Correct.

Chris Versace  27:09

So that's, that's part of Tuesday. And between Tuesday and Wednesday, there are two companies, Calico growers, which you and I both love, why because it's all avocados all the time. And then brown Forman, which is a spirits company, we're going to want to listen to what they have to say about the reopening and the demand that they're seeing from in dining at restaurants. That's that's really gonna help us judge what's happening at other companies that sell both into the home and into the restaurants, companies like Coca Cola, PepsiCo, that sort of thing. Also Wednesday, I see I see. I can't talk. I still keep calling this company Restoration Hardware, even though they're now alright.

Lenore Hawkins  27:57

Yeah. So cool. Now they're, they're our age. Are you going? You're going to RH I'm going to RH. No, it's weird. It's just weird. It's Restoration Hardware.

Chris Versace  27:59

Strange. Anyway, the company's gonna report next week, and we'll want to see what it is making out on the home spend front, are people still doing repair remodels? Are they still seeing demand like that? But the other bigger question to me is they published a shareholder letter last week where they print but they plan to really leverage the brand to new areas of business. And I'm hoping that they discuss more about this on this earnings call. Because I, I don't necessarily think of Rh as a branded company. Right? You know, you think of like, Ralph Lauren has gotten into pain, it's going to sheets, that up, I see that, to me.

Lenore Hawkins  28:39

Rh is a store so naturally interesting. I think what one of the things they wonder they could possibly be doing. And that's when we think about Rh keep in mind too, that this is part of that whole k shaped recovery. Rh caters to the hiring, right? It's a it's a fairly pricey brand. Because what we have seen, what I'm curious with Rh is that we have seen a lot of these higher end brands have started to introduce kind of a Rent the Runway type of business model like Ralph Lauren has done this, where you, you tighten your relationship with the brand. And instead of just buying the product and being done with it, you can rent a piece of furniture really fits into that. And they'd be interesting to see if they're contemplating tightening their relationship with the consumer and turning things into more of an annuity where you could maybe not keep that dresser you bought for the next 20 years.

Chris Versace  29:34

So you're saying a high end rental center? could be interesting. Okay, a lot of the economy's moving that way. We'll see. We'll see. All right, so on Thursday, we've got national beverage. I'll be looking out for new flavors for the sparkling slow to live. I also want to know are they taking share from sugary beverages and artificially sweetened ones? Also Thursday, we've got chewy, big winner online ordering for pet supplies and pet food. I use it But the thing is, as we start to reopen, do these has the subscription business grown enough to offset people may going out and about and picking up dog food while they're out. And then finally on the earnings front next week, we got Dave and Busters. I'm thinking this should be a reopening winners we talked about earlier, people just want to get out and do almost anything. But the real thing I want to find out is they've been in expansion mode by taking over vacant anchor tenants at malls. Are they continuing to do that? They might be the lifeline for malls, we will see. And then just real quick, rounding out the week. A couple other items. You want to mark your calendars for Apple. On June 7, the big WWDC 2021 keynote going to be a big Software

Lenore Hawkins  30:46

Developers Conference for those who don't speak Apple's Worldwide Developers Conference. And they often will come up with some announcements around this.

Chris Versace  30:53

Yeah, mostly software that gets released later in the year. But you never know. And sometimes Timmy Cook will give a little business update. Thursday, June 10. We've got the next ECB policy meeting. So we'll want to understand what's going on there. And then the big thing next week, even though the volume of earnings has fallen, the number of investor conferences like I mentioned earlier, just jumps up. They've got about over 30 of them. And I mentioned this last week, I'll say it again, investors are going to be wanting to look for clues as to what we're going to hear whether it's supply chains, input cost, man, whatever. These conversations being had, are going to set the tone for what we hear when the June quarter earnings season kicks off not too long after the July 4 holiday.

Lenore Hawkins  31:31

And with that, and that is the week ahead

SUMMARY KEYWORDS

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