 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Wednesday's Headlines 1. Markets Rally in Fed's Wake 3. A Year Later, Here are the Winners 4. Oil is in a Bear Market Markets Closed
 Markets Sustain Rally, Powered by the Fed U.S. markets picked up right where they left off on Tuesday, extending their gains as investors were buoyed by the life raft sent out by the Federal Reserve. The Fed also issued its Beige Book survey today, which is a summary of economic reports compiled by the various federal reserve banks around the country.
(Yes...it's actually beige.)
In today's release, the Fed signaled a 'slight improvement' in the economy since March, and said economic activity was expanding at a 'modest pace overall'.
Quick refresh...Fed Chair Jerome Powell said yesterday that agency will do whatever it takes to keep the economic expansion going. This is what he is talking about.
Words Matter The edgy investing blog, ZeroHedge, has been tracking the Fed's use of keywords like "Tariff" and "Slow". The Fed has been using those words a lot over the past several months, because that is what it is hearing from the businesses and regional banks that it surveys. No surprise there. In the Fed's June Beige Book, the use of the word "Tariff" is on the rise while the use of the word "Slow", is slowing down.  Not Everyone Loves Rate Cuts Especially banks. There is an old Wall Street joke about how Banking is a 3-6-3 occupation. A banker borrows money at 3%, lends it at 6%, and is on the golf course by 3PM. That's not quite the case anymore given the globalization of the banking system. It's especially not true given historically low interest rates and the prospects for them to go even lower. Banks' bread and butter is lending - but when rates are low, they don't earn as much off of the interest.
Read more: How Commercial Banks Make Money
Bank of America has quantified what potential future interest rate cuts will do to U.S. bank profitability. The short answer: It won't be pretty. BofA sees an average 10% hit to bank earnings if the Fed cuts as much as 0.75% through the rest of the year. There is no guarantee that will happen, but it's worth noting a future worst case scenario (for banks). See the chart below. The banks are represented by their tickers on the X-axis. Refer to our Markets page to find out which companies they reference.  Top Performers Past Year It's been a topsy-turvy (not a technical term) year for U.S. markets to say the least. After one full trip around the sun, the S&P500 is up just under 3%. The sell-off late last Fall and the rally this Winter have basically brought us to even.
chart courtesy tradingview.com  Volatility due to the uncertainty around trade talks and the global economy have produced some interesting winners in the past 365 days. Tech stocks like the FANGs have faded like Drake's "In My Feelings", 2018's song of the year. In fact, the FANGs are facing a dangerous technical inflection point, as we explain below.
This past year belongs to Utility and Real Estate stocks.
Utilities are hot because they are often considered a safe investment. Most utility stocks issue handsome dividends and they are shielded from global shocks like trade wars and Brexit.
Real Estate stocks like REITs, property managers and storage companies are also considered to be relatively safe given their consistent income streams via long-term leases and low turnover.
Still, these sectors are not typically ones we associate with 20% plus gains in a year. They are like tortoises, slow and steady. That's why we were a little taken aback to see this chart, courtesy of Charlie Bilello. Charlie points out that Utilities and Real Estate, as tracked by the ETFs XLU and XLRE, respectively, are up over 20% as the yield on the 10-year U.S. Treasury has essentially collapsed.
This doesn't mean they will continue to outperform...but if the markets remain volatile, keep a close eye on them this summer. 
 photo courtesy Bloomberg News
Buffett & Berkshire Caught in a Ponzi Scheme This was one of the wildest stories I've read in awhile. It comes courtesy of the investigative reporting team at Bloomberg News, one of the industry's finest. It tells the tale of a company called DC Solar, founded by Jeff and Paulette Carpoff. Jeff, a former auto mechanic, and Paulette, founded DC Solar to build solar mobile generators to supply power at sporting events and outdoor venues. They took advantage of federal tax credits to entice investors like Berkshire Hathaway, Progressive Insurance and United Financial Bancorp to back the company, which they did. Turns out, DC Solar allegedly took those investments to fund the Carpoff's extravagant lifestyle, which included 90 luxury cars, 20 properties and a semi-pro baseball team.
Read the story here to find out how a modern day Ponzi scheme works. chart courtesy www.koyfin.com  Campbell's surged more than 10% today as the company beat its earnings estimates, with its net sales from continuing operations rising 16% year-over-year. Salesforce rose more than 5% on a revenue and earnings beat, too.  Oil inventory was higher than expected this week, for the fourth straight week. "There's a glut in supply," as our chart guru James Chen says.  Word of the Day Head and Shoulders PatternA head and shoulders pattern is a chart formation that technical analysts look for when examining stocks. It's not a good sign, and right now it's hitting the FANG stocks.
Worries about an extended trade war, and the overall health of the U.S. economy have driven investors to real estate and utilities at times of uncertainty. Those worries, now compounded by concerns that the government is considering increased regulation in the sector, seem to have kept the stocks down even as other stocks have lifted over the past two days.
In a note Wednesday, Stephen Suttmeier, chief equity technical strategist at Bank of America-Merrill Lynch, wrote that "Early-October 2018 saw Facebook, Amazon, Netflix and Google (FANG) break below a short-term uptrend after forming a head and shoulders top." He went on to say that this was a "canary in the coal mine for the late-2018 U.S. equity market correction."
This is the definition: "A head and shoulders pattern is a chart formation that resembles a baseline with three peaks, the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal. The head and shoulders pattern is believed to be one of the most reliable trend reversal patterns. It is one of several top patterns that signal, with varying degrees of accuracy, that an upward trend is nearing its end.
  photo courtesy Getty
Today in History June 5, 1883: The economist John Maynard Keynes is born. Between the world wars, Keynes generated theories that lead to massive government intervention in economies all over the world. Much of Keynes work would undo the legacy of the Father of Economics, Adam Smith. The irony? Today is also the day of Smith's baptism, in 1723. How about that.
Read about the famous economists on Investopedia here (Keynes) and here (Smith).
https://www.britannica.com/biography/John-Maynard-Keynes Chart of the Day: Crude Oil Plunges Into Bear Market  Crude oil futures sank sharply on Wednesday, extending the steep slide since late April, after the U.S. Energy Information Administration (EIA) reported higher than expected U.S. crude oil inventories for last week, once again. This occurs against the backdrop of still-ongoing trade conflicts that could potentially threaten the global economy and, in turn, the demand for oil.
Inclusive of Wednesday's inventory report for last week, the past four weeks of EIA data have all shown a chronic glut of oil supply that has consistently surprised analysts. Last week, crude inventories surged by a whopping 6.8 million barrels against expectations for a draw of around 1.7 million barrels. The previous week showed a smaller-than-expected decline, and the two weeks prior showed much larger rises in inventories than forecast. With supply consistently higher than expected for four straight weeks, it's no wonder that crude oil prices have been so heavily pressured of late, especially when coupled with fears of lower demand due to potentially slowing global economic growth.
As shown on the chart, since the year-to-date peak around $66.60 in late April, U.S. crude oil futures have been in a sharp decline down to the current price in the low $50's. All in, as of Wednesday's market close, price has fallen more than 22% since late April, placing crude oil squarely in bear market territory. A bear market is a condition in which prices fall 20% or more from recent highs amid negative investor sentiment. In the process, crude oil has fallen below both its 50-day and 200-day moving averages as well as a key support level around $55. With this technical breakdown and entry into a bear market, the bias continues to be to the downside, especially given the continuing oversupply situation. With any breakdown below the key $50 psychological level, the next major technical support target is down around the $42 level.
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Wednesday, June 5, 2019
MoJo
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