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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. Markets Rise Ahead of Fed Meeting
2. Consumers Feeling Fatigued

3. Quiet out There
4. Musk Muzzles his Twitter

5. Facebook is Riding a Crypto High

Markets Closed

Dow
26,112.53 +0.09%

S&P
2,889.67 +0.09%

Nasdaq
7,845.02 +0.62%

VIX
15.35 +0.46%

Bitcoin
$9,303.14 +3.62

US 10-Yr Yield
2.086 -0.33%

Stocks Tilt Higher Ahead of Fed Meeting

U.S. markets closed slightly higher today, as investors brace for the Federal Reserve's upcoming FOMC meeting this Tuesday and Wednesday. The June trend has been positive as the drumbeat gets louder for the Fed to cut interest rates. Most traders don't expect it at this meeting, but they do expect cuts at subsequent meetings this year.

The bet that the Fed will cut rates is helping prop up U.S. markets, which are beset with a number of challenges and some poor recent data.

As we have written, corporate profits are declining in key sectors like banking, manufacturing and technology. The trade war with China has no resolution in sight, with two weeks to go before the G-20 Summit where Trump and Xi are expected to meet. That was supposed to be a 'made for TV' moment when the two leaders would celebrate a mutually beneficial trade agreement and drop the onerous tariffs that have hurt companies and consumers on both sides. That doesn't seem likely given recent rhetoric.

Still, U.S. markets are within 2% of record highs and investors seem to be shaking off all kinds of bad news.

Regional Manufacturing Report Hits a Multi-Year Low

Normally, I wouldn't pay too much attention to a monthly regional manufacturing report like the Empire State Manufacturing Index. The Federal Reserve Bank of New York surveys business leaders in New York about manufacturing activity, sales, prices, etc, to determine their level of confidence about business activity. New York is the fourth largest state in the U.S. by population and accounted for $63 billion worth of manufacturing activity in 2018. It's no small fry.

The Empire State Manufacturing Index for June showed its largest monthly decline since 2001, and its first drop since before the 2016 elections.

What Does it Mean?

It's only one month and it's only one state, but it's a pivotal time for manufacturing companies. New York manufacturers export all over the world, including China, Canada and Mexico, so today's survey results could be just an aberration, or a harbinger of more pessimism on the horizon.

We'll get a similar report on Thursday from the Philadelphia Federal Reserve. If that has a similar tone to it, we'll know there is more gloom coming in June.

Consumers are also Fatigued

This one should get our attention. Bank of America Merrill Lynch, the largest retail bank in the U.S., surveyed its customers about their confidence. This is not to be confused with the monthly Consumer Confidence survey issued by the Univ. of Michigan, but it covers a lot of the same ground. It shouldn't come as a surprise that the Bank's consumers are fatigued by the trade war and the concerns it brings with it. Those concerns translate into a higher cost of living for most respondents, who expect the increased tariffs to mean they will have to pay more for their purchases. They are right...they will pay more one way or the other.

Consumers personalize macroeconomic concerns. It's our natural inclination to think about how we might be impacted by events like trade wars, monetary policy moves, recessions and the like. Therefore, we shouldn't be surprised to see that those surveyed by Bank of America are mostly concerned with the high cost of living, wages and higher gas prices. The three go hand in hand (in hand). Tariffs, according to the survey, are way down on their list of concerns, but they did make the list.

It's Quiet out There

Despite a few flare ups of volatility this Spring, it's been a relatively quiet stock market. So far in June (as of Friday), an average of 6,905,412,114 shares have traded hands each day on Wall Street. On Friday, only 4,905,018,474 traded hands. That's a decrease of 29%.

We are headed into what is traditionally the slowest time of the year for markets, and the lack of volume doesn't necessarily indicate anything awry. The old adage, "Sell in May and go away", may be in play, but that dynamic originated before electronic and algorithmic trading were invented, when markets were less globalized. A 29% drop in trading activity is kind of noteworthy in 2019, but there have been very few catalysts to move the markets in recent weeks. Yes - we've had the intensifying war of words between the U.S. and its main trading partners on trade (China, Canada, the EU and Mexico), and the obsession with the Federal Reserve and its future interest rate moves, but those stories feel old by now.

The Good News

The good news is that U.S markets have recovered in June, and the recovery is broad based. Sam Stovall, Chief Investment Strategist for CFRA, notes that the breadth of the stock market recovery has been widespread. Of the 146 sub-industries in the S&P1500, 48% are now trading above their 10 week moving average. That's technical analysis speak...but it means that the recent recovery rally is not localized in one or two industries like Tech, Energy or Consumer Staples. It's broader than that.

chart courtesy CFRA

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Musk Exits Twitter - TSLA Stock Rises

This is not causal, to be sure, but Tesla CEO Elon Musk has apparently quit Twitter, the platform that cost him millions of dollars in fines and potentially billions in market cap.

He's replaced his handle with the name 'Daddy DotCom', and indicated on his feed that he 'Just deleted my Twitter account.'

Musk has been quiet on Twitter of late, which has kept him out of the regulatory cross-hairs and the headlines.

I'm not saying it's a coincidence...just worth noting that Tesla's share are up nearly 10% in the past month.

chart courtesy www.koyfin.com

Incyte Corporation and other cancer-therapy stocks shot up today on news that Pfizer would acquire cancer drug maker Array BioPharma.

Prosperity Bancshares fell nearly 7% today on news of the regional bank buying the financial group LegacyTexas for $2.1 billion. AMD fell nearly 4% today following Broadcom cutting its full year revenue outlook late last week.

photo courtesy Sotheby's

Word of the Day

Going Private

Today, we got news that the auction house Sotheby's will be purchased by the telecommunications entrepreneur Patrick Dahi for $3.7 billion. Sotheby's shares shot up 58% this afternoon after the deal was announced.

If you want to learn more about the process of going private, Investopedia has you covered: "Going private is a transaction or a series of transactions that convert a publicly traded company into a private entity. Once a company goes private, its shareholders are no longer able to trade their stocks in the open market. Private equity firms will typically purchase a struggling company, make it into a private entity, reorganize its capital structure, and issue stocks once a profit can be realized."

Today in History

June 17th, 1930 - The United States passes the Smoot-Hawley Tariff Act, formally known as the United States Tariff Act of 1930. Named for its sponsors, the Smoot-Hawley Tariff Act "is a law that raised U.S. import duties with the goal of protecting American farmers and other industries."

It's yet another reminder of the traditional usages of tariffs.

Chart of the Day: Facebook Shares Surge Ahead of Crypto Launch

Shares of Facebook Inc. (FB) have been rising sharply of late, pushing the stock up a whopping 46% year to date and over 15% within the past two weeks alone. Despite a barrage of negative publicity in recent months centering on antitrust, privacy, security and other serious issues, the social media giant is the top performing stock in the FAANG group (Facebook, Amazon, Apple, Netflix, and Google (Alphabet)) this year.

There have been several drivers of Facebook's strong comeback after last year's unceremonious dive. For one, the company announced earlier in the year that it plans to integrate WhatsApp, Instagram, and Facebook Messenger. This would consolidate three massive messaging networks into one communications behemoth, which could quickly dominate the industry.

Another potentially pivotal recent development has been Facebook's very public plan to implement cryptocurrency payments, possibly as early as Tuesday. The company calls this plan Project Libra, and it's reported to include such payment industry giants as Mastercard and Visa as partners. This could potentially place Facebook in a leadership position within financial services and e-commerce, on top of its core competency in online advertising.

The chart of Facebook, shown above, underscores the strong investor support for these initiatives. From the trough of late last year, Facebook's shares have been on a sharp upside trajectory. Most recently, the stock bounced cleanly off its 200-day moving average in early June, and then just gapped above its 50-day moving average and surged over 4% on Monday to begin the new trading week. The "golden cross" (50-day average crossing above 200-day average) in early April also confirms the current bullish environment.

Depending on the success of Facebook's potential cryptocurrency launch, the next key upside target for the stock is around the late-April 198.48 high. Any major breakout above that level could boost the stock towards its highs of last year.