Italy Now Infected

Italy Now Infected by the Emerging Market Debt Crisis

by Louis Navellier

June 5, 2018

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The emerging market crisis spread to Brazil and infected Italy this week. Even though Italy is not an emerging market, the country holds a disproportionate amount of emerging market debt. Furthermore, Italian President Sergio Mattarella blocked two anti-establishment parties, the 5 Star Movement & League parties, from taking power, effectively denying Italian voters their chosen political leaders from the March 4 election. These new political parties are not friendly to the European Union (EU), reflecting the fact that Italian voters are increasingly hostile to the EU leadership. However, on Thursday, the 5 Star Movement & League struck a deal to form a new government, raising hopes of forming a coalition.

In the meantime, Carlo Cottarelli has been named Italy’s new Prime Minister to lead a “caretaker” government if a coalition cannot be formed. Spain’s leadership is also under siege, since Prime Minister Mariano Rajoy faces a no-confidence vote in Parliament. Between the chaos in Italy and Spain, the euro hit a six-month low against the U.S. dollar, which is causing the 10-year U.S. Treasury rates to retreat.

In This Issue

Our main theme this week is that the U.S. has become a safe haven in a world filled with turmoil. In addition to our dominant GDP, Bryan Perry looks at some numbers under the radar, including hot new earnings and GDP estimates, which imply a potential summer rally. If it’s June, there must be a European crisis, says Gary Alexander, but the U.S. recovery keeps sailing along, now the second longest in history. Ivan Martchev covers ways to hedge against the dollar short squeeze, a byproduct of the emerging markets crisis, while Jason Bodner looks for clues of future long-term leadership in the early warnings system of the sector scoreboard. I wrap up with the implications of a strong dollar and strong economy.

Income Mail:
The U.S. Economy is Distancing Itself from Rest of the World
by Bryan Perry
The Debunking of Q1 “Peak Earnings” as Fake News

Growth Mail:
If it’s Early June, it’s “D-Day All Over Again” in Europe
by Gary Alexander
This U.S. Expansion is Now #2 and Should Soon be #1

Global Mail:
Safe Havens for the Dollar Short Squeeze
by Ivan Martchev

Sector Spotlight:
Slow Growth or Roller-Coaster Volatility – Which is Better?
by Jason Bodner
Small Signals Often “Echo” Longer-Term Trends

A Look Ahead:
The Emerging Markets Crisis is Boosting the U.S. Dollar
by Louis Navellier
Lowest Jobless Rate Since 1969 Highlights Upbeat Economic News Week

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

The U.S. Economy is Distancing Itself from Rest of the World

by Bryan Perry

With the current year’s gains for the S&P 500 at a paltry +2.28% as of last Friday, one would think the economy had hit a wall of macro-economic headwinds that would explain this ho-hum performance. The Dow has actually fared worse, with a decline of -0.34% while Nasdaq is ahead by +9.43% and the Russell 2000 has gained 7.32% while setting a new all-time high last week.

I wrote recently of three major obstacles that the market had to contend with if the primary bull trend was going to win out. All three have since retreated: (1) The yield on the 10-year Treasury breached 3.1% less than two weeks ago and has since declined to 2.9%. (2) WTI crude oil traded as high as $71.84 per barrel as recently as May 23 and ended Friday at $65.81/bbl. And (3) the upstart U.S. Dollar Index (DXY) hit a fresh six-month high on May 29 of 95.02 before settling back to close last week out at 94.15.

The very short-term selling pressure for all three of these key components afforded the market a brief sigh of relief against a steamy set of geopolitical circumstances that would take a Sunday sermon to fully explain. Without getting into the specific details of each, I find it nothing short of impressive that the S&P 500 this past week is making a fresh attempt at breaking out of its trading range to the upside, in spite of this world of hurt. Only time will tell in the days ahead, but against the following laundry list of external matters that are mouthwatering news stories to the financial media, the tale of the tape is impressive.

Investors are having to contend with pricing in newly-announced tariffs on Europe, Canada, Mexico, and possibly China; a populist Italian movement that wants out of the euro; a historic vote of no confidence that unseated Spain’s prime minister; complete government chaos in Venezuela, Argentina, and Brazi; a summit with North Korea that may well produce nothing of real or lasting value; the ratcheting up of economic sanctions on Iran; and a growing crisis of confidence in emerging market currencies.

Instead of getting caught up with these new dramas being played out on the global stage of politics and currencies, in addition to the afore-mentioned trio of a rising dollar, oil, and bond yields, investors have embraced what matters most to the stock market – the economy. Consumer confidence, revised GDP, the payrolls report, average hourly wages, the pace of manufacturing, new orders, and domestic oil production were all higher. It was a clean sweep for the economic calendar. In baseball, this is “hitting for the cycle.”

The U.S. economy is the largest in the world. At an estimated $20.4 trillion in 2018, the U.S. represents a quarter of the global economy. Here is the IMF’s ranking of the Top 10 economies during 2017:

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The U.S. economy is bigger than the entire 28-nation European Union, whose combined 2017 GDP was $17.3 trillion. It is also about equal to the three Asian giants of China, Japan, and India, combined. The following pie chart of GDP distribution is based on the World Bank listing of global GDPs as of 2016:chart1.jpg

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Debunking of Q1 “Peak E120arnings as Fake News

The Friday jobs report was heavily reported, but Friday’s big underreported news event was the sharp upward revision of second-quarter GDP growth. The Atlanta Fed’s model currently forecasts second-quarter GDP growing at a stunning 4.8% annual pace. They say that’s because the forecasts for second-quarter real consumer spending growth and second-quarter real private fixed investment growth increased from 3.4% and 4.6%, respectively, to 3.5% and 5.4%, respectively, after the jobs report (from the U.S. Bureau of Labor Statistics), the construction spending report (from the U.S. Census Bureau), and the Manufacturing Report on Business (from the Institute for Supply Management) were released on Friday.

This revision marks a recent acceleration of economic activity, which was corroborated by FactSet’s latest “Earnings Insight Topic of the Week,” also released on Friday. The report stated that:

“During the first two months of the second quarter, analysts increased earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (an aggregation of the median EPS estimates for all the companies in the index) rose by 0.2% (to $39.07 from $38.98) during this period. How significant is a 0.2% increase in the bottom-up EPS estimate during the first two months of a quarter? How does this decrease compare to recent quarters?

“On average, the bottom-up EPS estimate usually decreases during the first two months of a quarter. During the past five years (20 quarters), the bottom-up EPS estimate has recorded an average decline of 2.7% during the first two months of a quarter. During the past ten years, (40 quarters), the bottom-up EPS estimate has recorded an average decline of 3.7% during the first two months of a quarter. During the past fifteen years, (60 quarters), the bottom-up EPS estimate has recorded an average decline of 2.9% during the first two months of a quarter.”

This fresh bottom-up earnings estimate is significant in that the estimated year-over-year earnings growth rate for Q2 2018 has increased from 18.6% on March 31 to 18.9%. All 11 S&P sectors are predicted to report year-over-year earnings growth. Seven sectors are projected to report double-digit earnings growth for the quarter, led by the Energy, Materials, and Information Technology sectors.

Because of the upward revisions to sales estimates, the estimated year-over-year sales growth rate for Q2 2018 has increased from 7.8% on March 31 to 8.6% today. Ten of the 11 sectors are projected to report year-over-year growth in revenues. Four sectors are predicted to report double-digit growth in revenues: Energy, Materials, Information Technology, and Real Estate.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Not knowing if the market can tune out the noise factor of all that is occurring outside U.S. borders, there is a growing case for a summer rally as second-quarter earnings season approaches. For Q1 (with 98% of the companies in the S&P 500 reporting actual results for the quarter), 77% of S&P 500 companies have reported a positive EPS surprise and 77% have reported a positive sales surprise, according to FactSet.

If past is prologue and Q2 sales and earnings post a similar trend to that of Q1, then all this back and forth for the S&P will very likely give way to an upside breakout. Money is flowing into the U.S. from all around the world as a safe haven trade. Seeing the underlying market fundamentals strengthening like this argues that the least path of resistance for equities is higher, and maybe sooner than we all might think.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

If it’s Early June, it’s “D-Day All Over Again” in Europe

by Gary Alexander

From 2010 through 2012, Greece imploded, followed by Spain and Italy, then Brexit – all during June.

Since 1940, early June carried sacred meaning in the narrow seascape between Britain and France – and I’m not just talking about D-Day – the June 6, 1944 landing of Allied forces on several French beaches at dawn. On June 4, 1940, the British private flotilla completed the dramatic rescue of 338,226 troops stranded in Dunkirk, France. That night Prime Minister Winston Churchill gave another in his long string of stirring speeches, ending, “We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender….”

Less well known, Allied troops liberated Rome on June 4, 1944, making this week a double celebration.

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Three years after D-Day, the financial healing began on this date. In a commencement speech at Harvard on June 5, 1947, U.S. Secretary of State George C. Marshall outlined a proposal to provide massive U.S. aid to postwar Europe, warning that devastated countries such as France and Germany “must have substantial additional help or face economic, social, and political deterioration of a very grave character.” His idea quickly gained traction and passed Congress. Between 1948 and 1951, the “Marshall Plan” poured over $13 billion into Europe, sparking economic recovery and, in the process, saving the U.S. economy from a postwar recession (and market crash) by providing a greater market for American goods.

In 2010, the most troubled Mediterranean euro-nations were dubbed PIGS, standing for Portugal, Italy, Greece, and Spain. (The original name was PIIGS, including Ireland, but that northern island nation fixed its economy fast, in part through tax reform, so we don’t need to see the double-I in PIIGS anymore.)

European crises continue today, although today’s D-Days are more Debt-driven than war-related. Nearly every early June since 2010 we’ve seen some financial or political crisis in the Euro-zone. There were three straight crises in the Greek debt restructuring in May or June of 2010, 2011, and 2012. Then came negative interest rates in June, 2014 and Brexit in June, 2016. Now, it seems to be Italy’s turn again, as the Dow dropped 400 points last Tuesday over fears that Italy might test eurozone unity once again.

Italy is once again struggling to form a government. This is endemic to the Italian peninsula since its unification in 1870. Since January 1, 1946, Italy has had 66 leaders, or one every 1.1 years. (By comparison, the United States has had only 13 Presidents, each serving an average of 5.6 years.)

The leaders of the current Italian coalition include some “Eurosceptics.” Meanwhile in Spain, the primary opposition party has called for a vote of no-confidence in the minority rule of Prime Minister Mariano Rajoy, whose center-right Popular party has been hit by a campaign finance scandal. The Greeks are also seeking another round of debt relief from the Eurozone and the International Monetary Fund (IMF).

The PIGS seem to wake up every June. That’s hardly worth spending a lot of time worrying about in the U.S., but when the PIGS fly, U.S. traders panic every time. The earlier Greek crises were a major cause of market turmoil in 2010 through 2012. The market seems to overreact to every headline from across the pond, but then comes a gradual return to our collective senses and the market recovers. Sure enough, the S&P fell over 1% on Tuesday on the Italian scare, but stocks recovered to close the week up 0.5%.

This U.S. Expansion is Now #2 and Should Soon be #1

As June dawns, this U.S. economic expansion has reached 107 months, making it the second longest expansion in American history, eclipsing the 1961-69 recovery, which ran 106 months. The record recovery is exactly 10 years (1991 to 2001), so this expansion will become #1 if it lasts until July 2019, which is likely since it is loping along at such a moderate pace. It’s not the calendar months that count, but the pace of growth. To run a marathon, you pace yourself. You can’t run at a sprinter’s speed and expect to last 26.2 miles, but this expansion became so pokey during most of Obama’s second term that it could hardly be called an “expansion.” At times, it was more like watching grass grow, but the positive side of that criticism is that the economy was never “overheated” at any time during the last nine years.

The Friday jobs report is a good indication of a healthy economy in an expansion mode – not overheated but near full employment. The Eurozone now has one of its lowest unemployment rates in decades, at 8.5%, but the U.S. rate is less than half that, at 3.8%, matching the 49-year low it reached in April 2000. The U.S. added 223,000 jobs in May, well above the economists’ forecast of 190,000 new jobs. That does not sound like an economy that can suddenly fall apart within a year and enter a recession in 2019.

Due to Friday’s jobs report, plus the ISM Manufacturing data and Construction Spending, the latest GDP estimate from the Atlanta Federal Reserve’s GDPNow model, released Friday, June 1, estimates real GDP growth in the second quarter of 2018 at a rather toasty 4.8%. That could be construed “overheated,” but history has shown that the GDPNow model starts out high and then moves lower as the quarter advances.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

How about this bull market? It’s also over nine years old, isn’t it? Not so fast, Pilgrim. A bear market is defined as a 20% retrenchment from the market’s peak, so we’ve seen two bear markets since 2011.

From May 2, 2011 to October 4, 2011, the S&P dropped 21.6%. Then, from May 2015 to February 2015, the Russell 2000 fell 25% and the Value Line Geometric Index fell 26%, so we’ve seen two short bear markets in the last seven years. This bull is not 9+ years old. Let’s retire that fear, here and now, agreed?

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

Safe Havens for the Dollar Short Squeeze

by Ivan Martchev

After reading the Marketwatch version of my negative take on emerging markets last week (See Global Mail, “There’s a Lot More to Come in the Emerging Markets Carnage”), my editor suggested I write a piece on safe havens if the dollar rise continues. This was a timely suggestion as I think that the gigantic synthetic short squeeze in the dollar will continue as it is catalyzed by the Fed’s quantitative tightening.

When a foreign corporate or government entity borrows in dollars, they sell those dollars for their local currency to use as they please. A lot of dollar borrowing means a lot of dollar selling, or shorting of the dollar, because those dollars they borrowed are not theirs. Repaying those dollar loans means reversing those dollar shorts. If the repayment pace picks up, catalyzed by rising U.S. dollar interest rates, it can cause a synthetic short squeeze, as it’s doing at the moment.

My knee-jerk response is to suggest that Treasuries would be the obvious safe haven in an emerging markets crisis prompted by a spiking dollar, but this formerly-sound safe haven is complicated by the Federal Reserve’s policy of quantitative tightening, which ironically is helping the dollar spike.

The Fed is letting over $200 billion run off the Fed’s balance sheet this year, and if there is no emerging markets or eurozone crisis, they will let about $600 billion run off the balance sheet next year. In other words, they will let those bonds mature and not reinvest the proceeds. That’s a lot of demand for Treasuries that used to exist that will disappear. Looking at the Fed’s balance sheet on a three-year chart (below), it looks like it is experiencing a rather disconcerting bear market.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

 Some have compared the Fed’s balance sheet to the U.S. stock market with the suggestion that the Fed “printing money” through quantitative easing (QE) has made stocks and bonds rally, so now that QE has ended and we have quantitative tightening (QT), the stock and Treasury markets should sell off. This is an overly simplistic explanation, because QE does not technically involve printing.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Fed’s QE was the largest carry trade in the world, as it used the cost of financing the excess reserve interest rate to “carry” $4.5 trillion in bonds and remit the interest rate differential to the U.S. Treasury, while suppressing long-term interest rate levels in order to help the economy recover from a bad recession. It is my professional opinion that some very smart people with PhDs in Economics did not understand how QE worked when it was introduced, and while some of those PhDs have made some progress on the QE front, many still don't understand it. This is precisely why we get this ‘printing’ talk.

QE was a practice of aggressively creating excess reserves in the financial system in order to force-feed credit into a banking sector and into an economy under severe stress. While I don't like such aggressive monetarist operations from a purely philosophical perspective, it did work to a large degree. In order for it to completely work out, quantitative tightening needs to be successful. You can’t have QE work if QT fails, as those are the opposite sides of the same coin. Those excess reserves are now being drained by reverse repo agreements and the Fed’s balance sheet is shrinking because they are letting bonds run off.

This “shrinkage” is a problem for calling the Treasury market a “safe haven” at the moment. If the Fed backs off on the balance sheet shrinkage front, then Treasuries will quickly regain their mojo as a safe haven. There were some pretty aggressive moves to the upside in the U.S. Treasury market as Italian bonds sold off and German bunds rallied last week. If the Fed backs off – and that would not be unheard of in a financial crisis – then long-duration Treasuries will be moonshots. In my opinion, the best way to capitalize on such moves is via zero-coupon bonds.

I will be staying away from leveraged Treasury ETFs as buy-and-hold investors could be whipsawed by the reverse compounding that causes both bullish and bearish ETFs to decline over the long-term if the assets they leverage up stay flat but zig-zag around in a range. Leveraged ETFs are for short-term trading only.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

Slow Growth or Roller-Coaster Volatility – Which is Better?

by Jason Bodner

Growth. It’s what everyone strives for. It could be personal or professional growth. It could be creative or intellectual growth. It could be growth of popularity or influence. Since we deal with investing, naturally we discuss the growth of our wealth. Preservation of capital is often cited as a main aim of investors and investment managers, but I bet pretty much every investor is more interested in seeing their wealth grow.

While we are on the subject, smooth consistent growth makes people happier than choppy ups and downs. What could be better than sitting back and watching your portfolio grow 1% a month, 12% a year? Who wouldn’t be happy with returns like that? But what if you had to withstand daily volatility of a plus or minus 3% every day?  Some might opt out of that roller-coaster in favor of a tiny return of 0.02% a day – two basis points. Those daily baby steps would deliver a compounded return of about 5.5% a year.

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I think by now, we all know that the growth of most portfolios really happens in spurts and pops. There are no such portfolios with smooth and consistent daily growth. Everything ebbs and flows. That’s just how things work. Let’s take this past week’s market performance as an example. Even in a four-day holiday-shortened week, it was a typically rocky ride, with significant up and down days. But when all was said and done, the week was just an average one. The S&P 500 Index rose about 0.5% for the week.

This points out an important concept to keep in mind – which I harp on all the time. The daily din of financial media and performance numbers is just that – a daily din. It’s noise. When all is said and done, people generally measure their portfolios over longer time frames, like 12 months, or five years, or more.

The important thing is that market leadership and weakness tends to unfold from little “disruptions” that can turn into “landslides” or shockwaves that can cause avalanches. Small sector shifts can turn into big sweeping trends. Those investors who wish to be at the forefront of superior portfolio performance will pay attention to the smaller moves and how they fit into the bigger picture.

Small Signals Often “Echo” Longer-Term Trends

This past week saw some nice movement in the sectors that echoes a much longer trend. First off, Real Estate powered up +2.13% last week. We haven’t seen a surge like that in Real Estate in quite a while. It’s worth taking note of this sector, to see if a larger trend develops. What caught my eye, however, is that Information Technology also shot higher, posting a +2.05% performance for the week. Infotech has been neck-and-neck in competition with the Energy sector for months now. This past week saw a continued competition with Energy. Recent high-flying stocks were hit with a wave of profit-taking amid the continued volatility of crude oil. While Energy recovered some, Infotech took the lead once again.

The “echoes” I refer to can be seen in the charts below. It should be no surprise that Information Technology is the clear winner for 1-year performance at +29%. But look at the 5-year figure. The S&P 500 Infotech Index is up +145.6%! It makes looking at the sector’s day-to-day variance seem almost silly.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Further echoing strength of the past, look at the top 10 industry performers. Four out of the 10 reside in the Information Technology sector, but that’s not what interests me most. Look at the 5-year performance figures. Internet & Catalog Retail grew +432% in 5 years and an astounding +1,774% in 10 years.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

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Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

If I tell you that daily performance swings seem like a waste of time, why do I spend so much time each week chronicling the weekly performances of the sectors? The truth is that the big (long-term) trends generate the most money. And the most money is made when people get in early. By looking at each week to see what sectors could develop into those monstrous sweeping trends, we have a better chance of being in on the ground floor when things get ready to blast off. Hats off to you if you were one of those lucky few who paid attention when Internet & Catalog Retail was the breakout industry 10 years ago.

Of course, we can look back now and say, “Well, of course, the big growth of the market was in Internet stocks! Look at the FAANG stocks!” But paying attention early, when a trend reveals itself, is why I scour the sectors each week. This could be the week that signals the next 10-year boom for a sector. It may even be Real Estate, even though I would say that’s unlikely, as the worst performing industry of all was Real Estate Management & Development (along with Energy Equipment & Services). Who really knows? No one does, but it pays to take heed. The next massive trend may just have gotten underway.

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A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

The Emerging Markets Crisis is Boosting the U.S. Dollar

by Louis Navellier

Just to recap the status of the overall Emerging Markets crisis, there has been a growing currency crisis in Argentina, Burma, Cambodia, Indonesia, Iran, Paraguay, Turkey, Uzbekistan, Venezuela, Vietnam, and some other emerging market countries, which is also accelerating the exodus from emerging market investments. When there is an international currency crisis, the oasis currencies are the U.S. dollar, British pound, the Chinese yuan, the euro, and Japanese yen, since these currencies have tremendous liquidity. However, the Chinese yuan and euro are not as strong as they once were, plus the British pound and Japanese yen have slipped a bit, leaving the U.S. dollar to carry the burden of global capital flight.

The good news is that this capital flight is causing the 10-year Treasury bond yield to decline, which means that the Fed will likely be hesitant to raise key interest rates further after its widely anticipated June 13 rate hike next week. The Treasury yield curve is now the flattest in over a decade, which is bad for the financial stocks that typically profit from the spread between short- and long-term interest rates. I am a former banking analyst and am proud that financial stocks are largely absent from my growth portfolios, so I’d say one of the keys to beating market averages is to avoid financial stocks, especially major banks.

In the meantime, a trucker’s strike over high diesel prices has crippled Brazil’s economy. A decline in fuel taxes is putting pressure on the Brazilian government to end its payroll tax breaks, which may in turn instigate more strikes. Despite a concession to cut diesel prices for 60 days, many truckers remain on strike, so there are acute fuel and food shortages nationwide. Many Brazilian businesses remain closed due to a lack of raw materials and the inability to deliver essential products. Approximately one billion chickens and 20 million pigs are at risk of not being fed adequately. So overall, Brazil’s GDP is expected to take a major hit, and chaos has become the “new normal” in Brazil.

Lowest Jobless Rate Since 1969 Highlights Upbeat Economic News Week

Naturally, the big economic news last week was Friday’s payroll report, where the Labor Department reported that 223,000 payroll jobs were created in May, much better than economists’ consensus estimate of 190,000. The March and April payrolls were revised up by a cumulative 15,000 jobs to 155,000 and 159,000, respectively. The unemployment rate in May declined to 3.8%, its lowest level since 1969 and tying a reading from April 2000. Average hourly wages rose by 8 cents or 0.3% in May to $26.92 per hour. In the past 12 months, wages have risen at a 2.7% annual pace. I should add that on Wednesday, ADP reported that 178,230 private payroll jobs were created in May. ADP significantly revised its March and April private payrolls lower to 198,470 and 162,990, respectively. Overall, the job market remains very healthy, with hiring in construction, healthcare, and manufacturing industries especially strong.

The other economic news was equally positive last week. On Tuesday, the Conference Board’s consumer confidence index for May rose to 128, up from a revised 125.6 in April. The present situation component rose to a 17-year high of 161.7 in May, up from 157.5 in April. Overall, consumer confidence is near a 17-year high, which bodes well for retail sales as well as second-quarter GDP growth.

The Fed’s Beige Book survey, released Wednesday, stated that all 12 Fed districts grew “moderately.”  The Beige Book survey was especially positive on U.S. manufacturing, citing a strong construction sector. All this economic activity boosted loan demand, which is also a good sign. Despite higher prices for crude oil, steel, and other commodities, the Beige Book survey said that inflationary pressures appear subdued. Overall, the Beige Book survey painted a “Goldilocks” view of the U.S. economy, where growth and inflation are neither too hot nor too cold. Essentially, the Fed is on track to raise rates in June and then will monitor inflation and market rates before deciding if it wants to raise rates later this year.

Finally, I should add that the Energy Information Administration (EIA) reported on Thursday that crude oil output rose by 215,000 barrels per day to 10.47 million barrels per day in March, a record for U.S. oil production. Production in Texas rose by 4% to almost 4.2 million barrels per day. The spread between WTI crude oil and Brent light sweet crude is now over $11 per barrel, which means the refiners I prefer should be able to make a lot of money on the spread! 


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