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“The militarists in Berlin, and Rome and Tokyo started this war, but the massed angered forces of common humanity will finish it.” – Franklin D Roosevelt

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It’s feeling a little big Goundhog Day-ish this week as equity futures are down setting the stage for a fourth straight day of declines and treasury yields are higher. The main culprit again this morning (besides profit-taking) is higher rates.  As expected this morning, the Bank of England raised interest rates, but what wasn’t expected was the size of the hike which was 50 bps versus expectations for an increase of 25 bps.  Elsewhere in Europe, Switzerland hiked rates by 25 bps and Norway hiked rates by 50 bps.  The title for the biggest hike, however, goes to Turkey which boosted rates by 650 bps to 15.0%, and believe it or not, the size of that hike was actually much less than expected. And you thought another 25-bps hike from the Fed was a big deal!

There’s a lot of economic data on the calendar this morning with the Chicago Fed National Activity Index (weaker than expected) and Jobless Claims (initial weaker, continuing better than expected) at 8:30, Existing Home Sales and Leading Indicators at 10 AM, and the KC Fed Manufacturing report at 11.  Besides those reports, buckle up for a ton of Fed speak with Powell, Waller, Bowman, Mester, and Barkin all scheduled to speak throughout the trading day.

On the earnings front, five companies have reported earnings this morning and all five reported better-than-expected earnings and four managed to top revenue forecasts as well.

79 years ago today, FDR signed the last of the New Deal reforms into law creating what has become known as the G.I. Bill which provided support for returning servicemen in the form of living assistance, low-interest loans for homes or small businesses as well as funds for education.  With that piece of legislation, the G.I. Bill unleashed a massive expansion in the college education industrial complex where the percentage of Americans with four or more years of college education quickly expanded from under 5% in 1940 to 17% by 1980.  In three of the four decades after FDR signed the legislation into law, the percentage of Americans with at least four years of college grew by over 34%.  If it was a stock, imagine what kind of multiple it would have traded at.

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See what’s driving market performance around the world in today’s Morning Lineup.  Bespoke’s Morning Lineup is the best way to start your trading day.  Read it now by starting a two-week trial to Bespoke Premium.  CLICK HERE to learn more and start your trial.

“Even if there was a hand, it was the hand of God.” – Diego Maradona

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It’s looking like another sluggish start to trading today as the market looks to digest the sharp gains from the last few weeks.  There’s no economic data to speak of but higher-than-expected CPI data in the UK is weighing on global sentiment tied to inflation.  While not an economic report, Powell’s testimony in front of the House Financial Services Committee at 10 AM will be a big market driver today.

After acting as a flare for a dark market in 2022, Energy has been an outlier again in 2023 but this time to the downside with the sector declining over 10%.  The last week has seen more of the same with Energy falling more than 2.5% while no other sector is down even half of a percent. As shown in the snapshot below, Energy tops the list in terms of weakness as it is down more than any other sector YTD, down the most over the last five trading days, and is further below its 50-DMA than any other sector (-3.83%).

What’s interesting about the weakness in Energy stocks over the last week is that it has come as energy related commodities have rallied substantially.  As shown below, the ETFs that track crude oil (USO) and natural gas (UNG) have rallied 6.1% and 9.8%, respectively.

While performance over the last week has been divergent, whether you look at six-month price charts of energy-related stocks or commodities, they all look like a mess with all of them much closer to six-month lows than six-month highs.  Perhaps the only positive thing to say is that up until this point, they haven’t made lower lows.  You could even say that the chart for UNG looks similar to the way some bombed-out growth stocks looked in late 2022, although given the way the ETF is structured, holding it for extended periods of time is likely to result in an enormous amount of decay.

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“You’re going to need a bigger boat.” – Martin Brody, Jaws

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48 years ago today, the relaxing effect of swimming in the ocean permanently changed forever when the movie Jaws hit the screens in movie theaters nationwide.  These days, as the market rallies to 52-week highs and just recently moved past the 20% bull market threshold, the bulls look like they may need a bigger boat to accommodate the growing ranks of investors looking for higher stock prices.  The market has reached overbought levels in the short term, so it shouldn’t surprise anyone to see at least a pause in the rally as we close out Q2 and shake out some of these new bulls.

In the here and now, futures are modestly lower this morning following up what was a negative start to the week for most international markets yesterday and further weakness this morning.  It’s going to be another quiet week again for economic data (after a busy one last week), although the earnings calendar is starting to modestly pick up.  Today, the only two economic reports on the calendar are Building Permits and Housing Starts, and the only notable earnings report is from FedEx (FDX) after the close.  The economic data was just released, and Building Permits exceeded forecasts while Housing Starts were much stronger than forecast with the headline reading coming in at 1.631 million versus forecasts for a reading of 1.430 million.  While still an enormous beat relative to expectations, April’s reading was revised lower by 71K.

Markets were closed for trading yesterday, but the National Association of Homebuilders (NAHB) announced yesterday that its homebuilder sentiment for the month of June came in at a level of 55 versus expectations for a level of 51 and up from last month’s level of 50. The move back above 50 indicates that homebuilders have net positive sentiment for the first time since last July, ending a streak of ten straight months of 50 or sub-50 readings. You can’t blame homebuilders for being in such a good mood given where the housing data came in this morning.

In looking at the historical chart of homebuilder sentiment, the current move above 50 started from a trough of 31 in December which is a level that historically has been associated with recessions.  Also notable is the speed at which the index has rebounded from its trough.  While not as quick as the rebound off the COVID lows, the magnitude of the reversal has been among the swiftest on record.

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