Markets last week moved up and down with news from the war in Iran and wavering opinions on AI. In other words, deja vu. By the end of the week, the president had said that the cease-fire with Iran was over, and widening opposition to data centers was causing chip stocks to fall.
Because of the chips-stock slide, the momentum trade is having a bad start to the second half of the year. The momentum trade is simpler than it sounds and means only that stocks which are rising are more likely to continue rising than ones that are not. And for much of the first half, chip stocks were rising. Investors jumped on the momentum trade and were rewarded, until they weren’t.
And with the war hot again, oil is only traveling through the Strait of Hormuz on the Omani (south) side, in tankers that are running without their transponders on. The price of oil has jumped back up, but maybe not as far as you would expect, with West Texas Intermediate crude oil trading around $71 per barrel, while Brent (international) crude is trading around $77 per barrel. It’s a good thing that prices are not higher, but why aren’t they? Insiders are hopeful that, as suddenly as the war was back on, it could be off again just as quickly.
But the oil story and the data center story are adding to the inflation story. And it no longer seems that the Federal Reserve will be able to continue cutting rates. But do not fear! A change in the methodology behind the Personal Consumption Expenditures Index (the Fed’s favorite inflation measure) is likely to make the inflation numbers going forward slightly more attractive. The change will take effect as of the September revisions.
Amazon just dropped $25 billion in new debt to help it build up its AI infrastructure. But it was only oversubscribed by 1.6 times, versus 4.7 times for an Amazon deal back in February. Amazon has issued more than $90 billion in new bonds this year, adding to its already $194 billion pile of debt. My buying of weird vitamins and best sellers is no longer able to support Amazon by itself.
More work from home and fewer homes to buy has led to an office-to-apartment conversion boom. On the one hand it makes sense, and on the other hand it’s really difficult to accomplish, because office buildings generally have a core of utilities, and apartment owners don’t really want to share their bathrooms with the neighbors. And one other problem was seen last week when an ongoing conversion of the former Pfizer headquarters in midtown Manhattan started to collapse. The construction included adding several floors on top of the tower, until two of the columns holding up the building suddenly buckled. It has since been stabilized, but the whole project is under review. And I thought climbing the stairs in a blackout was the worst of tower living.
Existing home sales fell 2.4% from May to June but rose 2.8% for the year ending in June. The median home price is now $440,600 – the highest level since records began in 1999. Meanwhile mortgage rates have also risen, adding to the home-ownership dilemma we’ve been facing since the Covid era.
Remember when eggs were expensive and we all blamed inflation and tariffs and avian flu and price gouging? Well, it turns out that price-gouging was a main culprit after all. Three egg suppliers, working together, tried to dominate the market, and came close. Cal-Maine, Versova, and Hickman’s set prices in the period 2022 – 2025 to increase profits, and used techniques like “spoofing”. Spoofing includes entering buy or sell orders in order to move the price and then cancelling those orders while taking advantage of the new price level. The egg companies have denied wrongdoing but agreed to settle civil claims against them.
For the week ending on July 10th, the Standard & Poor’s 500 finished at 7,575, the Nasdaq Composite Index at 26,281, and the Dow Jones Industrial Average at 52,637. The yield on the ten-year Treasury Note closed at 4.569%. U.S. crude oil cost $71.40 per barrel, N.Y. gold cost $4,075.00 per ounce, and one Euro was worth $1.14.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed to be reliable, including (but not limited to) Morning Brew, Barron’s, Yahoo Finance, CNBC, Axios, Business Insider, Bloomberg, The Wall Street Journal, CNN, The New York Times, The Washington Post, Fortune, USA Today, AP, and The Week. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook at ecook@dwinvest.com. Thank you for reading!
Want to enjoy an afternoon by the pool, but don’t have a pool? Swimply is for you! Described as the Airbnb of pools, it lets people rent out their pools by the hour or longer. That SOUNDS good, but what about insurance? And is there a lifeguard? What about the people who own the pool – are they staring out the kitchen window yelling, “NO RUNNING?”