Are You Still Consuming?

MARKETS

When Things Are Too Good

So many seem to be waiting for a swoon.

Stocks just had their best May in 15 years.
And, according to Stock Trader’s Almanac Editor in Chief Jeffrey Hirsch, the presidential election year effect could mean a positive June too.
Hirsch notes that the S&P 500, the Dow Jones Industrial Average, and the Russell 1000 have all recorded average losses over the last 21 years.
The Nasdaq Composite and the Russell 2000 have actually posted average gains of 0.4 percent and 0.8 percent during the same time frame.
During election years since 1950, June has followed a similar pattern. “But gains have been notably stronger,” Hirsh writes, “and all five indexes finish the month positive.”
Average election-year gains during June range from 0.9 percent for the Dow to 1.9 percent for the Nasdaq.
Seems like Friday’s report from the Bureau of Labor Statistics on the May employment situation will be a big factor here.
Investors, traders, and speculators will be watching wage and salary and hours-worked data – in addition to the usual headline-and-subhead grabbing unemployment and labor force participation rates – for signs the US consumer’s tank is running dry.

The target range for the federal funds rate has been 5.25 percent to 5.50 percent since July 2023.

So far this year, a resilient economy, supported by an active consumer, has prevented the Federal Reserve from cutting its main policy rate.
The economy has been so strong that some observers are talking about a rate hike rather than a rate cut as the Fed’s next best move.
That’s not likely. Jerome Powell and company feel pretty good about the restrictions of a 5.25 percent to 5.50 percent federal funds target range.
It’s actually pretty good news: “Think of the Fed’s policy stance as higher for longer than almost anyone anticipated, because the US economy has been stronger for longer than almost anyone imagined.”
That’s the money graf from Nicholas Jasinski’s weekend cover story for Barron’s, headlined “The Fed Won’t Cut Rates This Year.”
By the working of the well-known and totally irreverent magazine-cover indicator, the Fed would cut after every meeting from here to December.
That’s not likely either. But the underlying truth is what it is: “The US economy has been stronger for longer than almost anyone imagined.”
In addition to May jobs data on Friday at 8:30 a.m. ET, this week we’ll see flash PMI data from S&P today (manufacturing) and Wednesday (services.)
Wednesday’s productivity data will provide some good information, as will, of course, the ever-noisy initial jobless claims data on Thursday.
As of June 1 our central bankers are in a blackout period ahead of the June 11-12 Federal Open Market Committee, so we won’t be hearing from them this week.
Enjoy that silence.

DEEP DIVE

Guilty as Charged

The 45th US president is convicted on 34 felony counts.

Trump Media & Technology Group $DJT was down 5.30 percent on Friday, the day after a Manhattan jury convicted the 45th President of the United States on 34 felony counts related to a hush-money case.
DJT shed more than 15 percent on Thursday in after-hours trading immediately following the announcement of the verdict.
Donald J. Trump, the nominee of the Republican Party for the 2024 US presidential election, owns 65 percent of DJT.
The company owns Truth Social, a platform modeled after Twitter focused on conservatives.

Trump Media & Technology Group $DJT was down 5.30 percent on Friday, May 31, 2024, after a Manhattan jury found him guilty on all 34 counts in a hush-money case.

DJT has a market capitalization of $8.674 billion. It generated less than $1 million of revenue during the first quarter and reported a net loss of $327 million.
The Trump campaign said it raised nearly $53 million in the aftermath of the verdict.
Trump is the first convicted felon to be a major party’s nominee for President of the United States.
Since merging with Digital World Acquisition Corp. and becoming a public company on March 26, DJT is down 30.76 percent.

CONSUMER DISCRETIONARY

The Gap Has It Going On

The retailer’s momentum is real.

The retailer’s momentum is real.I had a really good conversation with my friend Roger Conrad a couple of weeks ago about the importance of looking at the economy from the “bottom up.”
In practice, that means listening to what C-suite executives are saying about their operations during quarterly earnings conference calls.
It may be that the US consumer is close to being tapped. That doesn’t mean retailers will stop competing for what dollars they do have.
And there’s solid evidence one of them – struggling for years – has found a workable formula and is regaining lost market share.
The Gap $GAP enjoyed one of its best days ever on Friday, as management reported expectations-beating fiscal 2024 first-quarter results and raised its full-year guidance.
All four of its major brands – The Gap, Banana Republic, Athleta, and Old Navy – reported positive comparable sales after multiple quarters of top-line declines.
CEO Richard Dickson, who took over the top slot at GAP last August, is already generating positive vibes and results from his efforts.
Dickson, who led Mattel’s $MAT Barbie-centric turnaround, has used celebrity endorsements as the main piece of his new strategy.
The goal is to “move at the speed of culture,” according to Mark Breitbard, the CEO and president of the Gap Brand.
“Being part of the cultural conversation, leading this conversation being relevant is what it’s all about,” Breitbard said in an interview with Bloomberg.

Real disposable income was up 1 percent year over year, as wages and salaries grew by 3.9 percent, the weakest rise since June 2021.

Wall Street has noticed GAP’s recent success, sending the shares up more than 28 percent on Friday and more than 250 percent over the trailing 12 months.
From the Research Desk, we learn that analysts are still wary: Six rate GAP a “buy,” 10 rate it a “hold,” and four rate the stock a “sell.”
And there’s literally no upside from here; in fact, the consensus 12-month price target suggests a 6 percent decline.
Jefferies did reiterate its “hold” rating after Friday’s news, and the firm did up its 12-month target from $17 to $28. Of course, GAP closed at $28.96.
Randall Konik did note that the retailer appears to be in the early innings of its turnaround, though he’s taking a wait-and-see approach.
CFRA Research maintained its “sell” rating, but it too raised its 12-month target, from $15 to $20. CFRA warned that GAP’s operating margin and top-line growth still trail its peers’.
Mish Schneider will probably have an update on the health of the US consumer and risk levels for the SPDR S&P Retail ETF $XRT in her Weekly Market Outlook.
The US consumer informs a lot of what’s happening with Mish’s “Economic Modern Family,” and there’s accumulating evidence they’re increasingly prioritizing staples.
That’s because wage and salary and savings growth have slowed, with inflation still pressing on them, and disposable income growth has stalled too.
GAP is an interesting case to track. The stock will suffer in any meaningful market pullback and/or economic slowdown.
But Dickson’s successful on-the-ground strategy could pay off beyond whatever will prove to be a short-term macro situation.