June 17
On Sunday the local NBC affiliate warned drivers of EVs that their vehicles could catch fire if deep rain water reached the level of the batteries, seems logical.
Markets and Stocks
The market is in good shape. I think it pushes higher. I think the semiconductor sector is stretched, maybe a time to top slice.
I am focusing on banks and industrials, but of course, I still like big technology and the AI trade.
I follow Mike Santoli of CNBC and formerly of Barron’s. He is a smart, common sense kind of guy. At CNBC Pro he writes:
What to make of a record-setting market rally that elicits more mistrust than fear of missing out?
The S&P 500 has made an all-time high on nearly thirty days this year, four of them this past week. U.S equity wealth has never been greater, and the index path has even been pretty smooth: In eight of the last ten trading days, the S&P 500 has moved less than 0.3%.
Yet the all-consuming conversation among investors is about how the advance is untrustworthy, lacking in broad participation and unreflective of an idealized soft-landing economic scenario.
To note that everyone is decrying the rally’s lack of breadth is not to deny or dismiss the point. The yawning divergence in performance between a tight cluster of enormous tech companies anointed as artificial intelligence flagships and the few-thousand other stocks left behind is inescapable. And it is, in fact, the source of those tiny daily moves — violently offsetting currents suppressing index movement.
The S&P 500, with 20% of its market value contained in three stocks (Microsoft, Apple and Nvidia), is up nearly 14% this year and essentially at a record, with the index’s equal-weighted version up just 3.4% and sitting 4% under its late-March peak.
The main S&P is up more than 3% in the second quarter while its median stock is off 5% quarter to date.
The broader Russell 1000, the entire large-cap cohort, is essentially flat year to date on an equal-weighted basis.
This combination of persistent gains in the headline S&P 500 and more churn underneath has created an odd combination of an overbought benchmark with most member stocks stalled or correcting.
The index appears a bit stretched to the upside based on how far it is above its 50-day moving average and other measures.
Meanwhile, fewer than half its components are even above their individual 50-day averages.
Treasury yields have retreated dramatically, the 10-year falling from above 4.6% on May 29 to 4.22%, alongside a series of cooler inflation readings and somewhat softer economic numbers.
(The move in Treasuries is very positive for equities.)
In recent times, yields down has meant stronger breadth, with financial, cyclical and small-cap stocks getting some relief. That’s not the case thus far in June, as the market implicitly exhibits greater sensitivity to hints of an economy decelerating more than desired by the Federal Reserve or investors.
(The market is worried about an abrupt slowdown in growth. I believe that the economy is slowing but will continue to grow because of real earning growth and stable to falling energy prices.)
The Citi U.S. Economic Surprise Index illustrates the waning momentum of domestic macro inputs relative to forecasts. Hardly an alarming descent, but one that has investors’ attention.
As such, the Fed is betting the cost of waiting remains low, but the market is starting to grow antsy — though not panicky — at the thought that the Fed’s patience might outlast the economy’s resilience. The ideal but far-from-guaranteed scenario is for the Fed to find a window to begin “optional” easing moves at a measured pace, rather than emergency rate cuts in haste.
(I believe that the May PCE inflation reading out at the end of the month, will be low, around 0.1%, for core.)
Helpfully, the widespread consternation over the poor market breadth has drained enthusiasm from the crowd, the unease over the uneven rhythms of the tape preserving a helpful wall of worry.
Wall Street strategists as a group project no upside for the S&P 500 in the second half, their average and median targets both below Friday’s closing level. The weekly American Association of Individual Investors survey shows the spread between bulls and bears narrowing lately even with the S&P grinding higher.
(When market fundamentals are positive which they are, significant negative sentiment is positive for equities, there are potential new buyers.)
Not to suggest “everyone is bearish” in a way that makes a contrarian upside play obvious, or that the undertone of caution inoculates the market from difficulty as summer progresses. The second half of June has been among the tougher stretches of the calendar in recent years.
The upside-leading semiconductor stocks are stupendously overbought and flows into the sector ETFs look overheated. The manic, frothy action around the AI and stock-split names has been localized but considerable.
(The above comment immediately above is important. I would top slice semiconductors.)
As I’ve suggested here before, the 5-6% April pullback in the S&P 500 seemed necessary but perhaps stopped short of a cleansing flush that would’ve perhaps generated a more energetic and inclusive new up leg. The messy churn below the surface of the index since then could just be the market’s way of refreshing itself over time.
Still, with second-quarter S&P 500 earnings growth now projected at a 9% annual rate; with the majority of stocks still holding in a longer-term uptrend; with Treasury yields back in the comfort zone; and with the average stock and investor attitudes well off the boil, it’s tough to shift the benefit of the doubt over to the bears just yet.
My words: momentum remains positive. I believe the market goes higher
For a change there is good news for Disney.
The New York Times says: Pixar is finally back in fighting form.
The Disney-owned animation studio’s 28th movie, “Inside Out 2,” arrived to roughly $145 million in estimated North American ticket sales from Thursday night to Sunday, ending a cold streak that began in March 2020, when theaters closed because of the coronavirus pandemic.
It was the second-biggest opening weekend in Pixar’s 29-year history, trailing only the superhero sequel “Incredibles 2,” which arrived to about $180 million in 2018.
“They’re back,” David A. Gross, a film consultant who publishes a newsletter on box office numbers, said of Pixar. “This is a sensational opening.”
Based on prerelease surveys that track audience interest, box office analysts had expected “Inside Out 2” to take in about $90 million in the United States and Canada over the weekend. That total would have been strong — on par with opening-weekend ticket sales for the first “Inside Out” in 2015.
https://www.nytimes.com/2024/06/16/business/inside-out-2-pixar-box-office.html
Christopher Mims, of the Wall Street Journal is an important voice of caution on the AI frenzy. I disagree but his views should be respected. He writes:
The tech industry has a new strategy for getting us to upgrade our aging devices: artificial intelligence.
Much of the industry’s revenue depends on us buying the newest thing as often as possible. But for years, the gap between cutting-edge devices and older versions has shrunk, prompting both consumers and businesses to hold on to them longer than ever. The average replacement time for phones has grown to three years, laptops to four, and desktops to more than six.
The industry has a plan to reverse this trend: Persuade you to upgrade in the near future, or be left behind as it adds AI to every aspect of your work and life.
And that’s just the beginning. Whether we upgrade or not, almost every name-brand tech company is betting that many of us will pile on new subscriptions for cloud-based AI services. That recurring revenue can be significant. For example, adding AI to Microsoft’s Office 365, in the form of the company’s Copilot offering, raises the cost by $30 a month per employee. That’s a 50% jump from even its most feature-rich version of the product.
This is the inevitable outcome of all of the hype and investment being poured into AI. After all, those new data centers and microchips aren’t going to pay for themselves.
It isn’t yet clear whether this excitement and investment is going to pay off anytime soon, according to experts who focus on the real-world impacts and adoption rates of these technologies. There are plenty of reasons to be skeptical. For example, consumers’ budgets are stretched after years of inflation and increased spending on services for streaming video, music, home delivery, and more.
https://www.wsj.com/tech/ai/the-big-ai-question-are-you-ready-to-pay-for-it-534d95e9
I agree with Arnold Kling of “In My Tribe,”
I personally have not bought into the AGI target. I think of the LLM as an important advance in the human-computer interface. But that’s it.
Leopold Aschenbrenner sees AGI coming soon. Zvi Mowshowitz examines LA’s assumptions.
One of first automated jobs will be AI research. Then things get very fast. Decades of work in a year. One to a few years for much smarter than human things.
AI’s doing AI research indeed seems like a path to a major take-off of artificial intelligence. I do not know enough to have an informed opinion on the likelihood of this, but if I had to guess, I would doubt that we will see large language models doing important AI research.
AI will be very important but Artificial General Intelligence, ie human intelligence on a semiconductor platform, is not feasible.
Politics
The New York Times is worried that Trump will win. Reporters for the paper write:
Opponents of Donald J. Trump are drafting potential lawsuits in case he is elected in November and carries out mass deportations, as he has vowed. One group has hired a new auditor to withstand any attempt by a second Trump administration to unleash the Internal Revenue Service against them. Democratic-run state governments are even stockpiling abortion medication.
A sprawling network of Democratic officials, progressive activists, watchdog groups and ex-Republicans has been taking extraordinary steps to prepare for a potential second Trump presidency, drawn together by the fear that Mr. Trump’s return to power would pose a grave threat not just to their agenda but to American democracy itself.
“Trump has made clear that he’ll disregard the law and test the limits of our system,” said Joanna Lydgate, the chief executive of States United Democracy Center, a nonpartisan democracy watchdog organization that works with state officials in both parties. “What we’re staring down is extremely dark.”
While the Supreme Court on Thursday rejected an attempt to nullify federal approval of the abortion pill mifepristone, liberals fear a new Trump administration could rescind the approval or use a 19th-century morality law to criminalize sending it across state lines.
https://www.nytimes.com/2024/06/16/us/politics/trump-2025-democratic-resistance.html
My words: what goes around comes around. Progressives and right wing populists have weaponized politics. But U.S. institutions are strong and the vast majority of Americans are moderate. In a few years, the quiet majority will say “enough.”
Sociology
When local government is anti law enforcement the police “drive and wave at crime.” The government in Washington DC tolerates overt law breaking.
See the article Thomas Rogan wrote about law enforcement in the DC region.
And see a research paper from the University of Chicago.