Wentz Weekly: Calmer Market Sends Stocks Higher

Wentz Weekly Insights
Calmer Market Sends Stocks Higher

Recent Economic Data

• Senior Loan Officer Survey: The Senior Loan Officer opinion survey on bank lending practices, which is a survey conducted by the Fed to lenders to gauge credit standards and lending conditions, stated over the past three months banks had tighter lending standards for all business sizes and for all loans types, as was to be expected, but did so more moderately than the prior quarter (Q4 2023). Banks noted the reasoning as more uncertain economic outlook, less tolerance for risk, and industry specific issues. In addition, it saw weaker demand for all loan types including commercial real estate, residential real estate, and auto and credit card loans.

• Jobless Claims: The number of unemployment claims the week ended May 4 was 231,000, an increase of 22k from the prior week for the highest since August. The four-week average was up 5k to 215,000. The number of continuing claims was 1.785 million, an increase of 17k from the prior week, with the four-week average down slightly to 1.781 million.

• Mortgage Rates: According to the Freddie Mac weekly mortgage survey, the prime 30-year mortgage rate fell 13 basis points last week to 7.09%. It is still higher than a year ago when it stood at 6.35%.

• Consumer Sentiment: Consumer Sentiment, according to the University of Michigan’s survey, fell about 13% this month with the index at 67.4, significantly below the expectations of 76. The current conditions index fell over 10 points to 68.8 as consumers expressed more worries about inflation, unemployment, and interest rates. The expectations index fell 9.5 points to 66.5. All the readings were the lowest since November and suggest a sharp deterioration in consumers’ confidence in the current economic environment. Finally, inflation expectations jumped in May. The year-ahead inflation expectation rose to 3.5%, up from 3.2% in April while the long-run inflation expectation ticked higher to 3.1%. These are also the highest since November.

Company News

• No More Exports to Huawei: Intel and Qualcomm shares moved lower last Wednesday after both confirmed they have lost their export licenses that allowed them to supply Chinese firm Huawei (one of its largest smartphone makers) with its processors. Intel lowered its Q2 forecast as a result.
• Tesla’s Autopilot Lawsuit: Tesla shares were lower after Reuters reported U.S. prosecutors are investigating the company for committing wire fraud or securities fraud regarding its claims about self driving capabilities as well as the use of autopilot. More specifically, prosecutors are looking into statements made by Musk that may have misled consumers, as well as investors, into believing Tesla’s vehicles were fully autonomous. Tesla has separately been investigated over hundreds of crashes that have happen while the Autopilot feature was engaged.
• TikTok’s Lawsuit: TikTok parent company ByteDance filed a formal lawsuit against the US government over the recently passed legislation that would force a sale of TikTok or else face a nationwide ban, saying the law is unconstitutional as it violates the Frist Amendment of free speech, and claiming that forcing a sales within the 270 day timeframe was not possible.
• Apple’s New Products & AI Chips: Apple’s event last week revealed the first new iPad models since October 2022 with a new iPad Air, iPad Pro and other accessories like its Magic Keyboard and Apple Pencil. Separately, Bloomberg reported Apple is working on building its own artificial intelligence data center chips that will help it deliver some of its AI features to consumers while simpler AI related features will be processed directly on the iPhone, iPads and Macs.
• No More Chevy Malibu: GM said it would discontinue the production of its Chevy Malibu, a vehicle that has been around for around 60 years. The company said it will do so to make room for more EV and hybrid production and will invest $390 million in its Kansas City plant to build the next gen Chevy Bolt EV.
• Microsoft’s In-house AI: The Information reported Microsoft is working on a brand new, in-house built artificial intelligence model that will compete directly with OpenAI (who it has invested billions in) Google, Anthropic, and others. It added Microsoft could reveal the AI at a meeting later this month.

Other News:

• Potential Ceasefire: Hamas had reportedly agreed to a ceasefire proposal proposed by Egypt and Qatar, but Israel rejected the proposal saying its forces would continue their operations as the ceasefire proposal was “far from” its demands, which comes a day after Israel PM said he would reject a ceasefire that would involve leaving Hamas intact. Oil had moved lower (for five consecutive days) as there was optimism of a ceasefire, but oil moved higher briefly after the report Israel rejected the proposal.

• Central Bank Updates:
  • Becoming the second developed central bank to cut rates (after the Swiss national Bank), Sweden cut rates as was expected and signaled it plans to do so two more times in the second half of this year. Its inflation rate has been closer to 2% than most of Europe and of course the US.
  • The Bank of England held its policy rate at 5.25% as expected and said the progress it has seen on bringing inflation down is “encouraging” but not enough to a point where it is ready to cut rates. Comments later suggested the central bank is on track to begin cutting rates at its next meeting. Two of its nine members voted to cut rates at this meeting.
• Fed talk:
  • Richmond Fed Barkin said the “whiplash” in the economic data recently is proving why the Fed needs to take a patient approach in easing policy. He repeated the Fed’s need to gain greater confidence that inflation is moving to 2%, and given the stronger and “remarkably resilient” labor market and recent disappointment in inflation, there is more time to gain that confidence.
  • Minneapolis Fed’s Kashkari didn’t rule out all options when it comes to policy, saying the Fed will “do what we need to do to get inflation back down” including holding rates where they currently are for an extended period to “tap the brakes on the economy” or even raise rates again, if needed. He also talked about the impact of higher rates saying the higher inflation and solid economic growth “has led me to question if monetary policy is having as much downward pressure on demand as I would have otherwise expected.” As a result he believes the neutral rate may be higher, raising his estimate by 50 bps to 2.50%.
  • Boston Fed’s Susan Collins said because of inflation still too high and the uncertain outlook, the Fed should continue to take a patient and deliberate approach to the possibility of cutting rates, adding the recent data has led her to believe it will take more time than she previously thought to bring inflation to target.

Did You Know…?

Kentucky Derby Wagering

WFG News

New Settlement Period Beginning May 28

T+1 settlement – Please be aware that beginning May 28, the SEC’s to rule to reduce the time between the trade data and settlement date of a security from two business days (T+2) to one business day (T+1) will go into effect. This means that clients will receive faster proceeds from the sale of a security, and also need to cover a purchase within one day of the trade. The last time the SEC reduced the settlement period was in 2017 when it shortened from T+3 to T+2, and the time before that was in 1993 when the SEC shortened the settlement period from T+5 to T+3.