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Good Morning!

Remember "Sell in May and go away"? Well, that didn't work this year. The S&P 500 has surged nearly 10% since then and is about to close July with a fifth month of gains. Do you think the market will keep going up?

🚚 One of America’s biggest and oldest trucking companies is going under. Yellow–founded in 1924–officially shut down its regular operations on Sunday and is expected to file for bankruptcy today. It is (was?) the third-largest US carrier by less-than-truckload revenue. Battling mismanagement, the company has struggled to achieve profitability in recent years. It’s also been hampered by huge debt loads from previous mergers. In the end, a standoff with the Teamsters Union proved to be the straw that broke the camel’s back.

😎 The US consumer appears to be in tip-top shape. Friday’s BEA data revealed real personal income–which has been rising since December–reached a record high in June. It also highlighted consumer resilience as spending accelerated more than expected. At its highest reading since October 2021, the University of Michigan’s consumer sentiment survey confirms a more optimistic outlook. For more evidence, we turn to last week’s Consumer Confidence report from The Conference Board which similarly rose to its highest since July 2021.

📉 In terms of price pressures, Friday ushered in more good news. The PCE Price Index rose 0.3% in June to 3% YoY, the smallest annual increase in 2+ years. Core PCE–the Fed’s preferred gauge–rose by less than expected for the month (+0.2% vs +0.3% est) to the slowest annual pace (4.1%) since September 2021. The Employment Cost Index (ECI), meanwhile, cooled to 1% from 1.2% in Q1. As with PCE, the ECI’s advance was the smallest since 2021. Wage growth, however, remains a thorn in the side of the Fed: private and government worker wages have increased for 4 consecutive months.

• Monday: Chicago PMI, Dallas Fed Manufacturing Index, SLOOS

• Tuesday: LMI Logistics Managers Index, S&P Global Manufacturing PMI, JOLTs, ISM Manufacturing PMI, construction spending, Dallas Fed Services Index, API crude oil stock change

• Wednesday: ADP employment change, EIA stocks change

• Thursday: Challenger job cuts, initial jobless claims, S&P Global Services PMI, ISM Services PMI, factory orders

• Friday: Non-farm payrolls, unemployment rate, average hourly earnings

💵 The US dollar has been declining steadily since its peak in September. For companies generating the bulk of their revenues in the US, that’s a welcome trend. In fact, companies with more than half of their sales in the US have seen earnings and revenue grow by 0.4% and 2.2% in Q2, respectively. On the other hand, companies generating more than 50% of sales outside the US have watched profits and sales drop by 20.8% and 5.8%, respectively. According to Bloomberg Intelligence, nearly half of the S&P 500’s earnings have a negative correlation with USD. The sectors benefiting the most from a weak dollar? Tech, Communication Services, Staples, and Materials.

📈 With stocks hovering at 52-week highs, how are investors positioned? Strong economic data surprises have led to a rise in exposure. Consolidated positioning remains in overweight territory (72nd percentile) with both discretionary (71st) and systematic (76th) investors at above-average levels. CTA positioning in equities has also risen sharply and is now at its highest since February 2020. In terms of sectors, investors are most overweight Staples, Communication Services, and Tech, and most underweight Materials, Healthcare, and Utilities.

🍃 Green hydrogen is poised for a helluva decade. Annual hydrogen power production is expected to grow from less than 0.5 million tonnes in 2023 to over 3 million tonnes by 2030. With upcoming rules set to determine the eligibility of billions of dollars in subsidies for projects in the space, two sets of lobbying camps have emerged in Washington. In one camp, energy companies advocating for rules allowing hydrogen to be produced with electricity generated from fossil fuels. In the other, those which argue for strict rules limiting production to electricity powered entirely by clean energy.

📊 Q2 earnings season update. With 51% of S&P 500 companies reported, the blended earnings decline is 7.3% while blended earnings growth is 0.1%. These would mark the lowest growth rates since Q2 2020 and Q3 2020, respectively. Leading the declines (for both profits and sales) are the Energy and Materials sectors. In terms of expectations, 80% have beaten earnings estimates while 64% have reported a positive revenue surprise. Meanwhile, investors are punishing positive earnings surprises, greeting beats with an average price decline of 0.2%. Negative surprises, on the other hand, are seeing smaller-than-average decreases.

👀 What we’re watching today:

• $RSG Republic Services

• $ANET Artisa Networks

• $ON ON Semiconductor

• $WELL Welltower

• $FANG Diamondback Energy

• $AVB AvalonBay Communities

• $MPRW Monolithic Power Systems

• $ES Eversource Energy

• $YUMC Yum China

• $SBAC SBA Communications

• $HOLX Hologic

• $BMRN BioMarin Pharmaceutical

• $AER Aercap Holdings

• $L Loews

• $WDC Western Digital

• $LSCC Lattice Semiconductor

• $TFII TFI International

• $CNA CNA Financial

• $ZI Zoominfo

• $RRX Regal Rexnord

• Weak China: Manufacturing activity in China declined for the 4th straight month while services also fell.

• China boosts: China’s measures to spark economic growth stop short of direct fiscal support.

• European optimism: Eurozone GDP grew more than expected in Q2 and headline inflation slowed.

• AI effect: Companies that are more active in AI-related hiring tend to score higher in overall effectiveness rankings.

• AI talk: Mentions of AI have more than doubled in June earnings calls compared to last quarter.

• Like 2019: Uber-bear Mike Wilson thinks stocks are in a “policy-driven, late-cycle rally”.

• Help wanted: The US construction industry is facing an extreme labor shortage of ~650k workers, the highest on record.

• Halt request: The SEC allegedly asked Coinbase to delist all cryptos except Bitcoin before taking legal action against it.

• EV SPAC: VinFast is working towards a US public listing via a $23 billion SPAC merger.

• Sports PE: A new private sports-focused private equity firm has made its first deal, investing ~$30 million in PMY Group.

• Betting closure: Flutter and Fox are set to close their US sports betting platform FOX Bet.

• Indian e-commerce: Walmart increased its stake in India’s Flipkart by $1.4 billion.

• Rare-disease deal: Biogen will acquire Reata Pharmaceuticals for $7.3 billion, including debt.

• _{https://insight.factset.com/sp-500-earnings-season-update-july-28-2023}

• _{https://www.bloomberg.com/news/articles/2023-07-29/s-p-500-profits-get-a-lift-from-the-crack-in-king-dollar-s-reign?srnd=markets-vp}

• _{https://twitter.com/dailychartbook/status/1685956659615535106?s=20}

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