July 12, 2019
Lifted by a dovish Fed, the S&P 500 broke above the 3,000 level for the first time in its history. Positive comments from Fed Chairman Jerome Powell before the House Financial Services Committee encouraged bulls to rally to a new all-time high on the notion that a rate cut was fait accompli. Rates remained the major driver for markets again this week given that U.S. economic news remained light in advance of earnings season with reports on consumer and producer prices being the primary U.S. data releases. Overseas, China reported its latest trade figures which continued to show weak global demand. For the week, S&P 500 bulls lifted the index 0.78% to a record high of 3,013.77.
Inflation Remains Modest
Inflationary pressures remained modest in June, up 0.10% for the month. A -3.60% drop in gasoline prices served to hold down the headline CPI figure overall. On a year-over-year (yoy) basis, consumer prices were up just 1.60%, which is down slightly from the 1.80% increase observed in May. Core consumer prices, which exclude volatile food and energy, rose 0.30% in June, bringing the core’s yoy gain to 2.10%. Producer prices showed a similar pattern to consumer prices. Producer prices rose 0.10% in June, matching their May increase. Year-over-year, producer prices rose 1.70% for their smallest gain since January 2017. June’s figures cooled from the 1.80% increase registered in May. Core producer prices, which exclude volatile food, energy, and trade services components, were unchanged in June. Year-over-year, producer prices rose 2.10% after advancing 2.30% in May. While the U.S. economy is generally doing fine, the weak inflation reading (hovering just above or below the 2.00% target) may be one of the reasons the Fed may feel compelled to be proactive in cutting rates sooner rather than later to help boost demand and get inflation consistently above the 2.00% mark.
China Trade Dips
Investors managed to find a silver lining in the latest China trade report. The report showed that global demand remains soft, playing into the bull’s narrative that bad data will spur the Fed to cut more aggressively. Sluggish global demand and higher tariffs on Chinese goods pushed exports down -1.30% yoy in June. Meanwhile, China’s domestic demand didn’t perform much better as imports fell -7.30% yoy. As for the closely watched China trade surplus with the U.S., it rose to $29.92 billion in June, up from $26.89 billion in May, suggesting that tariffs are not having much impact on net U.S. demand for Chinese goods.
Bulls rejoiced once again this week over the prospects of even cheaper money. In his testimony before Congress, Powell justified the Fed’s thinking based on the concern that the weakness being experienced in China and Europe could ultimately spill over to the U.S. so long as trade disputes drag on. The central bank has all but locked themselves into a preemptive rate cut despite last week’s strong jobs reports and recent strong consumer spending suggest that such a move is probably not justified quite yet. That said, Q2’s earning season will kick off next week, where earnings are expected to decline -2.00 to -3.00% on a year over year basis. Knowing the Fed is standing ready with a cut, might just help reduce some of that sting.
The Week Ahead
It’s a big week for consumer stocks as retail sales results are released. We’ll also get an early look at July consumer spending trends as Amazon kicks off its annual Prime Day extravaganza. Next week also marks the start of the Q2 earnings season with reports from Goldman Sachs and Kansas City Southern.
Ice Cream, You Scream, We All Scream for Ice Cream
Ice cream aficionados have a lot to celebrate now that it’s officially National Ice Cream Month. In 1984, President Ronald Reagan proclaimed July — the peak of summer and warm weather — as National Ice Cream Month, and he also designated the third Sunday of the month as National Ice Cream Day. In the proclamation, President Reagan called for all people of the United States to observe these events with “appropriate ceremonies and activities.” Now we have an opportunity and an excuse to cool off with a sweet treat. If you feel any guilt about your indulgence, just know that you will be doing your part to give a boost to the economy.
The International Dairy Foods Association (IDFA) estimates that the ice cream industry has an $11 billion direct economic impact on the U.S. economy and supports more than 26,000 dairy industry jobs that generate $1.6 billion in direct wages. Research firm Statista reported that private label brands (small to medium sized and independently owned) in 2017 held 26.2% of the market based on sales. Breyers came in second with 12.03% market share, followed by Ben & Jerry’s (11.39%), Haagen-Dazs (11.01%), and Blue Bell (10.16%) to round out the top five ice cream brands in America.
The U.S. consumer definitely does their part to support the industry. The average U.S. ice cream lover enjoys around 48 pints of ice cream per year. That’s the world’s highest per capita consumption, according to the IDFA. A software firm named Workwise was curious to find out if ice cream preferences might differ based on geography. Using Google search volume and data from ice cream shops around the country, Workwise set out to determine the most popular ice cream flavors by state.
The most popular flavor by a landslide is Cookies and Cream. It was the most popular ice cream in Texas as well as 13 other states: Delaware, Georgia, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, New Mexico, Oklahoma, Rhode Island, South Dakota, and West Virginia. The data shows very spread out choices for the rest of the country. Second place goes to Vanilla which was the most popular in just five states: Kansas, Maine, Montana, New Hampshire, and North Dakota. Three flavors tied for third with each scooping up the top popularity spot in four states apiece: Chocolate (Alaska, Idaho, Wisconsin, and Wyoming), Strawberry (Arkansas, Hawaii, South Carolina, and Tennessee) and Peppermint (Indiana, Iowa, Nebraska, and North Carolina). We don’t know what happened to Neapolitan. And poor Pistachio sadly didn’t make the list either.
Oregon, Washington, and Utah have all the feels for Coconut Milk ice cream. Arizonians love Mango. Butter Pecan is the top pick in Alabama, and it’s no wonder Californians love Tutti Frutti. The Rocky Mountain State of Colorado yearns for Rocky Road, while our nation’s capitol craves Stracciatella. You can view the survey results here.
This summer, National Ice Cream Day falls on Sunday, July 21. Retailers and ice cream vendors will be offering plenty of deals and freebies. Petsmart will be offering free dog-friendly ice cream treats to ensure our canine companions aren’t left out in the cold. There are a surprising number of other holidays this month dedicated to food that we can celebrate and enjoy if ice cream isn’t your thing, such as National French Fry Day on July 13, National Mac and Cheese Day on July 14, National Hot Dog Day on July 17, National Cheesecake Day on July 30, and National Avocado Day on July 31.