Trump’s Ultimatum, Manufacturing Cranks Up, Palantir Pops
Last Train to Clarksville
Take the last train to Clarksville
And I’ll meet you at the station
You can be here by 4:30
‘Cause I’ve made your reservation
Don’t be slow
Oh, no, no, no
Oh, no, no, no
– Hart, Boyce (The Monkees), 1966
Last Chance?
We really, really, really mean it this time. We think. U.S. Pres. Donald Trump did sound serious on Monday. From the Oval Office, the president told reporters, “I want to give them every last chance before decapitation. You’ll find out today or tomorrow. I mean, they’re going to go quickly, one way or the other. It’s not very complex.”
One thing has become very clear concerning Pres. Trump and the prosecution of this war in Iran over the past few months. He really does not want to destroy Iran or harm innocent people. That said, he also insists that the Iranian government cease its nuclear weapons development program and the Iranian military stop harassing civilian cargo vessels attempting to pass through the Strait of Hormuz. On that note, even as the U.S. president yet again offered Iran an olive branch without destroying that nation, the U.K. Maritime Trade Operations center reported late Monday that a ship northeast of Al Khasab, Oman had been struck by a projectile.
Earlier Monday, Iranian foreign ministry spokesperson Esmail Baghaei told a press conference that there were no immediate plans to negotiate anything with the U.S. and that Iran was only diplomatically engaged with Oman at present. This was nearly simultaneous with Pres. Donald Trump’s insistence that such negotiations were “going on right now” at the request of Iran as well as several of Iran’s regional neighbors. Pres. Trump added, “This is a last chance for them to sign a good document.”
Marketplace
Financial markets appeared to celebrate the idea on Monday that peace still had a chance. The price of oil declined. There were bids for U.S. Treasury debt securities. Equities were hot. Overnight into Tuesday morning, crude oil futures are trading higher in response to the above-mentioned Iranian belligerence even as they are offered a way out. Treasuries appear to be waffling as well.
Equity index futures, however, at zero dark-thirty, are still trading in the green, building on Monday’s gains. One has to wonder. Can these overnight gains hold into the opening bells in New York? Do these pajama/foreign/algorithmic traders not see that Iran is denying a peaceful settlement?
Perhaps, equity traders are simply looking forward to an end to this conflict one way or the other. How horrific. Maybe they now prefer an end rather than the continuance of the current situation, as that current condition has seriously slowed global commerce. This has put an artificial upward pressure on producer and consumer prices globally.
U.S. Manufacturing Sector Continues to Surge
On Monday, the Institute for Supply Management released the results for its July purchasing managers’ survey. The headline print landed at 55.6 (50 is the line between expansion and contraction), This was good for a seventh consecutive month of expansion and the pace of that expansion appears to be accelerating.
New Orders (the most important subcomponent) printed at 56.7. Also a seventh-straight month of growth. Also accelerating. Production hit the tape at 58.5. Nine straight winning months. Accelerating. Even manufacturing-based employment, which had been lagging, flipped into a state of expansion. Backlogs grew faster as well.
Manufacturing prices did not contract. Not even close at a 71.1 print. That said, 71.1 was in fact, a deceleration within a streak that is now 22 months long. The Institute for Supply Management includes quotes from respondents to the survey. I thought that these two really stood out and said something about the current state of the U.S. manufacturing sector….
“We continue to operate in a favorable demand environment driven by growth in the semiconductor, AI, advanced packaging, and high-performance computing markets. Recent company reports indicate strong sales growth and continued investment in manufacturing capacity, technology and customer-support capabilities. This scenario supports a positive business outlook and creates opportunities to leverage increased purchasing scale across the enterprise.”
“Aerospace and defense demand continues to be strong and growing, based on business backlogs. Competing for scare supply — electronics, certain critical minerals and other categories — is challenging on-time fulfillment for our supply chains. This is expected to get worse with co-dependent sectors also remaining strong and restocking challenges for automotive electronics.”
So, the surge in U.S. manufacturing activity is tied to both the AI trade and the defense contractors? To some degree, I’d have to say this is true.
Manic Monday
They came for stocks on Monday. They sure did. The Sarge-folio had a nice day. Even my recently struggling “$10K Portfolio” had a nice day. That said, is it sustainable? I think a lot has to do with headline risk relative to the situation in and around Iran. No, I do not think a continuation of the war at an increased level of aggression will be good for markets in the short-term. I do not think that traders just want to see an end to the hostilities, though there would be at least some positivity around a peaceful conclusion to what is happening in that region.
On Monday, the S&P 500 gained a nice 1.48%, approaching its all-time high tick. Meanwhile the Nasdaq Composite popped for 2.13%. Small caps performed in line with these broader indexes. The Russell 2000 added 1.73% while the S&P 600 added 1.67%. The Philadelphia Semiconductor Index and KBW Banks actually underperformed at +1.05% and +0.99% respectively.
Interestingly, the Roundhill Magnificent Seven ETF ($MAGS) gained 3.67% on the day. Within that group, Meta Platforms ($META), Alphabet ($GOOGL), Amazon ($AMZN) and Microsoft ($MSFT) all added more than 4% for the regular session.
Palantir Blasts Off
Palantir Technologies ($PLTR) reported last night and simply ripped the cover off of the ball. The shares are up 17% overnight. Glad we got the Sarge-folio back into this name. Not happy we got the $10K Portfolio out but that portfolio is now benefiting from the cash created and then re-deployed.
Breadth
Eight of the 11 S&P sector SPDR ETFs closed out the Monday session in the green. Communication services ($XLC) were out in front, followed by the industrials ($XLI) and the discretionaries ($XLY). Though energy ($XLE) placed last on Monday, growth and cyclical sectors clearly outperformed defensive type sectors for the day. That would be a positive, both for the market and for the economy.
Winners beat losers on Monday, by a rough nine-to-four margin at the NYSE and by almost three-to-one at the Nasdaq. Advancing volume took a commanding 80% share of composite Nasdaq-listed trade and a still very strong 70.7% share of composite NYSE-listed activity. There was a catch. Aggregate trading volume contracted on a day over day basis across NYSE-listings, across Nasdaq-listings and across the membership of the S&P 500. That does make the bullish price action experienced on Monday somewhat less meaningful from a technical perspective.
The Charts?
Possible “double top” pattern of bearish reversal?
Or is this an index trying to break out (to the upside) from an “ascending triangle” pattern of bullish continuance? We’ll know soon enough.
With the S&P 500 taking back its 21-day exponential moving average and 50-day simple moving average on Monday, it would be difficult for professional managers to flip sides so quickly even if the swing crowd can. We also have a reading for the Relative Strength Index and a daily moving average convergence divergence that are suddenly more supportive of a bullish environment. The charts, in my opinion, say that peace has a chance.
Economics (All Times Eastern)
08:30 – Balance of Trade (June): Last $-77.6B.
08:55 – Redbook (Weekly): Last 8.3% y/y.
10:00 – Factory Orders (June):
Expecting 0.3% m/m
, Last -1.3% m/m.
10:00 – JOLTs Job Openings (June): Last 7.594M.
10:00 – JOLTs Job Quits (June): Last 3.065M.
4:30 p.m. – API Oil Inventories (Weekly): Last +3.296M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: CAT (6.20), GWW (11.30), KMB (2.01), LDOS (2.91), SPOT (2.75), W (.93)
After the Close: AMD (1.61), AMGN (5.62), SPCX (-.23)
At the time of publication, Guilfoyle was long AMD, AMZN, MSFT, PLTR equity.
