The Week Ahead: A Market in Search of Guidance

Join Tematica Research's Chief Macro Strategist, Lenore Hawkins, and Chief Investment Officer, Chris Versace, as they discuss and debate what's driving the market and the economy this week.

Markets last week

For all the talk of a booming equity market and bust in the bond market ...

Net inflows into US bond funds outpacing those for comparable equity in 2021. 

Bond mutual funds and ETF added $372b as of June 23 v $160b for equities according to ICI

Bond funds are on track to eclipse the $446b of inflows in 2020

Lagging advance/decline lines for Nasdaq

Short-and medium-term oscillators have risen well into overbought territory.

Russell 2000 has been in a sideways trading range/consolidation since March, h. 

Short-term indicators remain under downside pressure while medium-term measures wavering around neutral.

Key Economic Data and Related Events Last Week

Last week’s ISM non-manufacturing and Markit Services PMIs both declined sequentially and came in weaker-than-expected. Both the US and global indices indicated a peaking out of the year-over-year base effects, just as we have been suggesting would happen. This fits with the corresponding rally we have been witnessing in Treasuries, which is consistent with expectations for the economy starting to roll over.

Last week the Federal Reserve released the minutes from their June meeting that rather rocked the markets. The minutes indicate that officials are pleased with the economic recovery and focused on the strong investment and increases in productivity but were dissatisfied with the progress in the labor market. When it comes to inflation half think the high current prices will end up being deflationary and half think they will be self-reinforcing high inflation. Several participants want to reduce mortgage-backed security purchases faster than Treasury bond purchases. Bottom line - this stuff is complicated and even the experts with all the data available right at their fingertips don’t agree and the market didn’t react noticeably once these minutes were released.

Possibly one of the biggest pieces of news last week came from Wells Fargo (WFC) which announced it is closing all credit lines and will no longer be offering them.

Economic Data to Watch THIS WEEK

  • July 13: Inflation, Monthly Federal Budget statement
  • July 14: Producer Price Index; Fed Beige Book
  • July 14-15: Fed Chair Jerome H. Powell - Semiannual Monetary Policy Report to the US House Committee on Financial Services 
  • July 15: Weekly jobless claims, NY Empire State Manufacturing Index, Philly Fed Manufacturing Index, Industrial Production, Import & Export Prices
  • July 16: Retail Sales, Michigan Consumer Sentiment, Business Inventories, Net Capital Flows, Foreign Bond Investment
  • JULY 31 - Debt ceiling suspension expires
    • Last time we had an impasse on such the S&P 500 fell 6% in a month (July 2011) and didn’t get a solid breakout until December

Earnings of note THIS WEEK

Tuesday, July 13:

  • Conagra (CAG) - tough YoY comps, how much is attributed to the reopening
  • PepsiCo (PEP): away from home consumption of its beverages

Wednesday, July 14: 

  • Delta Air Lines (DAL): outlook for 2H vs. 1H schedules, fares, butts in seats; international travel

Thursday, July 15:  

  • Taiwan Semiconductor (TSM): comments will be closely 
  • Alcoa (AA)

Friday, July 16: 

  • Ericsson (ERIC): 5G
  • Kansas City Southern (KSU): June rail traffic was up 19% YoY - let’s see if KSU can translate that volume growth into operating leverage; also how it sees the Biden White House’s ramped up regulatory scrutiny of the rail industry playing out

Resources: Tematica Research | Chris Versace | Lenore Hawkins



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Lenore Hawkins, Chris Versace

Chris Versace  00:03

This is the week ahead brought to you by Advisorpedia and Power by to Tematica Research. . .

I'm Chris Versace Chief Investment Officer and joining me as she does every week to dispel what's going on put context and perspective into place is Tematica's chief macro strategist Lenore Hawkins Hello, Lenore.

Lenore Hawkins  00:23

Good morning.

Chris Versace  00:25

Good morning. Now, I usually try to do a little chit chat with you and you blow right past me, because you're so anxious to get to the data. I guess I'm just gonna, I'm just gonna pass the baton over to you.

Lenore Hawkins  00:36

It happens. Yeah, and there's been a lot of coffee. So I'm going to apologize to everyone in advance that I'm pretty excited

Chris Versace  00:42

like going on, just just all I suggest is instead of trying to get all the data in, let's just take our time really, and really do a good job for the listener.

Lenore Hawkins  00:52

Alright, so this week, kind of interesting. We've been seeing no other talks been market new record high new record high. Now they're their new record highs, because they're not like a huge jump up. But at the same time, we've seen a lagging advanced decline. And that means that fewer new highs for the majority of companies, we're seeing fewer and fewer making these new highs and increasing new lows and weaker volume. In addition, this has been taking place as short and medium term oscillators within the NASDAQ have risen well into overbought territory. So it was kind of expected that this is eventually we're gonna have to have a little bit of a mini day of reckoning not to talk ..

Chris Versace  01:35

We were talking about this, on the last episode where we were saying that like pretty much all the good news is priced in what's the catalysts, that is the market, you know, substantially higher, particularly the back half of the year as we set up for earnings. And we knew the Delta variant was kind of starting to weave in and it became Ben vines right here this week.

Lenore Hawkins  01:55

So the NASDAQ kind of it finally succumbed. And what we've been seeing too, which I always find very interesting is, while the s&p has been making new highs, the s&p and the s&p 500 was in positive territory on that week, the s&p 500 equal weight not so much. That's a different story. And what that tells you is that those high fliers, those big names, those massive companies, were talking Fang Hello, those guys that the Fang, the extended Fang, those guys are continuing, they're back on the leading the market, and much of the rest of the market is is is struggling a little bit, I'd say there's a bit of a crash coming or anything like that. It's just like you said, What's the good news. And that's particularly evident with the Russell 2000. That's been really in a sideways trading pattern kind of consolidating since March. And a lot of that is waiting to see what's going to go on with the recovery with opening up the economy. The index currently is sliding towards the lower boundary of that trading range. And the short term indicators are kind of under downside pressure, but medium term kind of Bobs around the neutral zone. So again, we're not saying that there's like some crash coming up. It's just this is and it's summer, too, right.

Chris Versace  03:10

This is what kind of happens. Well, it's summer right before earnings season. But, you know, late last week, we saw that Thursday sell off, I think, in the NASDAQ daily markets to me, right, you termed it as a risk off event, which it clearly was. But then on Friday, we saw the market kind of come back so that the week was pretty much, you know, little change. But yeah, so just from your perspective, why the whipsaw in the market,

Lenore Hawkins  03:37

It's a market in search of guidance. So part it's summer and part. what's coming up next, and we've got a few we've got a few events on the horizon that have the potential to get the market's attention. For example, July 31st, is the expiration of the debt ceiling extension. And haven't made a whole lot of progress yet on that discussions. The last time we had this was in July of 2011. And that time, the s&p crashed about 6% in one month, and then didn't really start making any material advances until December of that year. So I think right now, there's just a lot of unknowns. There's no real reason to get super super pessimistic, things are a bit overbought. So we're going to see some pullback on that and there's just not where's the great news gonna be coming from to say, oh, let's go higher. What I also found particularly interesting is with all the talk of a booming equity market this year, and that the bond market Oh, you know, bonds are dead the the bull market in bonds is over. Investors are not buying that because net inflows into us bond funds are far outpacing those for the comparable equities, Bond mutual funds and ETFs added about 372 billion as of June 23, versus just 160 billion for equities. So it's less than half went into equities as what interest And it looks like bond funds are on track to easily Eclipse their prior record high of 446 billion in 2020.

Chris Versace  05:10

Wow. Well, look, I know we're we've got a short week last week, we're still some folks are still recovering from the Fourth of July holiday, a lot of people were out. But in the last two weeks, you know, we ended the June quarter, we kicked off the September one, we got a bunch of data, end of month start of month, whether it's manufacturing services, jobs, you know, what did you make it all in some? Did it surprise you that it surprised to the upside, we know, expectations have been revised, help help with some of that famous Hawkins context around what we've been talking about.

Lenore Hawkins  05:47

Since I would say probably March and even earlier. We've been saying since then, that towards the summer and heading into the fall, that that rapid pace and economic recovery would really start to wane,

Chris Versace  06:02

the rubber band would snap back,

Lenore Hawkins  06:03

Yeah, the expectations would start to come down because your It was not going to continue in a linear fashion, you're not going to get because we're dealing with the base effects. We're also dealing with that boom, we're open, get out, do something. So the data has been coming in pointing to that rolling over last week's is m non manufacturing and the market services PMI, both declined sequentially. And keep both came in weaker than expected. And we're seeing that more where data is coming in a bit weaker than expected, which is also an indicator of kind of rolling over. Because when the data consistently comes in better than expected, you're kind of moving your way up when the data starts coming in weaker than expected bit after bit that's telling you there's a bit of a rolling over because that that acceleration up is now kind of going to roll over. both the US and global indices for for services indicated that we've seen a peaking out of the year over your base effects. This is just what we've expected to happen. And that fits in with the corresponding rally we've been seeing in treasuries, because now you've got the equity versus bonds like okay, so growth isn't going to be that spectacular. So bonds are starting to look a little bit better. And inflation fears are starting to tame down. Please note that when we say this, though, we are not saying that the economy is crashing or anything like that. It's just that like, crazy. Expectations are incredible. 2021 are starting to come back into reality. So the GAO, it's reflecting that.

Chris Versace  07:28

So it's still growing, right? It's just not growing as fast as had been expected.

Lenore Hawkins  07:33

Yeah, so the Atlanta Feds now expecting 7.8% growth at an annual rate for q2, which 7.8 Wow, that sounds great. But what do you think about how much fiscal stimulus we're using fiscal stimulus the likes of which has never before occurred? And then if you take it in light of the revisions, it's a bit of a different story. So it's 7.8%. Now for Qt a week ago, it was 8.3. mid June, it was 10.5. early May, it was 13.7. So boop, boop, boop, boop, Mickey, so revised down to where it's like, almost half of what it was in early.

Chris Versace  08:09

So the listeners can't see this. Because I'm shaking my head as you tick through these. And it's, you know, maybe I'm biased against the Atlanta fed, I always prefer the data out of the New York Fed, but the Atlanta fed, they are always like, they always overshoot one way or the other. It's always amazing to me.

Lenore Hawkins  08:29

I would love to talk with the man in energy as well.

Chris Versace  08:32

Right. So I would love to know exactly how they're waiting things in their models compared to some of the other Feds to see how they get to these always hide numbers?

Lenore Hawkins  08:43

Well, I think part of what that what you're seeing there is they're extrapolating their models do not say okay, for for the first month of the quarter, this is what the data look like. But we're going to assume that the data is going to degrade in the next couple of months. So those expectations come down as the data is coming in weaker than expected, right, as the data is coming in lower than that gets factored into the beginning getting the same ...

Chris Versace  09:14

with but isn't that the same with the New York Fed? So I'm just curious how they're, oh, there's such a delta between their figures.

Lenore Hawkins  09:21

I they do use different formulas.

Chris Versace  09:23

That's what I'm saying. I would just like to know the waiting. That's all anyway, anyways, sorry. Sorry to interrupt you. We're about to continue talking about some of these forecasts and the negative revisions that we've been seeing past the Atlanta fed.

Lenore Hawkins  09:36

So the New York Fed is now down to four q3 3.9%. a month ago, that was 5.4. A week ago, it was 4.1. And now it's 3.9. Now still, 3.9% is still great. So we're not saying the economy is crashing. It's just if you look at the changes in expectations, this is exactly in line with what we were saying and like February March, where the expectation was, the things were just gonna be amazing in 2021. And it was gonna be the best year ever. It's what a lot of what we're seeing in the data is that there was really a pull forward in demand. And that means that demand in the coming quarters may in fact be even weaker than it normally would have been. Had you not had so much pull forward, you stole from the future to get great data today.

Chris Versace  10:25

Yeah, we've seen that time and time again, sometimes due to regulatory mandates or other factors. And it's it's like going up a hill and seeing a sharp, usually a sharp decline. But we'll see if that happens this time around. Now, earlier, you were saying that treasuries sold off, people are moving into bonds, safety, trade, something else going on?

Lenore Hawkins  10:47

Well, yet treasuries have actually they've been doing well, that the prices of treasuries have been going up because the as the yield goes down, because they go inversely, what's really interesting to see is that long bond yield has now broken below its 200, day moving average, at 1.96. And at this point, doesn't look like there's anything to stop it just from a technical analysis perspective, before it hits 1.6. What's really interesting is that is in light of the fact that the total return on the long bond, since the middle of March is over 10%. So it isn't like we haven't already seen a material slide in yields. The rally through the technical resistance looks a lot like what happened, what we saw back in December of 2018. And recall the bad declining yields injured for the following year, before the pandemic everyman struck, and keep in mind that even after this most recent rally, the yield curve is still pretty steep. And we're dealing with the reality of actual negative rates in the economy. And, and that's, if you look at the real data, core, retail sales were negative point 4%. In April, negative point seven in May, they got worse, auto sales, negative 8.7 in May, negative 10.3. In June, getting worse, durable goods consumption, negative one, negative point one in April negative 4.3 in May, and new home sales, negative 2.7 in April and negative 5.9. In May, and existing home sales, negative 2.7 April and negative point nine in May. So what is going on here, because right the home sales, we keep hearing about this hot market, but home sales are declining. And that's at a time where Freddie Mac just updated its tracking of mortgage rates and found that the 30 year fixed rate conforming mortgage sucks or sits around 2.9%. You want to know how low that is. That's in the bottom point 9% of all periods that's even lower than the bottom percentile. That's an all this is the all time record low was reached on January 7, at 2.65%. So we're just about there. And an adjustable rate mortgage with a five year fixed that then goes variable, those are down to 2.52%. That is in fact the lowest rate in all history. So we're seeing the lowest mortgage rates. And yet, home sales are really starting to decline and mortgage applications have as well or your rates are falling you would expect mortgage rates to increase but they're not. Mortgage applications dropped to 1.8%. This past week after a 6.9% drop the prior week. And now mortgage applications are back where they were January 17 of 2020, like a year and a half ago. And they're down 36% from the recent 2021 high refinancing as well. mortgage rates are plummeting, wouldn't you think people will be refinancing while that refinancing is down 41% from the 2021 high. So all that's telling you is that so much of that activity that was looking fantastic, is actually pulling forward activity from the future. And despite all these falling rates, people aren't able to buy homes because the bottom line for buying a home is about affordability and the prices are skyrocketing. So prices are skyrocketing, but I'm fairly small volume. So it's not really indicative of exactly what's going on in the market. We're seeing the consequences of all that pull forward and demand. Because of that dominant factor the surge in home buying activity, we meant that we saw about six years worth of spending lumped into 16 months. That's just one of the very strange, unique aspects of this pandemic versus what you would see in a normal recession that's not caused by so ...

Chris Versace  14:25

The question I would pose that out after all that one, or is who's left?

Lenore Hawkins  14:32

Yeah, exactly who's left to buy a house? Well, who's left and who can write? Like because we're not seeing it home prices can't keep going up with incomes not. Okay. The mortgage rates will help a little bit with that, but definitely.

Chris Versace  14:49

What about on the jobs front? I know one of your favorite reports came out this week jolts report what what did you make of it?

Lenore Hawkins  14:55

So what the thing that really jumped out at me was that hiring fell, hiring fell, the good let's just wrap your head around that we've got over 9 million job openings and yet hirings were lower this month than they were last month. That's the first time we've seen them drop in a year. job openings are still high but came in below expectations. The number of quits fell by 388,000 of that's the second largest decline in the number of quits on record. But it was from a record high level of quit which is also really interesting this this cottony is just unlike anything we've really seen before here we are just coming out of a pandemic he had people locked to their homes people worried about their jobs so worried that we had all this record level of fiscal fiscal stimulus and yet we just saw the highest number not this past month but the month before we saw the highest number of quits ever on a record and that's a lot of it pandemic people decided I don't really like that two hour commute anymore. I was enjoying not having to do it

Chris Versace  16:02

Now that that data was for me or for you ...

Lenore Hawkins  16:05

for the quit the adult yet or or which job is the choice was for June,

Chris Versace  16:11

Because it for June. Okay. Okay. So how do you wrap that with that with that employment report that we got just just if you were to compare contrast where we're robust number of people getting back into the workforce,

Lenore Hawkins  16:25

The pace that was slowing, the pace is slowing substantially, which you wouldn't really expect to see, given how many job openings there are, you would expect to see hirings remain really robust, particularly with an increase in vaccinations right, that's still going on, more of the economy being opened up, maybe people getting a little bit more comfortable, the mask mandates kind of falling apart falling away and high levels of vaccinations in some parts of the country you would think would make people who previously maybe weren't comfortable getting that job. Maybe they are a little bit more comfortable now with it the but it we're seeing a slowing and it's it's not that things are contracting, but it is a decrease in the rate of increase. So one more time another another data point saying it's things are kind of rolling over as far as that rapid acceleration goes.

Chris Versace  17:15

Okay. And one of the other things that's been a factor in equities moving higher, as they tried to spur the economy has been the Fed. And this past week, we got the feds latest monetary policy meeting minutes. any meaningful change their outlook, anything different?

Lenore Hawkins  17:31

Um, no. So the overall the the minutes indicated that the Fed officials are happy with the economic recovery, and focused on the strong level of investment and increases in productivity, which we've talked about a lot. But they were not happy with the progress in big surprise, the labor market, right, the labor market is really complex right now. When it comes to inflation, this is what I found most interesting. So these are the guys you think about these are the guys that have access to all the best data, right? Like this is my Nirvana, they have all the data that you could possibly want to get your hands on. And they're all really sharp cookies, these are not slackers, these are sharp guys. When it comes to inflation, half of them think the current, the high current prices are going to end up being in fact, deflationary. And the other half think that these high prices are going to be self reinforcing for high inflation. Several of the participants want to reduce mortgage backed security purchases faster than the treasury bond purchases, thinking that that might have something to do with the housing bubble. So the bottom line is, this stuff is really complicated. And even the experts with all the data available right at our fingertips, they don't agree. And the market didn't really react noticeably once these minutes were released. So I think the we're not really sure it's kind of priced it and that's also what we're seeing in the market, not big moves in any direction.

Chris Versace  18:49

In other words, let's wait for Jackson Hole

Lenore Hawkins  18:52

And the debt ceiling debate. Right, right. Right, right.

Chris Versace  18:55

Okay. Now, this next topic, I was going to talk about it in a little bit, and I'm sure we'll touch on it. Just because of the number of earnings reports. They'll be coming at us this week. But there's some interesting developments in one particular area of the economy. Banks.

Lenore Hawkins  19:11

Yeah. So the big news will this one came out last Thursday, while you're yoy Wells Fargo announced that it is closing all credit lines and is no longer going to be offering them

Chris Versace  19:25

Wow, I don't think I've ever seen such a stark harsh pivot like that before.

Lenore Hawkins  19:30

Yeah, the growth in deposits has been at the fastest year over year pace on record going all the way back to the 1970s. The pace of deposits peaked at 123% year over year in February this past February and is now down to an 89% year over your increase. I mean, that's just amazing more than doubling the rate of deposits. Now before this the highest level we ever saw the highest increase in deposits was 53% in October of 2011 So this is 230% higher than the prior peak. So you think about what's the bank's business, a banks, businesses, they take in deposits, and then they turn around and they lend them out. So they're getting massive amounts of deposits. But the level of deposits of coming into them is we've never seen anything like that. But then they turn around and they're they're cutting down on the lending. And we're not talking about decline in the rate of increase, but an actual year over year decline. So commercial lending is in contraction, we just saw the second biggest year over year plunge in history that was outdone only by the plummet at the end of 2009, kind of started in 2010. That was over 20%. This one was just under 17%. And if you go through, like the St. Louis Fed has some fantastic data on this. And if you look at all the different kinds of loans, they're pretty much all of them are down from the first quarter of 2020 to the first quarter of 2021. Real estate loans are down. consumer loans are down 4.2% credit card loans are down 13% leases are down 6.5% commercial and industrial are down 4.4% agricultural loans are down 9.7%. I think that that's really interesting that they've got more deposits on their books. So they've got more ability to lend, and at the same time, they're cutting lending. And now you've got Wells Fargo saying that they are closing all credit lines. And that tells you that these negative real interest rates are there's a price.

Chris Versace  21:32

Well, I know banks, like I said are reporting next week. And I know we're gonna be picking over this data. But I mean, that's, that's a fascinating and B I'm kind of curious to see which banks who stay in the game pick up that market share from wells closing their business. That'd be kind of interesting. Well, let's move on. So you got as we know, you've got boots on various grounds at different times. And you've written for our partners at the NASDAQ quite a bit about the pandemic. But yet we're talking starting to see a lot more chatter about the Delta variant. People are increasingly concerned that we might be seeing a groundhog day movement here. What are your thoughts on this?

Lenore Hawkins  22:16

We just got a warning from the World Health Organization that lockdowns, the easing of the lockdowns may need to be stopped and lockdowns may need to be introduced. The global case count remains elevated with a seven day moving average at over 380,000 per day. Granted, that's down from 80,000, just two months ago, so it's a little bit less than half, but it's still pretty high. And when you take a step back and look at Okay, all over the world, we all know that the herd immunity target is about 70%. Well, just over 10% of the world has been vaccinated As of early July, and officially just over 2% have been exposed. Now, we all know that's probably really understated. But let's say it's 10 times that. Well, that's 10 times expected. So 20% have been exposed. Well, that means that we're just 30% of the world has some sort of immunity. So we're still a very long way from having that actual that herd immunity and the variants are remaining very concerning 50% of all the new cases in the US are from the Delta variant. And what we're also seeing is that basically all hospitalizations and deaths are from people who are not vaccinated. So the push is still really on to get people vaccinated.

Chris Versace  23:30

Would you say the biggest risk is probably to the airline industry, as they're, they're on the cusp of trying to get back to what they were doing even some starting to reopen international travel.

Lenore Hawkins  23:40

Yeah, leisure and hospitality is definitely an air travel, it's definitely the first to get hit. But if this gets really crazy, again, you know, if if this variant if the variant forms variant, if we evolve again, to another one that really can push through the vaccinations or people who've already been exposed and have some sort of natural immunity, it could hit an awful lot of parts of the economy because we if we have to go through another one of those starts stops. I mean, you're already still facing shortages all over the place in your drainage from home furnishings, to chemicals, bicycle to bicycles, appliances. I mean, if we have to go through that, again, with such an interconnected global supply chain, that a lot of areas of the economy could get hit. And that's probably one of the things that you know, summer things tend to get a little kind of calmed down a bit in the summer anyways. But I think it's another reason we're seeing a pause in the market because it's, you know, is this is are we going to read a lock this thing down and really start to be able to open up and have the the variant not become a huge problem, or Oh, God, are we in for another round?

Chris Versace  24:51

Well, I think it was the president of the San Francisco Federal Reserve Bank that issued a warning that if we don't Get more people vaccinated because it appears the current vaccines can prevent at least the spread of delta. If we can't get that to an to a higher level, both here in the US and outside, she seems to think that yes, economic expectations are going to have to be dialed back. All right. Well, that's that's what we saw. But as we get ready for the week ahead, Lenore, what are some of the key points? What two or three things are you really going to be focusing in on? And what do you hope to hope to learn from them?

Lenore Hawkins  25:30

So I'll be looking for inflation data on July 13, we get some inflation information on July 14, producer price index, which is basically also some more inflation data, we're looking to see if that's if, if the rolling over is starting to affect there. We looking at the New York Empire State manufacturing index, which comes out July 15, as well as the Philly fed manufacturing index, industrial production, those all come out on the 15th. That's more of is the economy that that rolling over the slowing of the pace of of growth, is that happening there? Then we get retail sales on the 16th. How's the consumer doing? I'm thinking that that's that there's a chance that that could come in weaker than expected and also get Michigan consumer sentiment that day, that be looking at that to see again, more of the rolling over. And the big one, not next week. But the big one to keep in mind because it'll it's not really making headlines right now. But the July 31, debt ceiling, suspension expires that day, we could, you know, we've had this happen a couple times. And then and Congress has gotten it together and managed to work out a deal. And we didn't actually have to go into those extraordinary measures where the Fed federal government can't pay its bills, but it could happen, we'll see. If the attention to it could be a non event, but it's something to pay attention.

Chris Versace  26:53

A suspect that we're gonna see what we've seen more often than not, is the Canon guix, the can gets kicked the very last minute, and everything passes and people read a sigh of relief. I'm hoping that's the case we do we have the earnings season gauntlet to get through between retail sales and the debt ceiling. So there could be some movement in the market, you know, above and beyond. Where we talk about earnings of note, this past week, which really, there weren't very much, there were a couple interesting things to kind of jumped out as it relates to some of our indices. These are the magic indices, that we automatically have that power a couple different ETFs in the US in Europe, in particular cleaner at living. Just two quick things one beyond meat. Now, we haven't really talked about them in quite a while, but might be surprising to know that they have finally reintroduced there, quote, I'm using air quotes here, meat free chicken tenders in about 400 restaurants across the US. This is kind of interesting to me because chicken and then fish are the two large markets that these plant based alternatives really have to tap into. Thus far. It's been primarily beef in beef alternative. So that to me that that's actually kind of interesting. That concoction fava beans, and peas. Also very interesting, surprisingly, 14 grams of protein per serving Buddha thought Lenore, apparently not you. And then the other one would have shares in Chinese Electric Company Neo. This to me is actually kind of interesting, because one of the things that separates Neo apart from a number of other Evie companies is they actually run a battery swapping program. So if you're driving along and your Eevee runs out of charge, they'll actually bring you a battery, swap it out and you can be on your merry way rather than waiting for trying to find a charging station have to cool your jets for a little while as your battery gets recharged. So they're targeting having about 4000 battery swapping stations globally by 2025, up from about 700 in 2021. So just just an interesting sense.

Lenore Hawkins  28:59

So instead of like stopping at the gas station and filling up the tank, you say here's the you say here's the day, give me a new type of tank.

Chris Versace  29:08

Yeah, exactly. It's us, doesn't it? It's it's interesting that that they're doing that, you know, there are other questions about that? Yeah. Yeah, yeah, I, you know, how do you ensure you get a quality battery and all that other stuff? I'm sure there are things to be ironed out. Yeah.

Lenore Hawkins  29:24

But it's, but conceptually, it's a really great idea. It's waiting to charge it?

Chris Versace  29:28

Well, it's a different twist here. I'm waiting to see if any of them have the Eevee companies or even charge point, for example, or blink adopt something like that. Just because it would really have a far quicker turnaround time than say having to wait and charge your vehicle up. So it's something to keep an eye on.

Lenore Hawkins  29:49

Doesn't look like there was anything on the earnings front last week. That was really big. But we've entered into the June quarter earnings season and as we touched on just a few minutes ago, it's going to be bang Central the next few days, what we'll be hearing from companies like Goldman Sachs, JP Morgan, Bank of America, Citigroup, PNC, and as we've just discussed, Wells Fargo, right, right, Morgan Stanley and a few others, what are you going to be paying attention to when you dig into these reports?

Chris Versace  30:16

Well, to me, there's really going to be I think two things one is going to be what are they saying about, you know, consumer, not so much consumer spending, but really about consumer debt levels, you know, and those metrics surrounding, you know, credit cards and the like, I think those are going to help us understand how much power the consumer has, for the back half of the year, in the back half of the year, as you know, we've got before too long the back to school shopping season, then we have, you know, the various holidays. So consumer spending is a very powerful component of the economy in the back half of the year, we want to assess how much Firepower they have, particularly given what you were talking about earlier, with what likely appears to be some pull forward in retail sales spending. So that's the first thing and then the other is just touching on what you were talking about earlier, on the business side of things, what are we seeing for loan activity? does this give us some confidence that yes, we can continue to see positive economic growth in the back half of the year. And to what degree

Lenore Hawkins  31:16

it's amazing the level of contraction that we're seeing in lending, which is as people think about inflation, keep that in mind, because it's really tough to get at rampant inflation when you have a contraction in both lending and a contraction from more of people's money going into just deposit. So the money's just sitting in there. And then banks aren't lending it out that if that's one of the ways that that Velocity of Money drops,

Chris Versace  31:44

but that is kind of a headwind, isn't it for bank earnings? Because they're not making any money on it at all.

Lenore Hawkins  31:51

Yeah, exactly. I mean, they're they're the business to lend and when you see a company saying yeah Linden so much over here in this area we used to lend we don't want to do that be part of it has to do with wells got the the slap on the wrist because of that whole scandal about the the fraudulent accounts, and they their their cap, and part of that is responding to that. But it's, I think contraction in lending is never good for the bank.

Chris Versace  32:18

It's gonna be interesting, too, because I believe in the last filings, I think we saw Warren Buffett ease up on his bank holdings. So it'll be interesting to see if the oracle of Omaha once again nailed it or not.

Lenore Hawkins  32:31

But outside of the banks, what else you're gonna be looking for.

Chris Versace  32:34

So we got a handful of companies that are coming with reports, each one is gonna have its own significance. You know, just real quick on Tuesday, we've got conagra. This is the big frozen food company, they're going to face very difficult year over year comparisons because of the pandemic spike. We're going to want to see you know, how do those comps really come in? How much do they attribute to the reopening and people returning to restaurants, that'll be a positive indicator for other restaurant facing companies, including the other company that reports that day PepsiCo, Pepsi like Coke, tremendous business in the at home market, whether it's for PepsiCo is you know, salty snacks or their beverages. But now that we've seen the reopening, we want to see is Pepsi seeing a pickup in its away from home consumption beverage business or not? Wednesday brings Delta Airlines in, you know, as we were just talking about, it'll be very interesting to hear what they have to say about the Delta variant. When they talk about their outlook for the second half compared to the first half here. We're talking schedules, fares, you know, butts and seats. But most importantly, international travel,

Lenore Hawkins  33:41

Especially since the US is still not, it's still not allowing, for example, Europe, Europeans aren't allowed into the US. Europe has opened up to the US being traveling abroad, but the US hasn't returned that so that that makes it very complicated for those international routes, right? Because if Europe is open to Americans, then you have a flight going from the US there, but you'd like to have both.

Chris Versace  34:06

So as someone who I don't think I'm giving anything away here, but as someone who travels back and forth, why do you think the US is hesitant to do that? Even though Europe has extended the gesture?

Lenore Hawkins  34:20

Well, because the US is so far along with vaccinations, just the the level. I mean, the UK said great as well. But if you're looking at France, Spain, Italy, Ireland, Germany, they're just they're there. They're not. They're not as far along on the machinations as the US ...

Chris Versace  34:37

In full vaccinations, meaning two doses

Lenore Hawkins  34:40

All of it. Okay, both the single dose and getting the full two dose shot.

Chris Versace  34:46

Okay. Okay. All right. So back to the earnings for the week. Thursday brings us Taiwan semiconductor, which is the largest foundry out there for chips. And as we know, chips are the fabric of our lives. So it'll be interesting to hear what it has to say not just on Auto chips, given the expectation that the shortage is going to start to improve as we move throughout the current quarter, but there's a lot of speculation as to what shortages there might be for other chips, smartphones and the like. So Taiwan, semiconductors comments are really I think, in a pave the way for where we can see, not only for tech stocks, but chip stocks as well. And then Friday, we've got two interesting reports. One is going to be Erickson which, you know, given our digital infrastructure and connectivity index is going to be key because they're going to give the first real solid update on 5g and a real concrete outlook for the back half of the year. The other company that's going to be there as Kansas City Southern And normally, we don't talk about railroads, we do like them because you know, their businesses moving things around, which is a nice indicator for the manufacturing economy. So true rates isn't to pay attention to them. One June rail traffic was up 19% year over year, stuff is moving. But the real reason to look at it is late in the week, last week, the Biden White House ramped up their regulatory scrutiny on the rail industry. And I'm very curious to see how they see this playing out. Because, you know, there are only so many railroads. So it's kind of interesting that the Biden administration is looking in on this one. Could it be price price fixing? Could it be something else? I think Kansas City Southern will give us the first good glimpse at what that could be.

Lenore Hawkins  36:30

And if you're strictly keeping an eye on for next week

Chris Versace  36:33

I think that's about it. I would say that is pretty much your week ahead.