Here's the Deal

Economy: In Slowdown

Market Cycle: Bullish

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Weekly Note:

This week brought a surprise update on the U.S. economy's performance for the second quarter. The Gross Domestic Product (GDP), which measures the total value of goods and services produced, was revised upward. Instead of the initially reported growth of 2.8% from the first quarter, the economy actually grew by 3.0%. The stronger 2nd Qtr makes sense as consumer spending slowed down in the first quarter after a strong 2023 holiday season.

We also saw more evidence of economic growth with the latest Durable Goods Orders report. These orders represent purchases of big-ticket items expected to last at least three years, like cars, washers, dryers, and dishwashers. The report exceeded expectations significantly, showing a 9.9% increase over the previous month, far surpassing the anticipated 4.0% rise. This surge suggests that manufacturers are seeing strong demand for these longer-lasting goods, a positive sign for the economy.

Last week's earnings reports revealed that consumers are still spending, not just on essential household items, but also on non-essential goods and services like travel and clothing. This continued spending shows that consumer spending remains relatively strong.

However, not all retailers are benefiting equally. Dollar General, for example, is facing significant financial challenges and is reportedly on the brink of bankruptcy. While the company has attributed its troubles to a "weaker consumer," the broader picture from other retailers suggests otherwise. Strong earnings from companies like Target, Best Buy, Gap, Chewy, Burlington, and Nordstrom indicate that many consumers are still spending. This raises questions about Dollar General's business practices rather than the overall health of the economy.

Consider this: If Dollar General's performance is poor while other retailers are thriving, it's worth questioning whether their issues are due to broader economic conditions or if they're a result of internal problems. When economic conditions become more challenging, it often reveals which companies are well-managed and which were merely benefiting from a previously strong economy.

CrowdStrike's recent numbers didn't reveal much new information about the full impact of last month's outage. However, the report did provide valuable insights into the company's future direction and what to expect from their earnings in the coming quarters. Additionally, it was announced that CrowdStrike will testify on Capitol Hill about the incident on September 24th. While it may take some time to fully resolve their current challenges, the company is taking the right steps to emerge from this situation stronger and more resilient.

The biggest event of the week, however, came from Nvidia, which once again demonstrated why it is now "America’s Company." Despite already being one of the largest companies in the world, Nvidia continues to grow at a pace typical of much smaller firms—a remarkable achievement. However, the stock took a slight hit after the report, as there are signs that growth may be slowing and profit margins didn’t expand as much as expected. Yet, it's worth noting that Nvidia's net margins are still incredibly high at 55%, just slightly down from 57% the previous quarter. With a new and highly anticipated chip on the horizon, Nvidia seems poised to maintain its impressive growth trajectory for several more quarters.

Top Economic Stories of the Week:

Most Important Data Drops from the Past Week:

This Week in Markets

This week has been relatively flat for the markets, which isn't surprising. The week leading up to Labor Day is typically quiet, with many traders taking vacations as Summer draws to a close and in anticipation of the busy months ahead.

What’s noteworthy, however, is the market's ability to hold steady at these elevated levels after the rapid climb back to recent highs. This consolidation suggests a strong foundation and hints at continued strength in the near future.

All four charts are showing strong bullish signals, with setups indicating the potential for another upward surge. However, it's important to remember that September is historically a weaker month for markets, so caution is advisable.

Keep an eye on whether prices break out from their current levels. The next move will provide valuable insights into the market's direction for the months ahead.

The worst-case scenario would be a false breakout: prices rising above current levels only to fall back below them on high trading volume, signaling a potential reversal.

The more likely scenario is for prices to break above these levels early in September, retest them, and then continue to climb higher through mid-month. This aligns with the historical trend where early September tends to be stronger than the latter half.

As long as prices don't drop back below the breakout levels on high volume for an extended period, you can expect the market to continue its upward trend through the end of the year, albeit with some minor pullbacks along the way.

The Week Ahead

Economic Data:

Earnings to watch:

The truth about the BS you’re hearing.

Claim: A tax on unrealized gains is no different than property taxes.

Property taxes are based on the assessed value of the property, not on the gains of the current owner. If this claim were true, an owner would not owe property taxes if the value of the property decreased from when it was purchased.

A number of economists and even some CFA’s were posting this false claim for over a week, so you might be hearing about it in the coming weeks if you have not already. I’m not sure how this one went so long without being called out for its lack of thought and accuracy.

WTF of the Week

One of the most common occurrences I have is someone telling me that the current economy is far worse for them than it was for their parents and grandparents generation. A few minutes later they tell me about the tens of thousands of dollars they spend on their kids Hoop Dreams. The truth is that the economy is far better and wide ranging than it has ever been, but we as a society have continued to add to our spending outside of the necessities far beyond that of previous generations.

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Quote of the Week

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