“Effort only fully releases its reward after a person refuses to quit.”
-Napoleon Hill
Here’s what you need to know this week:
· Stocks fall sharply on Friday and end their weekly winning streak
· Markets brace for inflation reports and the SpaceX IPO
Derailed
Stocks sold off strongly on Friday and ended their streak of nine consecutive weeks of gains. Markets had only posted meager gains up until Friday when we received the nonfarm payrolls (NFP) report for the month of May. The report showed the US economy adding 172,000 jobs, nearly double what analysts predicted:
Obviously job gains are good for the economy, but they also raise the chance of interest rate hikes. Remember, the Federal Reserve cuts rates when inflation is low and unemployment is rising in order to stimulate the economy. If inflation is rising and unemployment is falling, the Fed utilizes rate hikes to bring inflation back down.
After the release of Friday’s NFP numbers, the bond market shifted dramatically and is now implying a 50% chance of a rate hike by October and a 70% chance of a rate hike by December[1]. Stocks tend to fall when interest rates rise, and investors were primed to take profits after the rapid run up over the last two months. Investors now look ahead to inflation data for more clues as to the next interest rate move.
Busy Week
Investors get little reprieve this week as we head into three market-moving catalysts. The first is the Consumer Price Index (CPI) report for the month of May coming later this morning. Analysts expect this report to show monthly inflation at 0.5% and annualized inflation at 4.2%, both markedly higher than April and moving further away from the Federal Reserve’s target of 2% annualized inflation[2].
Second is the Producer’s Price Index (PPI) report for the month of May, coming tomorrow morning. The PPI report measures inflation for manufacturers, producers and wholesalers; analysts expect the PPI report to show even higher inflation numbers: 0.6% monthly and 6.0% annualized. These numbers reflect that manufacturers have absorbed the brunt of rising costs due to higher oil prices from the Iran War, and some large producers like Walmart have already indicated they will raise prices to protect profit margins, which would further increase CPI inflation.
Last is the SpaceX IPO this Friday. SpaceX is selling $75 billion of its stock to the public at $135/share which values the enterprise at $1.8 trillion dollars. This is the largest IPO in history, both in terms of enterprise value and the dollar value of shares sold to the public:
Historically speaking, giant IPOs usually post a gain on the first day, but their track record over their first year is lackluster:
If you look at the column on the right, you see an incredibly wide range of outcomes. This is why we preach caution on IPOs. If you have conviction in SpaceX’s future growth and Elon Musk’s business acumen then you may view the IPO as a good buy, but be aware that trading will likely be volatile in the days and weeks following the IPO.
Upcoming Art Gallery
Final reminder: our art gallery for clients and friends is tomorrow,June 11th from 5:30-7:00 PM. The art gallery will be set up in our office building’s lobby and will feature four artists as well as complimentary food and wine. Come by for a good time and bring a friend!
What Else
· Iran and Israel traded strikes with each other for the first time since their ceasefire in April
· A strong earthquake struck the Philippines on Monday, killing at least 15 people and triggering tsunami warnings
· OpenAI filed for an IPO later this fall, joining SpaceX and Anthropic in a lineup of blockbuster IPOs this year
· Anthropic debuted its newest frontier AI model, Mythos, to the public yesterday
· The New York Knicks lead the San Antonio Spurs 2-1; Game 4 is tonight at 7:30 PM CT on ABC and Game 5 is on Saturday at the same time
· The FIFA World Cup starts tomorrow all across North America
What We’re Reading
Screwworm flies are a flesh-eating parasite that prey on herd animals, particularly cows. Multiple cases of live screwworms have been detected in cows in southern Texas ranches, marking the first cases in the US since the 1960s. Officials are weighing multiple containment options but must act quickly before the flies spread and drive beef prices dramatically higher. Click below to learn about plans to contain the pests:
What’s Happening Downtown
Sailor & The Dock is hosting a monthly Night Market starting this Friday, June 12th. This event takes place at the Sailor & The Dock building in the West Village neighborhood, runs from 6:00-8:00 PM and will feature dozens of local vendors. Additionally, any purchase from a vendor will get you a coupon for 20% of a drink at the Sailor & The Dock’s bar. Click below to learn more:
· Sailor & The Dock Night Market
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, CFP®, Brandon Ingerson, Bill Daniel, Sam Postich, Jenni Hess, Hannah Hartman