Stocks rose on Monday to kick off a reasonably slow week in markets and the economy after commentary from Federal Reserve Chair Janet Yellen did little to move the needle on an expected future path for interest rate hikes.
First, the scoreboard:
- Dow: 17,926, +119, (+0.7%)
- S&P 500: 2,110, +11, (+0.5%)
- Nasdaq: 4,970, +28, (+0.6%)
- WTI crude oil: $49.70, +2.2%
- 10-year Treasury: 1.73%
The week’s biggest event is over.
On Monday, Federal Reserve Chair Janet Yellen spoke in Philadelphia on the economy and the future of monetary policy in the US.
Among the highlights of Yellen’s speech was an assessment that in her view, the positives of the US economy currently outweigh the negatives. I argued that Yellen indicated rate hikes are probably coming sooner than some in the market expect, though overall this speech pushed market expectations for future rate hikes further out into the future.
Near the end of her commentary, Yellen posed a number of questions about the US economy that would need to be resolved, saying:
Is the markedly reduced pace of hiring in April and May a harbinger of a persistent slowdown in the broader economy? Or will monthly payroll gains move up toward the solid pace they maintained earlier this year and in 2015? Does the latest reading on the unemployment rate indicate that we are essentially back to full employment, or does relatively subdued wage growth signal that more slack remains? My colleagues and I will be wrestling with these and other related questions going forward.
In a note following Yellen’s commentary Neil Dutta, an economist with Renaissance Macro, said it will probably take until at least the Fed’s September meeting to resolve these issues.
Ian Shepherdson at Pantheon Macro said this speech was about “steadying the ship,” adding: “Fed Chair Yellen’s speech is clearly aimed at calming nerves, acknowledging the weakness of the May payroll report but building a strong case for believing it will prove temporary.”
According to the latest data from Bloomberg, markets now see just a 2% chance the Fed raises rates at its meeting later this month and just a 27.5% chance they move in June.
No meeting until December 2016 has a greater than 50% chance of seeing a move from the Fed.
Elsewhere in Yellen’s appearance, Donald Trump came up.
The Fed now enters a blackout period ahead of the June 15 monetary policy statement before which we’ll no longer hear from Fed officials. A relief to many, surely.
T-Mobile is pushing the envelope on financial innovation. Or engineering. Or something.
Anyway, this is great:
The wireless phone company is giving every postpaid subscriber one free share of T-Mobile stock in a new rewards program called “Stock Up.” Additionally, for every new customer a subscriber refers to T-Mobile, the referring party will receive another share of T-Mobile up to 100 shares.
CEO John Legere said in a release:
Get ready for a gratitude adjustment, America! This Un-carrier move is all about giving you a good thanking! No strings. No gotchas. Just “thank you for being a customer!”
At T-Mobile, we already wake up every day working for our customers — so I’ve decided to make it official and turn T-Mobile customers into T-Mobile owners by offering them stock.
So T-Mobile is going to allow every existing and new customer to redeem one share of the company and grant them the right to get another share of the company for each person they recommend (up to 100 people) leave their current wireless carrier and go with T-Mobile instead.
The best part is that you get the share through online brokerage Loyal3 and there are no fees.
If you are super bullish on T-Mobile, this is a very clear blueprint for building a modest stake in the company for free. I mean, not free, but you do have to have a cell phone and why not use a carrier willing to give you a stake of the company in exchange?
Alternatively, existing and, well, future T-Mobile shareholders appear to be looking at the potential for some wicked dilution. But nothing is perfect.
Conor Sen at New River Investments this weekend published one of the best reads on the housing market you’ll find.
Sen’s takeaway, which dovetails nicely with comments made by housing analyst Ivy Zelman to Barron’s this weekend, is that we’re understaffed on the construction side of the economy and under-supplied on the physical structure side, too.
The thesis, then, is that housing is coming to eat the rest of the economy.
From a labour slack standpoint, the pool of potential construction workers is probably well-represented by unemployed men under the age of 55. To get back to late ’90s levels of male unemployment (from a level standpoint, not an unemployment % standpoint), we would need essentially every single male unemployed worker who finds a job in the coming years to go into construction. This doesn’t take into account skill, desire, education level, geography, etc.
If we had to find 500,000 construction workers tomorrow, from a maths standpoint it would be impossible. The slack isn’t there. But this isn’t the way things work in the real world. Time and market forces allow for adjustments.
Among the big takeaways is that capital is going to move towards housing, taking labour, wages, and investment from other sectors. Do read the whole thing.
Sen uses Marc Andreessen’s classic 2011 op-ed that argued software was eating the world as a jumping off point. Which, unrelatedly, made me think that Andreessen’s piece is quite simply the best macro call of the last five years. And, amazingly, his piece doesn’t even mention Uber and Lyft, perhaps the ultimate software-powered services to emerge from the second tech boom.
In related commentary, Business Insider’s Matt Weinberger this weekend had a really great post on how Amazon and Google are making the cool new tech gadget obsolete. Who needs a new gadget when the software — not the hardware — is thing you’re really after?
Of course Andreessen, a legendary VC investor, was unsurprisingly years ahead of many in calling this trend, but thinking about it now, the Apple Keynote address unveiling a new piece of hardware seems, to me at least, very antiquated.
The iPhone 6 reveal, realistically, was the peak of the genre.