By Peter Tchir of Academy Securities
Can We Just Skip to Next Week?
Last week felt a bit “boring” despite some headlines on the future of the Fed, banks kicking off earnings season, and company after company associated with AI/Data Centers/High-End Chips having positive headlines. It might explain why the Dow and Russell 2000 did almost nothing, the S&P inched higher by 0.5%, and the Nasdaq 100 led the way – up over 1%.
Despite the statements directed at the FOMC, 2-year bond yields moved less than 2 bps lower, while the 10-year moved less than 1 bp higher.
Expect more Fed headlines, since as we wrote on Thursday, we should expect to see more Out of the Box Thinking from the administration on how to reshape the Fed. It is not the path that I would choose, but it would surprise me if we didn’t start hearing about yield curve control or other “extraordinary” measures being recommended to the Fed. Recommended TO the Fed, not recommended BY the Fed, being a key distinction.
With much of the T-Report team spread across the country (even more so than usual), we will keep this report short. The data flow also helps keep it short. We might get interesting earnings results, or “unexpected” headlines (though the market seems to treat everything as expected these days), but not really looking for much to move markets next week (famous last words).
We will be looking to the U.S. Treasury Deposits Customs & Certain Excise Taxes data this week. Last month, the “big day” (there is one day that apparently captures most of the month’s tariffs) was $20 billion. It will be interesting to see how high that number comes in this month. There has been so little discussion about the Budget Surplus in June. While there were some potential “one-time” items, like June 1st not being a business day, pushing some spending into May, the tariff revenue is real. Also, the potential cumulative effects of tariffs are more likely to affect forthcoming economic data, than the headline numbers.
The following week we get:
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Jobs Data. Last month delivered a healthy surprise (though much of it was tied to seasonals on government hiring). We don’t expect that to continue, but we didn’t think last month would be as strong as it was.
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The Powell Press Conference (let’s be honest, that has the potential to be quite a show). Yes, we get the FOMC decision, but the presser should be illuminating.
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The August 1st tariff “deadline.” The “deadline” that no one seems to believe will be an actual deadline as explored in last weekend’s Fool Me Once. If we don’t start getting deals (with tariffs meaningfully lower than the rates set out in various letters), the market could start to get more nervous, unless there are clear signs that extensions are on the way. This is the one area where the market seems to be underpricing risk, but there are so many positives that this might be the appropriate positioning. We continue to like being overweight companies and sectors that can benefit from deregulation and a further push to National Production for National Security.
It seems clear that the week after next has a lot more potential to be “exciting” than next week.
Disruption
What did stand out last week was the performance of “disruption” (using ARKK as a proxy) which was up over 7% on the week! Up 16% in a month, and 72% in 3 months!
The outperformance of “disruption” makes sense as crypto enjoyed another very successful week!
The Genius Act was signed into law. For many administrations, this would likely be the culmination of their efforts on cryptocurrency, but we expect this administration to continue to push the envelope and encourage the development of a U.S.-dominated crypto world – with USD-based stablecoins becoming a critical part of that effort.
Much of this was already priced into Bitcoin which finished the week basically unchanged (though it is up around 10% on the month). Altcoins outperformed Bitcoin (the disruption of disruption seems fitting) but we continue to like Ethereum. It surged almost 20% on the week and will likely be an even more important part of the crypto ecosystem as the industry moves to take advantage of the new legislation. ETHA, an Ethereum ETF, has seen its shares outstanding double since late May. The ETFs focused on Ethereum seem particularly inefficient, as they do not pass through any of the income that can be made by staking Ethereum. That is less of a concern for Bitcoin ETFs and is something that should lead to more product innovation to offer investors an alternative to participate in the total return of ETH, not just the price return.
With this major push behind us, it opens the door for more discussion on the sovereign wealth fund that was prominent early on, but seems to have faded in terms of headlines. That would help our National Production for National Security theory.
Bottom Line
As the week goes on, there will be more focus on tariffs and the August 1st “deadline.” A series of deals could alleviate the issue altogether (in addition to the fact that many people believe the administration has pivoted away from high levels of tariffs and will offer extensions to important trading partners). Finally, and maybe most importantly, the Liberation Day tariffs were actually implemented then retroactively retracted, so there might not even be a major reaction from markets if the tariffs stated in the letters go ahead. Having said that, the markets did seem to force the administration’s hand last time, causing it to reverse course to something in the range of what the market thought “reciprocal” tariffs meant. Without the markets pressuring the admin, why would they pull back? Seems a bit of a chicken and egg sort of issue, but nothing in the past week has changed our view that the market is so worried about Fool Me Once (and Not Getting Fooled Again), that we are setting ourselves up for precisely that.
Expecting a quiet, almost boring summer week, even accounting for some “unexpected” headlines.
Probably means that we will get some really crazy moves, disrupting people’s vacations, etc., but that seems far more likely to occur the week after next.
Saw my first game ever at Wrigley, have to admit, that was a cool experience!
Have a great (and likely quiet) week as we gear up for some potentially big moves the following week
