The Dow Jones Industrial Average stumbled after five consecutive winning session.  The financials took a big dive after beginning the week with gusto.

Buyers rotated into utility and real estate sectors and sought value in beaten down consumer staples.

There wasn’t anything unusual about the session as winners and losers were adjudicated by earnings and guidance. Investors continue to digest earnings results against the backdrop of sky high expectations.

After the close, Microsoft, Institutive Surgical and Skyworks all beat Wall Street consensus convincingly.

Meanwhile, after pulling back from a double top formation the Russell 2000 is back to its winning ways edging closer to its record high level.

Remember, the Russell 2000 is the best equity proxy for the US economy whereas the Dow Jones Industrial Average is the best proxy for the global economy. 

 

China Syndrome

These days every time the market is down the chorus blames tariffs and trades and point to all the pain down on the farm.  One thing we must continue to monitor is how badly China is performing in this environment.

The People’s Bank of China continues to pump money into the Chinese economy which continues to flounder.  The results haven’t been great thus far.  The dollar is surging against the Yuan and the Shanghai and Shenzhen exchanges continue to freefall.

Dollar against Yuan

Absorbing Higher Prices

According to respondents in the Philadelphia Fed report prices are rising quickly and manufacturers are passing them along.  As much as the media is focused on tariffs and “trade war”, raw material inputs are a bigger deal with spotty pricing power across various industries.

• 63% have experienced higher prices paid
• 36% reports higher prices received

Keep Those Factories Open

The most important takeaway from the Philadelphia Fed report came from supplemental questions on the survey covering summer plant shutdowns.

Will Shut down Plants for the summer?

26.2% 2017

19.3% 2018

Riding the Job Boom

I’m thrilled with the initiative President Trump is taking on bringing up American work skills to match 21st century occupations and jobs.  Ironically, many of the jobs aren’t revolutionary as much as evolutionary but have been frowned upon by elites for so long skills weren’t taught in college or high schools. Numerous companies and business associations pledged to hire or retrain 3.8 million workers over the next five years to address this issue.

America is in the midst of a great jobs boom underscored by the record 6.6 million job openings.  There are in fact more jobs than there are workers, as businesses from the smallest to the largest complain their number one problem is finding qualified workers.  The bad news is there’s a serious skills gap but the good news is so many of these jobs don’t require a four-year college degree.

JOLTS: Total Non-Farm

On area dealing with a serious worker shortage is manufacturing which has seen job openings surge 400% in less than ten years from 101,000 in May 2009 to 441,000 in May 2018.  

JOLTS: Manufacturing

Skills Gap

The skills gap can be seen in every industry including homebuilding which is suffering as construction worker levels still trails 2006 employment.

Construction Workers	2006	2018
Residential	5.0 million	3.8 million
Total	11.0 million	9.8 million

The same issue exists with specific jobs like welding which faces a potential 200,000 worker shortage by 2020 according to the American Welding Society.

New Collar

One reason for the skills gap is new jobs have quickly emerged as a result of the fast pace of technology.  The CEO of IBM coined the term “New Collar” for these jobs which don’t require a college degree (white collar) but need more than High School (blue collar) education. 

IBM “New Collar” Jobs

• Application Developer
• Systems Administrator
• Data Center Technician
• Project Manager
• Software Engineer
• Designer
• Technical Support Representative
• Security Analyst
• Security Analyst

Today’s Session

It’s been tweet-filled morning as President Trump continues his crusade against unfair trade and concerns about the Fed hiking rates at the wrong time. 

Donald J. Trump

‏China, the European Union and others have been manipulating their currencies and interest rates lower, while the U.S. is raising rates while the dollars gets stronger and stronger with each passing day - taking away our big competitive edge. As usual, not a level playing field...

Donald J. Trump

‏Farmers have been on a downward trend for 15 years. The price of soybeans has fallen 50% since 5 years before the Election. A big reason is bad (terrible) Trade Deals with other countries. They put on massive Tariffs and Barriers. Canada charges 275% on Dairy. Farmers will WIN!

The Federal Reserve

Donald J. Trump

‏....The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?

Comments from the White House about the Fed will surely bring up questions as to why it exist in the first place.  One premise outlined in “The Creature from Jekyll Island” is the fed was put together to protect the wealthy. 

This notion doesn’t seem farfetched to those that wonder why interest rates are always adjusted lower when banks are in trouble but higher when Main Street starts getting pay raises.

The market looks to open under pressure from a combination of earnings reactions and uncertainty over trade and now the Federal Reserve.

Comments

find your comments most interesting. It's the first thing I look at in the morning. I am 73, do you think I'm too old to invest? Janet Wiltzius on 7/20/2018 10:23:31 AM

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