I spent a lot of time out West last week, and the weather was a mixture of rain and snow, depending on the location and altitude—but the good news is that the snow was a heavy spring snow, which melted fast.
In most other locations, spring is in the air. The truth of the matter is that everyone likes spring. Whether it is the tree blossoms, the tulips waking up, or just the better weather, spring is a happy time of year. This good feeling rubs off on the stock market. That is one reason why April is a seasonally strong month. According to Bespoke Investment Group, the Dow index has gained an average of 2.2 percent in the last 50 Aprils. Another reason that April is such a strong month is due to annual pension funding before taxes are filed since the first half of April is usually superior to the second half when you look at April’s results.
Another sure sign of spring is rising travel and seasonal demand for energy, boosting the price of crude oil and gasoline at the pump, pushing inflation rates up, and causing the Federal Reserve to question their rate-cutting plans. The Consumer Price Index (CPI) and the Producer Price Index (PPI) will come out tomorrow and Thursday, so we will soon see the fallout in the Fed’s assessment of inflation on its rate-cutting plans, but it is safe to say that energy costs will likely remain high during upcoming months, lowering the reelection chances for President Joe Biden.
The stronger-than-expected March payroll report caused Treasury yields to rise and squelched hopes for a Fed rate cut in June. The Labor Department announced that 303,000 payroll jobs were created in March, which was substantially higher than economists’ consensus forecast of 214,000. The unemployment rate declined to 3.8 percent in March, down from 3.9 percent in February. Average hourly earnings rose by $0.12, or 0.3 percent, to $34.59 per hour. Also notable is that the average workweek rose to 34.4 hours in March, up from 34.3 in February, while the labor force participation rate rose to 62.7 percent in March, up from 62.5 percent in February.
Now that crude oil is $85 per barrel, it appears that inflation moderation may be stalling and reluctant to get to the Fed’s 2 percent target. Rising Treasury yields this week in the wake of improving economic data have spooked the stock market a bit. Bloomberg pointed out that financial markets are now signaling 65 basis points in interest-rate reductions, compared to the 75 basis points that the Fed has telegraphed via its “dot plot.” I remain in the camp that the Fed, the European Central Bank, and the Bank of England will commence cutting key interest rates in June and that the Fed will cut key interest rates three times this year.
Tesla shocked Wall Street when it announced that it only delivered 386,810 vehicles in the first quarter, which was substantially below analyst consensus estimate of 449,080. A shutdown at its Berlin plant, plus retooling at its Fremont, California, plant for an upgraded version of the Model 3 hindered Tesla’s vehicle output. Concerns about domestic automakers BYD and Li Auto capturing market share away from Tesla in China persist. The Model 3 and Model Y accounted for 96 percent of Tesla’s first-quarter deliveries. It is imperative that Tesla introduces its Model 2 sooner than later to boost its sales and better compete with BYD. In the meantime, Tesla stock is now down over 33 percent year to date.
The world is a mess, and mass starvation is becoming increasingly likely due to an acute fertilizer shortage that may compound the aid relief to Cuba, Haiti, and Gaza. The farmer protests in Europe are partially due to the restrictions on chemical fertilizers, so the ruling elite can comply with the Paris Climate Accord. However, these policies are now resulting in a massive right-wing shift against oppressive government policies. The New York Times last week had an article titled “Angry Farmers Are Reshaping Europe,” which detailed how widespread the rejection of green policies is amid European farm communities. In the United States, we are food- and energy-independent, so we have a natural competitive advantage. The Biden administration’s recent ploy to ban expansion of liquefied natural gas (LNG) until environmental reviews can be done after the presidential election is a sign that the ruling elite are still in charge, despite widespread condemnation.
Egypt used to be an LNG exporter, but after repeated electricity blackouts last year during peak air-conditioning demand, Egypt is now a natural gas importer due to growing electricity demand. Natural gas peaker power plants are becoming increasingly common around the world and are expected to help Egypt with its fragile power grid. The only problem is the Biden administration is fighting LNG expansion, so the United States may lose market share despite the fact that the United States has a surplus of natural gas.
