VIDEO: Flash PMI Shows Powell's onto Something
Plus, M&A activity may be perking so we're interested in Jefferies’ outlook.
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In today’s Daily Rundown video, Chris Versace touches on the issues the Portfolio is monitoring this week and breaks down today’s Flash June PMI report from S&P Global. While we saw a rebound in economic activity, including June job creation, inflation pressures rose considerably in June, with the culprit traced back primarily to tariffs.
Chris explains how this syncs up with comments from Fed Chair Powell last week, and what that means. He also discusses Monday's Spartan Nash SPTN M&A deal and why we’re keeping an eye on what Jefferies has to say about that later this week.
Transcript
CHRIS VERSACE: Hey, folks, Chris Versace here. It is Monday, June 23. 5 and 1/2 trading days until the end of the current quarter. And as we discussed in our opening comments with you this morning, we've got multiple plates that we're following very closely this week. Middle East tensions, trade talks, Trump's bill and of course, Fed Chair Powell's testimony that kicks off tomorrow. And then later in the week, we'll get earnings from FedEx and Nike. Potential harbingers of what we're likely to hear in the coming weeks as the June quarter earnings season heats up.
Now, one of the things that we're going to do during all of this, so many plates to watch, so many things spinning, we are going to sit back and do what we do, sticking to our knitting. It's that same knitting that has served us extremely well in 2024, and so far this year. We will continue to follow the data, as I like to say, heating our thematics and technical indicators, of course, for both individual stocks in the portfolio, ones that we're looking at, as well as the overall market.
But with that in mind, let's talk about some new data that we got today. And I'm of course, referring to S&P Global's flash PMI data for June that showed the manufacturing economy perked up compared to May and the services economy continued to hum, although both unsurprisingly continued to be impacted by weak export order demand. Thank you, tariffs.
Now, when we think about this report, we also want to be mindful of comments from Fed Chair Powell last week that he and the rest of the FOMC are kind of taking a wait and see approach on the topic of inflation. The thinking is that tariffs, as they work their way through the system, so to speak, would likely give rise to greater pricing pressures. Well, sure enough, that's exactly what we saw in the flash June PMI report.
Per S&P findings, reading to you from the report, price pressures rose sharply across manufacturing and services sectors during June. Manufacturers input prices and selling prices both rose at rates not seen since July 2022, as higher costs were passed on to customers. Close to two-thirds of all manufacturers reporting higher input costs attributed to these tariffs, while just over half of respondents leaked increased selling prices to tariffs.
However, as the report goes on to say, prices also rose sharply in the service sector likewise often attributed to tariffs, but also reflecting higher financing, wage, and fuel costs. That wage comment should not be surprising given what we saw in the May employment report. And when we get next week's June employment report, we'll be looking at that wage data as well. But on the topic of employment during the month of June, S&P found that we saw a pick-up with the report saying that companies took on additional staff at a rate not seen for just over a year, largely in response to the need to meet higher workloads.
A 12-month high rate of job creation in manufacturing, the report says, was accompanied by a 5-month peak in services. So when we take the findings of this flash PMI report, what it says about inflation pressures and job creation, we do not see the Fed coming close to delivering a rate cut anytime soon. Let's forget what Fed Chair Waller had to say last week. Now, will we look for confirmation in other data?
Of course, we will. Remember, this is just the flash PMI report for the month of June. Next week, we'll get the final data from S&P and their final, final, final June PMI data for manufacturing and services. We'll also get ISM's June PMI reports. And as you know, we pay much more attention to those because those are inputs into GDP. We'll also have various looks during the shortened week next week because of the July 4 holiday at job creation in the month of June.
As we look at that data, I will say this, that we will be trying to determine how much of this uptick that we saw per the flash June PMI report was more of a rebound in demand following the pull forward that we saw ahead of tariffs. How much is restocking? That's the question that we'll be looking to answer.
In today's video, I also wanted to touch quickly on M&A activity. As you know of late with Morgan Stanley, Bank of America, we've been a little more focused on the IPO market given what's happening there. But today, SpartanNash is set to be acquired by CNS Wholesale Grocers. That's a deal of around $1.1 billion. And we're also seeing reports that Bank of New York Mellon and Northern Trust may be talking to each other.
Now, this is kind of interesting to us, just given the calendar as we look at it. Typically, the IPO market's kind of a little lull, if you will, historically speaking in July and August. So to the extent that we see M&A activity picking up, that would be another positive for our shares of Bank of America and Morgan Stanley.
Typically, when it comes to M&A, most companies are kind of trying to fill a product, technology, or even a geographic hole in their lineup. We'll see. If this is continuing to be the case, I will say that we did expect to see a pickup in M&A activity in the back half of this year amid an expected change in the regulatory environment. But to the extent we see that M&A activity pick up sooner than expected, so much the better.
And that, my friends, means that we will be paying very close attention to what Jefferies has to say when they report their quarter on June 25. Coming up today, we've got a lot on our plates and your plates as well, including the latest set of office hours. So please join us in the portfolios forum between 4:00 and 5:00 PM. Bring your questions. We'll bring our answers for as long as we have time to do so.
And with that, please be sure to check your emails, your alerts. We've got a lot, like I said, coming your way. We want to make sure you're getting our latest thoughts. And if we happen to make any moves with the portfolio, which I don't see happening today, we want to make sure that you are right there with us. Thanks for watching.
