For those of you who would prefer to listen:
It’s Memorial Day weekend. That marks the beginning of the Summer driving season. The economic health of the American consumer will be on display. It certainly matters to the Market as consumer spending accounts for 70% of America’s Economy. The good news is the price of Oil is below $80. Gas prices across the country are back near lows of the year and match last year’s level of $3.58 per gallon. Of course, those of us in California see much higher prices at the pump. Lower gas prices mean more money to spend elsewhere.
TSA traffic: You’ve probably noticed I watch it closely. It’s a great measurement of people on the go with plans to spend. 2.9 Million people went through the security checkpoints in airports from coast-to-coast on Thursday. That was by far the most this year and crushed all traffic to this point last year. It will likely clear 3 Million today (Friday). Atlanta has the busiest airport in America. 111,000 people went through security to catch a flight Thursday. That was the highest ever. That record will likely get broken today. 36,000 people already passed through TSA by 8am.
Restaurants, particularly fast-food and casual diners, have noticed a slowdown in customer spending. High prices finally hit a limit. McDonalds and Burger King are bringing back the $5 Value Menus. But they also claim they’re not making much money on them. Perhaps weekend road trips will provide a boost to the drive-thru.
Things are much better on the high seas. Norwegian Cruise Lines said it has record bookings this Summer and raised its guidance for the full year for the second time. Management highlighted the still strong travel demand. People are still spending on vacations and experiences. This activity continues to fuel America’s Economy.
The first Memorial Day was in 1868. It was actually called Decoration Day; Honoring those that gave their lives in Civil War. It was the ultimate sacrifice during perhaps the most challenging period in our nation’s history. It marked a new tradition as America tried to move forward with economic expansion.
An Industrial Revolution was at hand. Advancements during the war triggered more activity across the land. Industry expanded. Americans left the farm to work in factories and mines. Returning Civil War soldiers were among them. A growing labor force paired with an abundance of raw materials and technological innovation set the nation on a new course. The United States had vast natural resources, including timber, coal, iron, and copper. This meant that American companies could obtain resources cheaply and did not have to import them from other countries.
Capitalists named Vanderbilt, Carnegie and Rockefeller emerged. Industrial growth transformed American society. It created a new class of wealthy industrialists as well as a prosperous middle class. It also produced a large blue-collar working class.
The Titans of Industry were dominant in their trade. Rockefeller was Oil. Carnegie was Steel. Vanderbilt was the Railroad. None of them started their industries. But they masterfully embraced opportunity and provided what America needed to modernize and economically grow. They were fierce competitors. Each one of them left their mark. In many ways, their success was intertwined. The Railroad was the master connection for the country.
In May of 1869, a man named Leland Stanford drove the last spike into the tracks that connected the Transcontinental Railroad in Utah. That spike was made of gold. Travel from Atlantic to Pacific could be done by train. No longer would those overland wagons be required to make the journey. The Pony Express was officially a flash in the pan. People and products could move across the country efficiently and cost-effectively for the first time.
Leland Stanford was the President of the Central Pacific Railroad. Before that, he was the Governor of California and later served in the United States Senate. He also started a school in Palo Alto. You might have heard of it. That golden spike resides there today.
Stanford was one of San Francisco’s “Big Four.” The others were Charles Crocker, Mark Hopkins and Collis Huntington. The Big Four were the primary investors in the west coast railroad. You could say, they got a nice return on their investment. Crocker ran a bank that had his name. They all had mansions on Nob Hill. You’ve probably heard of the hotels there now.
For two and a half centuries the American way of life has been supported and protected by those who serve. America has grown and evolved throughout the decades. Investment and innovation have fueled the growth. World Wars and Cold Wars have presented great challenges and brought tremendous tragedy. But we keep moving forward.
Today we are in the midst of the Digital Age. It’s a Tech Revolution driven by High Performance Computing. The Titans of Industry in 19th century America are rivaled by the Tech Titans of today. It’s changed our way of life. It’s fueling our economic growth. AI is that next big thing. “The next industrial revolution has begun,” Nvidia CEO Jensen Huang declared. “Companies and countries are partnering with Nvidia to shift the Trillion-Dollar traditional data centers to accelerated computing to produce a new commodity: Artificial Intelligence.” American ingenuity: It’s disruptive. It’s game changing. And it’s so very investable.
Back to the Market:
Stocks hit a wall at all-time highs. It came with word that Fed members want to see several more months of good inflation data before getting enough comfort on a sustainable cooling trend to ease. What’s more, the Fed said it’s willing to hike rates further if inflation surprises to the upside. The Market got spooked with that. A July cut is looking off the table. It’s our sense that if the Fed cuts, it comes at the September meeting. That said, it runs the risk of looking political ahead of the election. Candidly, isn’t everything political these days?
Weak breadth was a big takeaway with nearly 90% of the S&P down on Thursday’s decliner. It was also an outside reversal day. That occurs when the Market opens higher than the previous day’s high but reverses lower and closes below the previous day’s low. It’s an attention getter; A warning if you will.
Keep in mind, the S&P hit a fresh, all-time high earlier in the week. All-time highs in the face of so many challenges. It’s been really impressive. The Market simply got stretched. The 4-week rally seemed to have exhausted systematic buying. The Market could use a breather. It certainly deserves one.
American innovation is leading the charge once again. It’s important that we understand our history and pay respect to those who made the ultimate sacrifice. Despite our nation’s imperfections, we strive to be better. We the people are fortunate for that. We at Bedell Frazier would like to honor and recognize those Americans who have made the ultimate sacrifice for democracy, both at home and abroad. We are forever grateful.
Have a nice weekend. The Market will be closed on Monday in observance of Memorial Day. Our office will be closed as well. We’ll be back, dark and early on Tuesday.
Mike
