It appears the Federal Reserve Bank's long battle against inflation is showing some progress. This week, two key inflation measures indicated inflation rose at its slowest pace since March 2021. Investors celebrated the news.

 

The Consumer Price Index (CPI) for June rose a mere 0.2 percent and only 3 percent over the prior year. Both measures were a bit better than economists were forecasting. If you strip out food and gas prices, the core CPI climbed 0.2 percent month over month and 4.8 percent over last year; again, slightly better than expectations. The Producer Price Index (PPI) also saw some encouraging news. June's wholesale prices followed the CPI data lower. PPI rose 0.1 percent, less than the consensus estimate of 0.2 percent

 

All week, in anticipation of these expected cooler inflation numbers, market bulls were buying stocks. That gamble has paid off. The U.S. dollar dropped on the news. Bond yields also gave up recent gains.

 

That set up the perfect environment to rise for those sectors that have an inverse relationship with declining dollars and yields. Commodities, basic materials, and precious metals exploded higher. In another interesting turnabout, the small-cap Russell 2000 Index outpaced NASDAQ and the S&P 500 Index for the week.

 

As for the Magnificent Seven stocks and Nasdaq in general, prices took a back seat for once. An explanation for exactly why that should have occurred lies with a decision by the management of the NASDAQ 100. Last Friday, Nasdaq announced that the index will undergo a Special Rebalance effective before the market opens on Monday, July 24.

 

The intent is to reduce the concentration of heavyweight companies that now account for nearly half the weighting of the index. Microsoft, Apple, Nvidia, Amazon, and Tesla combined, account for 43.8 percent weight in the index. As part of the rebalance, that number will come down to 38.5 percent.

 

For portfolio managers and investment funds that track the index, it will mean selling some of the shares of these overweighted companies and increasing their share of other companies in the index. Since the announcement, the Magnificent Seven stocks have been volatile as has the index overall.

 

There is some speculation that the S&P 500 Index could follow suit. That would have a much more serious impact on stock prices overall because of the importance of this benchmark index. Rebalancing the S&P 500, as I understand it, would occur when the aggregate of companies, with each having a weight greater than 4.8 percent, exceeds 50 percent of the total index.

 

As of today, only Apple and Microsoft exceed that 4.5 percent weight.  In total, these two stocks plus Amazon, Nvidia, and Tesla have a combined market value of the S&P 500 index of 22.2 percent. Fortunately, we have a long way to go before a rebalancing of that index is in the offing. 

 

Last week, I mentioned that although the markets were stretched, I was hoping for a little more upside in the averages. That is exactly what occurred with a 100-point (2 percent) gain in the S&P 500 Index. At this point, don't be surprised if a bout of profit-taking were to occur. I am not expecting anything serious, just a pause as the market once again catches its breath.

 

As for me, I will be on vacation next week so do not expect my usual columns. I will be back the following week, ready to go.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Retail theft in general is a growing problem in the United States and organized crime has long considered that cargo is its most lucrative target. Crooks have used everything from road pirates to sophisticated computer hacking to rake in billions of dollars and that number is increasing each year.

 

Possibly the fastest-growing segment of theft in the U.S. is related to cargo. The commercial shipment of freight moving by railroad car, truck, and aircraft, as well as storage, warehouses, distribution, and consolidation facilities, is the red meat for cargo pirates.

 

It is a large industry that accounts for anywhere between $15 to $35 billion in thefts per year. Depending on what is inside a container truck, for example, thieves can walk away with thousands to millions of dollars in stolen goods. Common targets this year include food, beverages, auto parts, solar panels, vehicle batteries, tires, and pharmaceuticals.

 

You may think there are plenty of higher-value products that should have made the stolen goods hit list and you would be right. However, the resale of stolen products is just as important as the product itself. Consider the difficulty in identifying stolen avocados or sirloin steak. How would you know a solar panel was pilfered, or a tailpipe?

 

Thus far in 2023, cargo theft has experienced a 41 percent increase from 2022.  Tactics range from targeting refrigerated trucks to Mission Impossible scenarios where criminals are disguised as legitimate drivers, employees, or business representatives. They also use high-tech "sniffers" to detect GPS trackers manufacturers placed in or on high-tech cargos. Cyber robbers hack into dozens of companies exploiting transportation and shipping systems to forge invoices and delivery documentation. This allows bad actors to brazenly pick up cargo from warehouses and other distribution centers offering forged documents and steal containers full of goods in front of unknowing employees and or security guards.

 

Behind this crime wave are professionals with organizations that are capable of evading federal, state, and local police, as well as corporate security including insurance agents. As retail crime continues to rise, a handful of states have attempted to stiffen penalties on those that steal in groups. Other states may follow. However, much of what needs to be done to stop further spikes in retail crime lies in updating and focusing on American crime policies. For example, most police departments do not have a separate category to distinguish retail thefts from other kinds of robberies and larceny.

 

Many of the sophisticated people orchestrating retail crimes tailor their tactics to recent criminal justice reforms. In many cases, mobs employ hundreds of freelancers to steal goods. Changes in bail policies make it easier to entice people to steal because they won't spend time in jail should they get caught. The amount of money stolen to trigger a felony charge is another issue. You would think that upping the penalty for stealing would simply be a commonsense solution to retail theft of any kind, but not in this country.

 

Some argue the problem is too complex for such simplistic solutions. Others question whether increasing sanctions such as an automatic felony for retail crime, in which the thief spends more than a year in prison, is an effective deterrent. Since 2000, at least 39 states have increased the value of stolen goods required to trigger a felony charge.

 

Over two decades, researchers found no change in property crimes in states that increased penalties versus states that did not increase the amount required to warrant a felony charge. Go figure.

 

The retail industry is urging state governments and law enforcement to go after the mob bosses and masterminds behind the crime scene. To do so, organizations such as the National Retail Federation want lawmakers to enact statutes that would create a new category of crime — organized retail theft.

 

This new category would give law enforcement a tool to combat the crime surge. Exactly how the statutes are used is up to the discretion of police and prosecutors and therein lies the rub. Critics say discretion could lead to racial disparities in the justice system and probably has in several states.

 

As in everything else in America, retail crime and its solution are a politicized issue and will likely remain so, leaving the industry to fend for itself. One step that a few large retail chains are using is to simply close their doors in areas where they are experiencing high crime. Although that may be a highly visible act to counter smash and grab theft, it does nothing for the continued upticks in cargo crime, car theft, and so much more.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The July 4th shortened week was one where volatility claimed the markets. Interest rates and the dollar rose, sending stocks lower. The job data was the culprit.

 

The media blamed the setback on higher interest rates, as Fed heads cluttered the airways with warnings that the pause is over and higher interest should be expected by financial markets. The point hit home when the most recent data on job growth indicated further strength. On Thursday, the payroll processing firm, ADP, reported 497,000 jobs added in June; the most in over a year. At this point, there are more than 50 percent more job openings than people unemployed.

 

The latest reading on the Supply Chain Management Services Index also ticked up to 53.9 in June, which was higher than the expected reading of 51.2. That led the Atlanta Fed to push up its second-quarter GDP expectations from 1.9 to 2.1 percent.  

 

Even though the manufacturing side of the economy appears to be weakening, the services side of the economic ledger appears to be buoying economic expansion. That could lead to even more job growth as the services sector continues to hire workers to fill the continued demand.

 

On Friday, however, the non-farm payroll data for June came in far lower than expected. It came in at 209,000 job gains versus 240,000 expected, and the unemployment rate was unchanged at 3.6 percent, but average hourly earnings went up 0.4 percent versus a gain of 0.3 percent 

 

None of this is going to make the Fed happy. The difference between the two labor reports was contradictory at best. The wage gains were not. It likely means inflation and the Fed will keep interest rates higher for longer. There is even talk that we may face several more rate hikes instead of just one or two more in the coming months.

 

The debt market has responded by selling U.S. Treasuries in anticipation of that possibility, which has sent the ten-year U.S. Treasury bond above 4 percent for the first time in months. Mortgage rates also hit the highest point of the year with a 30-year fixed rate mortgage at 6.71 percent. That has hurt housing activity this summer as homeowners pulled back from listing homes and rate-sensitive buyers reigned in their purchase plans.

 

There is no question that stocks are extended. This week saw some of the air escape from the bullish balloon that has sent stocks higher since the beginning of the year. Those stocks that were most overbought, like the Magnificent Seven, were not immune from the selloff. I suspect that we face a period of consolidation ahead, which will delay somewhat my expectations for more market gains.

 

The summer months, on average, are usually more volatile since there are fewer players on their computers. Vacations and shorter work weeks leave markets vulnerable to larger moves both up and down. I plan to be on vacation myself in the week starting July 17 so no columns that week, unfortunately.

 

Many strategists are looking for a temporary peak in the markets this month. I agree. I am hoping stocks can move a little higher and they still may, but we are stretched at this point. Corporate earnings are right around the corner. Valuations are stretched and many companies are going to have to show stellar results to support prices. 

 

Inflation data in the form of the Consumer Price Index and the Produce Price Index are due out next week as well. That should offer a chance for stocks to move higher if the numbers are cooler. Hotter results would give traders an excuse to sell. The bottom line, however, is that I believe markets will climb higher in the months ahead, so stay invested. 

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The facts are that retail theft is a drag on the U.S. economy. Organized retail theft, smash-and-grab robberies, carjacking, and cargo pilferage are just some of the crimes committed hour by hour throughout the country. Estimates of costs vary but are well above $100 billion per year.

 

There is no definitive source that calculates the actual dollar cost of stealing, but several organizations such as the U.S. Chamber of Commerce and the National Retail Federation have provided guesstimates. The Chamber believes organized retail crime has cost the economy more than $125.7 billion. But there are add-on costs such as $39.2 billion in lost wages, 685,374 in job losses and $14.9 billion in lost federal, state, and local taxes.

 

We have all watched as images of criminals invading retail stores pop up on the evening news. In some cases, a dozen or more brazen criminals overwhelm local businesses carrying off tens of thousands of dollars' worth of merchandise while leaving a path of smashed glass, broken counters, and bruised customers. What we fail to realize is that these criminal acts are part of a highly organized effort conducted by anonymous professional crime players. 

 

Organized retail theft, according to most definitions, is the coordinated theft of merchandise by individuals and groups with the intent to resell these goods by passing them off as legitimate goods to unsuspecting buyers, typically online. The overall masterminds behind these crimes know and exploit local laws. They make sure to steal less than the dollar-amount threshold considered to be felony theft in most jurisdictions.

 

These bosses recruit and employ gangs of individuals to commit numerous thefts, making sure that total stolen remains below that felony threshold. And these are not victimless crimes. Consumers, employees, communities and business owners are caught in the crossfire of these crimes where eight out of 10 retailers report increased incidents of aggression and violence.

 

Car theft is also on the increase across the nation. The price tag for this form of theft totals around $25 billion. More than one million cars were stolen in 2022. This year that number is expected to increase yet again. For carjackers, hot wiring is passe and keyless theft is all the rage. Given the rising prices of both new and used cars, thanks to inflation and supply chain issues, thieves have a super-charged incentive to boost cars.

 

The number of stolen vehicles varies by where you live. Car thefts in 30 major cities have a 59 percent increase between 2019 and last year.

 

California tops the list of states with the most stolen vehicles followed by Texas, Washington, Florida, Colorado, Illinois, Ohio, Missouri, New York, and Georgia (in that order). Vermont has the distinction of least number of cars stolen to date.

 

Some of the more popular models to steal include the Chevrolet Silverado, Kia Soul, Hyundai Elantra, Subaru Legacy, and the Subaru Forester. Other brands include the Honda Civic, Honda Accord, and the Toyota Camry.

 

Next week, I will examine the fastest growing segment of theft in the U.S. — cargo theft. I will also examine what can be done to stop this epidemic of thievery. The answer is at best complex and as usual chock full of politics.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

U.S. first quarter Gross Domestic Product for 2023 was revised upward this week indicating that consumers are spending like drunken sailors. That's good for America as was the latest inflation data for May.

 

Between January and March of this year, the economy grew at a 2 percent annual pace. That caused the Commerce Department to sharply upgrade its previous yearly estimate of 1.3 percent. Although strong, it has continued to decelerate from a 3.2 percent growth rate in the third quarter of 2022 and a 2.6 percent increase in the last quarter of 2022.

 

Despite rising borrowing costs, the consumer continued to defy expectations. Consumer spending rose at a 4.2 percent annual rate in the first quarter. That is important, given that their spending accounts for 70 percent of the growth in the economy. And as long as the labor market continues to strengthen, workers will continue to spend. This week's unemployment claims declined, bolstering the view that employment is still quite healthy.

 

The Personal Consumption Expenditures Price Index, a gauge favored by the Fed, came in lower in May at 3.8 percent, which was the lowest level since April 2021. While inflation has halved over the last year, it is still high above the Fed's target of 2 percent. It is the reason Federal Reserve bankers continue to pound the table on maintaining their tight monetary policies. Market observers are now expecting another interest rate hike in July, and bets are fifty-fifty on one more hike after that.

 

Economists have continually pushed back the timing on exactly when the economy will dip into recession. Some think that this long-anticipated recession could begin in the third quarter but might well wait until the fourth quarter. There are some estimates it won't happen at all this year.

 

Liz Anne Sonders, the chief investment strategist for Charles Schwab, has argued that we have been in a rolling recession for the last two years plus. Housing and manufacturing, for example, have already suffered downturns. Other areas, such as the services sector, are still growing, but will likely be hit by a slowdown in the future. So rather than look for a formal traditional recession, investors should instead be on the lookout for the next areas to roll over. I think she has it right.

 

Good news on the banking front in the form of the successful stress test by the nation's 23 largest banks lifted the banking sector this week. Each year, the Federal Reserve Bank administers a severe recession scenario to identify if these banks can maintain the minimum capital levels while continuing to provide credit to the economy.  Given the worries sparked by the failure of three regional banks earlier this year, the results were a welcome sign in shoring up investors' worries over the U.S. financial system.

 

Last week, I wrote that I was watching the 4,350-4,320 level on the S&P 500 Index. I was also watching technology for a bottom. The QQQ, which is the symbol for the tech-heavy exchange-traded fund reflecting the NASDAQ Index, had a downside risk of 352. We hit an intraday low on Monday of 4,328 on the S&P 500, and 357 on the QQQs. We bounced from there as I expected, not too shabby for a guesstimate, but calling these levels is more about luck than anything else. So where to next?

 

It is the end of the quarter today, so market action on Friday was all about window dressing. Money managers want to close their books with a list of winners to show their clients so what stocks that worked over the last three months were bid up to dress up results.  I can see more gains into a holiday-shortened week and possibly further upside into the second week of July. We could see 4,600 or so before another bout of profit-taking sets in. Longer term, I am expecting 4,800 on the S&P 500 Index, but we have plenty of time to achieve that target.

 

Have a great Fourth of July; you've earned it.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.