The price of oil is now trading at only $10 a barrel above its pre-war level. A new Federal Reserve chief zeros in on combating inflation, and investors celebrated by pushing stocks toward all-time highs.

 

The 14-point agreement between Iran and the U.S. to a 60-day ceasefire and the opening of the Straits of Hormuz sent oil prices plummeting below $75 barrel and prices at the pump below $4 a gallon. Traders are betting that the Straits stay open and that the reopening will be swift.

 

And yet, overnight on Friday, hours after the supposed agreement was announced, Israel and Hezbollah were already in renewed fighting in southern Lebanon. Talks between the U.S. and Iran were called off on Friday. Iran insisted the fighting must stop before talks can take place. Evidently another ceasefire was announced shortly after the talks were canceled.  

 

I won't waste much space on this fragile deal struck between the two sides. Let's just say it is a long, long way from Trump's April threat that "a whole civilization will die tonight." Readers can judge for themselves whether Trump's War is an inept and embarrassing mistake or the "victory" the president claims.

 

What else could one expect? Trump's posturing over the deal adheres to his long-held strategy of attack, deny, and then claim victory over and over again. It seems to me, after reading the agreement, that tiny Iran did get the better bargain overall. Their ability to call off talks whenever they want shows strength not weakness in the negotiations.

 

The good news is that the 60-day reprieve avoids the July deadline. That was when oil inventories were projected to be scraping the bottom of the barrel, possibly sending oil prices skyrocketing.

 

The Fed met this week as well. It was Kevin Warsh's debut as the chairman of this august body. His message was short but not so sweet. He argued the market's entire approach to interpreting the Fed's messaging needs to undergo a rapid sea change. He said the central bank has been over-explaining, over-signaling, and overly focused on fine-tuning the economy. Instead of a dovish message about future monetary policy easing, the Trump appointee sounded quite hawkish. Nine out of 18 of the bank's top officials believed at least one interest rate increase would be appropriate this year.

 

Inflation, he said, was the focus right now. He reiterated the central bank's long-held target of keeping inflation below 2 percent. The fact that the Fed has not achieved that target after five years of trying would need to be addressed. The markets took that to mean interest rate hikes were coming. The only question is when.

 

Yet, as I see it, inflation will come down over the next few months, driven by sharply lower prices for oil, agricultural products, and other commodities. That I believe will alleviate the present fears that a period of tighter monetary policy is right around the corner.

 

Switching gears to the markets, at the end of the first week of trading for the largest IPO in history, SpaceX has done well for investors who paid the $135 offering price. To be sure, the initial public offering was only a small slice of the company, about 5 percent compared to a typical IPO that will offer anywhere from 10 percent to 20 percent of its shares in the initial offering. The resulting float is small, but bankers felt it necessary to keep the risk of market disruption at a minimum. Given its overall valuation of roughly $2 trillion, that strategy made sense.

 

Confounding the nay-sayers, the price of the sock soared this week, hitting a high of $213 before some of the inevitable profit-taking set in. Those who chased the stock are getting hurt. The last I looked, the stock had fallen to a low of $172.11 before rebounding to $185 on Thursday.

 

Last Friday, the day of its debut, SpaceX set records for the largest single-day net retail buying of a large-cap U.S. stock since 2018. It accounted for 56 percent of all retail net buying on Friday, according to Vanda, an independent data and research firm.

 

In addition, at least 40 actively managed Exchange Traded Funds are now holding the stock in their portfolios. The company's shares are expected to be added to the Nasdaq 100 index as of July 6, meaning that all passive ETFs and index funds that track the index will have to buy the stock. After that, sometime in September or maybe December, it will be included in the Russell 1000.

 

In a similar fashion to last week, the volatility of price movements among the major indexes continues. Technology, specifically anything connected to semiconductors, is in a FOMO mania. Aside from tech, industrials, materials, real estate, and financials have broadened out. 

 

It appears we are in a blow-off phase for stocks overall as they celebrate the expected opening of the Straits and the flow of additional oil. It is possible we could recapture the record highs before the end of the month.

 

Last Tuesday, the House narrowly voted to award $70 billion to federal agencies responsible for immigration enforcement. That was the second multibillion-dollar infusion of cash to the Department of Homeland Security in a year. Will that money be well spent?

 

Over the years, I can't count the number of times I have heard the phrase "immigrants take jobs from U.S.-born people." The assumption behind this belief is that jobs are scarce and immigrants will take whatever employment is available at lower wages. This idea has been around since at least the 1880s. The Institute for Policy Research at Northwestern University, among other economic research centers, begs to differ.

 

Recently, in a research paper entitled "U.S. Immigration: Rhetoric and Reality," academia attempted to address this idea as it stands today. The authors studied immigrants as both employees and entrepreneurs over a five-year period from 2005 to 2010. Their conclusion was that immigrants are far more likely to start companies, and they create more jobs than they take. Their work found that immigrants improved the economic outcomes for native-born workers!

 

Over the years, various studies have found that many immigrants are likely to start their own businesses. Today, on a national basis, immigrants make up 23.6 percent of all entrepreneurs. They make up 18 percent of business owners with employees, according to GovFacts, a non-partisan company that gathers government information.

 

More than 40 percent of Fortune 500 companies — including Google, Tesla, and Pfizer — were founded by first or second-generation immigrants. Jensen Huang, the co-founder of America's most important company, Nvidia, was born in Taiwan and moved to America at age 9. Today, that would not be possible.

 

The truth is that immigrants play a larger role in driving American innovation than many Americans care to admit. Immigrants represent 16 percent of all U.S.-based inventors and are responsible for 23 percent of all patents filed in the nation. Do yourself a favor and read Huang's background.

 

Hopefully, the information above might help to dispel the notion that this decline in immigration simply means finding a nanny or housekeeper is more difficult than it was in the past. The hit to American productivity from this immigration slowdown is much deeper than that, and its impact could stretch far longer than a single administration.

 

Another research organization, The Yale Budget Lab, found in a study entitled "Lower Immigration Means Lower Productivity Growth" that "even a temporary immigration slowdown would leave as many as 4.6 million fewer working-age people than it would otherwise have had by 2033." They believe that the gap will persist for decades.

 

By 2052, economy-wide productivity could be lower by between 0.25 percent and 0.44 percent (currently at a 0.8 percent annual rate) due to a decline in new business creation. It could even be lower depending on how long Americans insist on the current immigration policies.

 

I ask myself how many AI breakthroughs will occur in other countries by those who have been denied entrance into the U.S.? Who will replace a generation of Baby Boomers like me with the skills and experience that we represent? The country is already feeling the gap caused by our retirement. The melting pot is practically empty, readers, and there are fewer and fewer people to fill it.

 

Thursday marked the 39th time that the president has announced a deal with Iran. One of these days, it will come true. Until then, expect continued volatility in the markets.

 

His decision to back off his threat to increase this week's series of military air strikes on Iran triggered yet another rally in the stock market. The fact that the markets all recovered on Thursday what they had lost on Wednesday highlights the heightened volatility in financial markets.

 

For those watching this ceasefire circus, the news from the White House came after markets had already soared on Thursday. It is just another example of how those closest to government decision-makers continue to profit day after day by advance warning of the news. Back when, this would have been considered insider trading. Today, it is simply another way to repay loyalty and favoritism.

 

This time, the deal being discussed is nowhere near a final agreement. The idea would be to extend the non-existent ceasefire by two months. During that time, the two nations would then try to negotiate a more substantive agreement. As usual, interpretations of the supposed terms of the deal widely differ. The Iranians deny that any agreement has been reached or signed.

 

Just hours later, the president once again posted on social media, accusing Iran of leaking the terms of the U.S. deal. He says that their statements "bear no relation to the truth." He concludes by posting, "They better get their act together, and FAST." At this point, my view is that when the world has proof that the Straits of Hormuz are open to traffic on a consistent basis, I will believe real progress has been made.

 

Skipping to more substantive issues, the SpaceX IPO finally arrived today, Friday, June 12. It appears that all systems are go. At 10:30 a.m., SpaceX shares were indicated to open at $150 per share. That is well above the IPO price of $135 per share. The deal was reported to be 4-5 times oversubscribed, as institutions and retail investors sought to get in on the largest initial public offering of the year.

 

The ebullience around the Musk-powered technology company has influenced investors' psyche and should not be underestimated. As for me, I am immune to IPO hype and will watch the action from the sidelines.  I suspect SpaceX may carry the markets for at least a few days. That would give technology and AI stocks time to repair after their recent declines.

 

My previous guesstimate that we would see a 5 percent pullback in the S&P 500 Index came close (4.5 percent as of Thursday). The Tech-heavy NASDAQ did much worse, falling almost 10 percent with some smaller stocks dropping 20 percent or more. A quick bounce back would not surprise me over the next few days. July and August are what concern me.

 

I recognize that the themes that have carried the markets to new highs thus far this year have been twofold. Better-than-expected economic growth and higher earnings. Is there more of the same ahead, or have we seen a peak in these trends, at least in the short term?

 

If I were a betting man, I'd wager on a summer of discontent for investors at least through August. I know betting against the crowd is always dangerous and never popular. And yet it's just what I do on occasion.

 

A look at the bond market, which I believe is where the adults hang out, indicates we have seen a peak in the trend of higher yields. The benchmark U.S. Treasury 10-year bond reached 4.67 percent but has since dropped to 4.5 percent. That is at my level where I worry about further upside in stocks.

 

All along the yield curve from the short to the long end, I am starting to see yields stall out. That's important, especially in the face of inflation and the never-ending need for more money to finance the country's continued spending spree. Credit-sensitive areas are also coming under pressure. What, therefore, would make bond traders slow their selling of U.S. debt?

 

It could be that we are seeing the peak in inflation, at least for now. As readers know, I have been on the side of higher inflation for the entire year. This week's Consumer Price Index and Producer Price Index both justified that position. However, I'm thinking the next month's set of data points might show inflation a bit lower than the increases we have seen thus far.

 

Another sign may be that the prices of inflation hedges like gold, silver, copper, and steel have also peaked and are declining even amid strong inflation numbers. I also noticed that cyclical stocks have been on a decline. Equity areas such as industrials are weak, and emerging markets, including China and especially commodity countries, seem to be experiencing profit-taking.

 

Readers should remember just how serious a continued shutdown of the Straits would be for oil prices if nothing is done to increase supply before July. That's a little over two weeks away. Markets are flirting with all-time highs. From a purely price perspective, volatility in markets always increases when markets are at the bottom or the top. Maybe I am being overly cautious or just tilting at windmills, but if storm clouds gather, you will be first to know.

 

The immigration policies of the Trump administration may have some unexpected consequences in an era when Baby Boomers are leaving the workforce. Couple that with the AI boom, and we may be in for decades of lower productivity and a declining workforce.

 

Illegal immigration has already fallen by over 80 percent since Trump took office, while legal asylum seekers entering the U.S. has dropped by 99.9 percent, according to the Cato Institute. The reduction in legal immigrant entry have also been effective and are 2.5 times lower than illegal entries.

 

Last week the Republican House passed an additional $70 billion in spending for an immigration crackdown bill. They passed their bill by 2 votes. Now the legislation moved on to the Senate. The money will fund immigration enforcement. Clearly, the war on immigration continues.

 

In retrospect, today's anti-immigration policies collides with one of the enduring American myths; that of the "melting pot." It was a cornerstone of American identity for decades. Without immigrants, so the story goes, there would be no United States. In one sense that is true, since the only inhabitants of North America in the time of the colonies were native Americans.

 

Although America's population makes up about 4 percent of the world's total, it accounts for 17 percent of all international migrants. As of 2023, more than 47.8 million immigrants lived in the U.S. That was the largest absolute number in the nation's history. This foreign-born population accounted for 14.3 percent of the total population, almost as high as its 1890 peak of 14.8 percent. Historically, when immigration numbers have reached this level, there has been a backlash in attitudes towards immigrants.

 

In past columns, I have delved into America's love/hate relationship with immigrants. As early as 1751, Benjamin Franklin worried about the number of Germans "swarming" into the colony of Pennsylvania. Suffice it to say that in the most recent presidential election, the majority of voters approved of Donald Trump's anti-immigration rhetoric.

 

One result of these efforts has been a steep decline in U.S. population growth. One of the steepest in many years. Why does that matter? For one thing, lower population growth equates to a smaller workforce over time. The Congressional Budget Office had projected that higher-than-expected immigration levels between 2024 and 2034 would have increased U.S. GDP by an estimated $7 trillion to $8.9 trillion.

 

Their analysis, along with that of many economists, argues that immigration was vital to economic growth. It does so by expanding the labor force and boosting consumer demand. Today, as the number of new immigrants decline precipitously that rosy view of economic growth and productivity is no longer a sure thing.

 

The analysts at the Federal Reserve Bank closely monitor employment, since full employment is one of its most important objectives. This year, they found that the monthly job gains required to keep unemployment steady (the breakeven rate) have now dwindled to near zero. Few economists expected to see the results of this drop off crop up so soon in the monthly employment figures. The immigration slowdown seems to be having an outsized impact on labor force growth.

 

Normally, a decline in job growth would signal an economic slowdown, but not this time. Employment growth has been anemic, and yet GDP growth has forged ahead. The combination of lower immigration, retiring Baby Boomers, and the advent of labor-saving AI is impacting job growth but not GDP growth, or at least not yet.

 

As for the labor market overall and its impact on the economy, both the retiring Baby Boomer workforce and declining immigration do not bode well for productivity growth. There is a hope that artificial intelligence will reverse the hit to productivity, but others argue that it will only do so at the expense of labor.

 

In my next column, I will expand on the benefits of immigration and exactly how the lack of it can hurt U.S. productivity.

 

The non-farm payroll numbers for May, announced on Friday, were met with dismay by the market. The consensus forecast was for a gain of 89,000 jobs. Instead, the Bureau of Labor Statistics announced 172,000 and revised the last two months of jobs data upward. Together, that amounted to the strongest three-month stretch of job growth in two years.

 

You might think the stock market would celebrate such good news, but all three averages declined more than one percent on the news. This was a classic case of what is good news for Main Street may not be the same for Wall Street.

 

It comes down to interest rate expectations. Investors had already reduced their expectations for any interest rate cuts this year. This is despite a new Fed president whom many believe is beholden to the president's easy-money demands. The reasons are obvious.

 

Inflation continues to climb, helped by oil prices that hover above $90 a barrel. On June 10th, another Consumer Price Index reading will be released. Readers already know I expect that number to show inflation climbing even higher. And now, the last hope of interest rate bulls has been dashed with the jobs report.

 

The Fed's mandate is to keep employment buoyant and inflation at 2 percent. Stronger labor gains leave the Fed on the sidelines, but it is worried about rising inflation. Some members of the FOMC committee, which meets June 16-17, are already contemplating a possible rate hike sometime in the future. That is not good news for stocks, bonds, commodities, and much else.

 

In the meantime, the financial media has been hyping SpaceX's pending IPO all week. Evidently, the price has been set at $135 a share, which values the company at $1.77 trillion. It would make the rocket/AI/Bitcoin firm the seventh-largest company in the U.S. Pricing the offering prior to the scheduled launch date was unorthodox and "not how it's done," according to the traditional underwriting community. However, given that Elon Musk is in charge, one should expect some unorthodoxy.

 

As for the market's pullback this week, it should come as no surprise. It was about time. Nine straight weeks of gains had to come to an end at some point. Profit-taking began midweek and continued through Friday. Most of it was centered on the technology area.

 

Broadcom, one of the largest semiconductor companies, disappointed investors earlier this week when its AI chip forecast fell short of expectations. That seems to be the straw that broke the market's back. That may be so, but I believe traders were looking for any excuse to take profits.

 

As for the ongoing embarrassment in the Middle East, even Trump's congress seems to have had enough. The Republican-controlled House passed a continuing resolution this week directing Trump to end the war in Iran. The extended ceasefire continues to play out and oil remains above $90 a barrel.

 

I expect we will continue to see selling next week as markets work off their overbought and extended condition. Is this simply another buying opportunity, or is it the beginning of something more serious? I wish I knew.

 

 At this juncture, I'm betting on a quick 5 percent pullback. That's something we see three or four times a year. The decline has been largely led by semiconductor and AI stocks. That makes sense given those are the areas that have seen the greatest price appreciation. Who knows, the pullback may set us up for next Friday's SpaceX IPO and reinvigorate the tech trade.