Halftime

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DOW + 62 = 21,349
SPX + 3 = 2423
NAS – 3 = 6140
RUT – 0.84 = 1415
10 Y + .03 = 2.30%
OIL + 1.40 = 46.33
GOLD – 4.20 = 1242.20
BITCOIN + 0.39% = 2509.80 USD
ETHEREUM – 6.64% = 279.09

I’m not sure we established a trading pattern this week. Down, up, down, up. We did see a return to volatility. The indexes saw big moves, much sound and fury amounting to very little. It might just be window dressing to finish out the quarter and heading into a long holiday weekend.

The markets will be open for a half day on Monday, but, this is the beginning of a long holiday weekend.

As we wrap up the second quarter and the first half of the year, let’s check where we stand.
For the month: the Dow gained 1.6%, the S&P gained 0.5%, the Nasdaq lost 0.9% for the month, and the Russell gained 3%.

For the second quarter: the Dow gained 3.3%, the S&P up 2.6%, the Nasdaq up 3.9%, and the Russell up 3.9%.

For the first half: the Dow is up 8%, the S&P up 8.2%, the Nasdaq up 14%, and the Russell up 6.1%.

So, the Nasdaq is the big winner so far, this year, but seemed to lose momentum in June. The S&P 500 recorded its biggest percentage first-half gain since climbing 12.6 percent in the first six months of 2013. The Nasdaq posted its biggest first-half gain since 2009.

Oil is down 14% from the start of the year and down 5% for the month of June. OPEC and certain other oil-producing countries agreed to extend their production cuts, originally set to expire at the end of June, by nine months (ending March 2018). They didn’t count on US shale producers ramping up production to fill the void.

The count of working oil rigs in the US fell this week for the first time in 24 weeks, breaking the record streak of increases. After several upward revisions, the International Energy Agency currently expects U.S. crude production to end the year 0.8 mmb/d higher than year-end 2016; although some traders are expecting closer to 1 mmb/d.

As such, the rapid U.S. shale growth in the back half of the year could meaningfully increase U.S. oil supply. Meanwhile, when OPEC cuts fall off in early 2018, look for the global oil glut to come roaring back.

The yield on the 10-year Treasury note has dropped 14 basis points from the start of the year, however the yield has been climbing in the past week or so, after hitting a low for the year at 2.13%.

This is still the most contrary move among major asset classes because the Federal Reserve has raised interest rates twice in the first half, and promises another cut in the second half plus plans to trim its balance sheet.

US 10-year yield has now moved above 200-day moving average, and broke the down trendline from March.

Second-quarter corporate results are set to begin in earnest in the coming weeks, with S&P 500 companies expected to post an 8-percent rise in earnings. Investors have been looking for earnings to support historically high valuations, with the S&P 500 trading at about 18 times earnings estimates for the next 12 months compared to the long-term average of 15 times.

We’re bumping right along the top end of historic valuation levels. It’s getting harder to find undervalued stocks with so much optimism factored into stock prices.

The U.S. dollar recovered slightly yesterday, but posted its biggest quarterly decline against a basket of rival currencies in nearly seven years after hawkish signals from foreign central banks this week pressured the greenback further. The dollar index declined 4.6% in the second quarter to mark its steepest quarterly percentage drop since the third quarter of 2010.

The euro accelerated more than 7 percent against the greenback for its biggest quarterly percentage gain since the third quarter of 2010.

In late May, we told you the Midwest experienced flooding that damaged corn and wheat crops. Since then, the northern Plains states have experienced a drought that left crops withering in the field. Spring wheat, traded on the Minneapolis Grain Exchange, has soared 32 percent in June. Spring wheat is a thinly traded commodity, but it was a big winner, especially considering futures contracts are leveraged, this was a killer trade.

As we wrap up the first half we are once again reminded that the heavyweight champion of traders is still Warren Buffett. Warren Buffett is set to pull in $12 billion in profits on a single deal with Bank of America (BAC). Buffett invested $5 billion in Bank of America in 2011. That move came at a critical time for Bank of America with the company trying to leave behind the financial crisis with its new CEO Brian Moynihan.

Buffett negotiated a favorable deal with the bank, due to his investment acting as a public vote of confidence in the company’s future. His $5 billion investment in preferred shares came with the option to convert those to common stock shares until 2021. The preferred shares paid $300 million annually in dividends.

Buffett’s common stock shares are currently worth about $17 billion, $12 billion more than the purchase price. Warren Buffett’s Berkshire Hathaway is now the biggest owner of two of the world’s largest banks: Bank of America and Wells Fargo.

Consumer spending rose modestly in May and inflation cooled, pointing to a slow-but-steady economic expansion. Consumer spending rose 0.1 percent last month. Consumer prices excluding food and energy rose 1.4 percent on a yearly basis, compared to a 1.5 percent gain in April.

The Fed’s preferred gauge of inflation, the personal consumption expenditures (PCE) price index fell 0.1 percent in May from April, dragged lower by drops in prices for consumer goods and energy. When food and energy were excluded, the index was up 0.1 percent.

The slowdown in inflation has boosted consumer spending power. After-tax personal income adjusted for inflation rose 0.6 percent in May, the largest gain since April 2015.

Even so, the University of Michigan’s consumer sentiment index fell to 95.1 this month, its lowest since November, according to a final reading for the gauge published yesterday. The index has been rising steadily since 2008 and in November it hit its highest level since before the 2007-09 recession.

Senate Republicans still don’t have a healthcare deal. Senate Republicans headed home for a week-long recess without coming to an agreement on their bill, named the Better Care Reconciliation Act. This represents another delay for the Trump agenda.

Illinois is poised to enter its third straight fiscal year without a budget. The Illinois House adjourned on Friday, the last day of the budget year, without enacting a plan and will reconvene at 11 a.m. local time on Saturday. While negotiations continue, it signals the legislature will blow the midnight deadline and extend the unprecedented impasse that’s left Illinois without a full-year budget since mid-2015.

Without a deal around July 1, S&P Global Ratings has warned that the nation’s fifth-most-populous state will likely get downgraded again, losing its investment-grade status. The state of Illinois will be rated junk. Without a spending plan, the state has effectively been on autopilot, leaving it with a record $15 billion of unpaid bills as it spent over $6 billion more than it brought in over the past year.

The impasse has devastated social-service providers, shuttering services for the homeless, disabled and poor. The lack of state aid has wreaked havoc on universities, putting their accreditation at risk. If the standoff isn’t resolved, Illinois officials have said they won’t be able to pay contractors and road construction will shut down, putting thousands out of work.

The yields on the state’s bonds have risen as investors anticipate a downgrade. Without a budget that includes borrowing to pay down the bill backlog, Illinois by August will run out of money for key expenses. That means school funding, state payroll, and pension payments could be affected. This won’t jeopardize debt-service payments. Illinois hasn’t missed any bond payments and state law requires it to make monthly deposits to its debt-service funds.

President Trump says he is “sending in Federal help” to Chicago to help curb gun violence. The president tweeted early Friday that crime in Chicago has reached “epidemic proportions,” citing more than 1,700 shootings in the city so far, this year.

So, the Feds are sending in a strike force of 20 Alcohol, Tobacco, and Firearm, or ATF agents for what officials called a “laser focus” on the illegal trafficking of weapons. They join 41 ATF agents already in Chicago. The force will also focus on investigating and prosecuting repeat gun offenders. Don’t hold your breath.

This week saw a couple of important anniversaries. 20 years ago, the British handed over rule of Hong Kong to the Chinese. 10 years ago, the first iPhone was sold. Apple sold more than 50 million iPhones in the first three months of 2017 alone, bringing in $33.2 billion.

Drivers are set to pay the lowest Independence Day price for gasoline since 2005 — and for the first time on record, the Fourth of July holiday per-gallon cost will run below the price from New Year’s Day, according to GasBuddy.

Motorists on the road for the Fourth of July holiday weekend are expected to pay an average of $2.21 a gallon for gasoline, well below the 10-year average of $3.14. If you are driving, be careful out there, and have a great Independence Day.