Amazon Hits A $1 Trillion Market Cap

Amazon - Even though stocks fell, Amazon became the 2nd firm to reach a $1 trillion market cap as its stock was up 1.33%. This stock has been on a one way trip up as it is up 10.38% in the past month.

If Apple sells off after its iPhone announcement, Amazon will be the largest company in America. The chart below shows Amazon’s outstanding momentum as its 14 day RSI is at 77.6 which is the highest since June. I’d wait for a pullback if I wanted to buy the stock.

The financials and the utilities were the best performers as they were up 0.53% and 0.54% respectively. Amazon helped the consumer discretionary sector; it was up 0.25%.

The worst sectors were real estate and telecom which were down 0.9% and 1.12%. Rate-sensitive sectors were volatile.

As I mentioned, if the dollar rallies, stocks won’t be able to rally. The dollar index was up 0.29% to $95.41 and oil was down 0.7% to $69.37.

Amazon - Other Stocks Fall As The Odds Of A Canadian Trade Deal Decline

Stocks followed historical trends in falling on the first day of September trading since September is the worst month of the year.

The S&P 500 was down 0.17%, the Nasdaq was down 0.23%. The Russell 2000 was down 0.42%, and the Dow was down 5 basis points. Even though the Russell 2000 underperformed the Dow, citing trade tensions as the reason for the decline.

I think stocks needed a breather from the recent run. There wasn’t much news on the trade front.

This is bad news for the chances of a deal with Canada.

No news is probably good for the skirmish with China because most news on that front is about raising tax rates and the amount of goods being taxed.

The lack of news made President Trump’s statements have seemingly more of a negative impact on markets.

He stated, “There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out.

Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off. Remember, NAFTA was one of the WORST Trade Deals ever made.

The U.S. lost thousands of businesses and millions of jobs. We were far better off before NAFTA - should never have been signed. Even the Vat Tax was not accounted for. We make new deal or go back to pre-NAFTA!”

There aren’t political issues with not including Canada in the deal, but there are legal ones.

Amazon - Treasury Market Yields 

Both the 10-year yield and the 2 year yield were up sharply, explaining why real estate and telecom did poorly and why the financials were up.

The 2 year yield was up 3 basis points to 2.65%, putting it just 3 basis points away from its cycle high. I expect it to get to at least 2.75% by the end of the year.

Chances of a rate hike at the September 26th meeting is 99.8%. The big news out of that meeting will be the guidance about the possibility of a rate hike in December and whether policy is no longer expansionary.

Odds for at least two more hikes this year are 73.1%. When that hits 100% or the rate hike occurs, I expect the 2 year yield to be near 2.75%.

The 10 year yield has been increasing sharply recently. It was up 4 basis points to 2.9% on Tuesday. Just 2 weeks ago on August 24th it was at 2.81%.

It has been range bound since February. International bond yields are keeping a lid on the yield. However, don’t focus on that point without acknowledging the hedging costs of international money flowing to American treasuries.

I think the bond market knows that the year over year comparisons for inflation will get tougher.

This will limit year over year inflation in the next 6 months. The ISM probably helped the yield increase on Tuesday. However, it’s not above 3% because investors fear growth is as good as it gets.

The difference between the 10 year yield and the 2 year yield is 25 basis points; the curve has steepened in the past few trading days.

This flat curve signals the next slowdown could easily end up being a recession. The consensus based on the yield curve is for a 2020 recession since there is about a 15 month lag from an inversion to a recession.

Amazon - And a Solid Construction Spending Report

June construction spending growth was revised from a 1.1% month over month decline to a 0.8% decline and from a 6.1% year over year gain to a 5.9% gain.

The July report showed 0.1% month over month growth which missed estimates for 0.4% growth. As you can see from the chart below, year over year growth was 5.8%.

There was a strong rise in residential construction spending which offset weakness seen in non-housing components. Residential spending growth was 0.6% as it was driven by a 2.1% gain in home improvement spending.

Residential spending was up 6.7% year over year; private non-residential and public spending were up in the low single digits.

There was a 0.3% month over month decline in single-family homes and a 0.4% decline in multi-family homes. Private non-residential spending was down 1%.

It was driven lower by commercial projects. Transportation spending was up for the 4th straight month. Public spending on educational buildings and highways & streets was up.

Amazon - Conclusion

Stocks were down slightly on Tuesday probably because they were overbought and because the dollar rallied. The next few weeks are important for trade because America is trying to get Canada into the deal with Mexico.

If President Trump acts on the threat where $200 billion worth of Chinese goods are taxed, I expect the S&P 500 to fall 1%.