Weekend Visit With The Economic Modern Family

 

With Daily’s recently titled “Granny Retail Hangs Tough” and “Granddad Russell 2000 Takes the Lead,” no wonder we saw rotation out of tech and into the matriarch and patriarch of the Economic Modern Family.

However, this catch up play is a long time coming considering that Biotechnology (Big Brother) and Semiconductors (Sister) have led the charge for weeks.

Perhaps the biggest star of the show though this week, is Transportation or our Tran-the ever changing face of the demand side of the economy.

While you hear me talk a lot about the supply side through the Russell 2000 with its 100% focus of US companies and a significant emphasis on manufacturing, Tran is our anointed superstar for now.

And the implications could be staggering.

For one, it is the only sector of the Family besides Biotechnology that cleared a key 6-month calendar range high.

Secondly, while folks focus on FAANG and specifically Netflix earnings this past week, one company, JB Hunt, roared after great earnings to new all-time highs.

Not only is this a good sign that goods are moving hence demand is rising, but it could also be a precautionary sign for the stagflation theory I keep hammering home about.

Why?

Supply side (particularly in the IWM basket), is now lagging demand side. Low production, supply chain disruption and the trend towards de-globalization are factors that can contribute to shortages, hence inflation.

The dollar has fallen and continues to be under threat for more declines.

Where the “stag” part of stagflation comes in is seen best through the lens of our Prodigal Son, Regional Banks.

After a slew of bank earnings with more to come this week, the investment banks fared well (MS, GS), but the banks that count on loans and loan payments (WFC) continue to see defaults, particularly in mortgage payments.

The conundrum is that folks are not paying back loans but are spending money on goods (retail sales rose to 7.5%).

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