Good morning! The S&P 500 closed at an all-time high on Monday. Let’s start with some observations:

So few names are driving returns that it’s become very hard for stock pickers. At the same time, analysts keep raising their earnings expectations.

What happens to stocks when the Fed finally cuts interest rates? Jet fuel is one possibility.

More on that later. First, let’s talk about the huge number of companies going bankrupt.

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Corporations are going belly up

Some economists say it’s still too early for the Federal Reserve to cut interest rates. 

A sizable slice of corporate America might argue the central bank is already too late.

US corporate bankruptcies have just seen an unusual surge, according to a new report from S&P Global Market Intelligence.

June saw 75 companies file to go belly-up, the highest amount in a single month since at least the start of 2020, when the onset of the COVID-19 pandemic crushed businesses.

So far 346 companies have filed for bankruptcy in 2024 — the most through the first six months of a year since 2010. 

Seventeen of those are billion-dollar bankruptcy filings, the report said.

In addition to high interest rates, the S&P Global team pointed to supply-chain snags and a slowdown in consumer spending as catalysts for the bankruptcies. 

To that point, consumer discretionary names have seen the largest number of bankruptcies this year compared to all other sectors. 

Remember, higher benchmark rates make debt more expensive for companies. That in turn squeezes profits as it gets pricier to borrow and refinance. 

Most Wall Street strategists point to a variety of reasons for the Fed to lower interest rates, with most expecting a first cut in September.

We saw Friday that the labor market is showing slack, and later this week June CPI and PPI data will give the policymakers more evidence on whether inflation is cooling as forecast. 

Currently, CME’s FedWatch Tool shows markets see about 75% odds of a cut at the September meeting.

That jumped double-digits after the latest jobs report, which showed unemployment rising to 4.1% for the first time in 30 months. 

Neil Dutta, the head of economic research at Renaissance Macro, believes the case for cutting is strong.

He expects the Fed to lower interest rates twice before the end of the year.

“I think it’s important for the Fed to get on the right side of the eight ball here,” Dutta said. “We know that unemployment is rising, and at the same time we know that inflation has been slowing, and we know inflation is a lagging indicator.”

Thoughts or feedback? Hit reply to this email or let me know on X @philrosenn.

*At a glance:

Elsewhere:

🎙️ Jerome Powell begins his testimony today. The Fed Chair will be on Capitol Hill Tuesday and Wednesday, where he will likely face pressure from lawmakers on the central bank’s rate cuts and capital requirement plans. Look for Powell to defend the decision to keep policy rates higher for longer. (Bloomberg)

📉A 10% stock correction looks “highly likely.” At least according to Morgan Stanley’s Mike Wilson. He said traders should brace for a pullback soon as the US election nears and uncertainty ramps up. The S&P 500 has notched 35 closing records this year.

🛩️ Airline profits are lagging despite record travel demand. Airlines have ramped up capacity in the US, which has forced some carriers to offer budget fares. Record summer air travel hasn’t directly translated to the bottom line for major companies. (CNBC)

Rapid-fire:

Last thing:

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