The major averages moved higher in early trade on little real news, entering the final hour with modest gains. Since Monday the Standard and Poors 500 Index is down 7 points or a ¼%, while the NASDAQ has given up 83 points or 1.1%.
Personal Income advanced .4% in May on large gains in asset and to a lesser extent proprietors and rental income. On a year ago basis income advanced a respectable 4% nominal, or before inflation. Despite the income gains personal spending was unchanged in May, pushing the personal savings rate to 3.2%. This is most likely a reflection of Trumps debt funded tax cuts that primarily benefited the top 10%, or those that hold the vast majority of investment and business assets. The inflation measuring Personal Consumption Expenditures Deflator or PCE advanced .2% in May and 2.3% from a year ago on a big jump in gasoline and energy prices.
It’s said that problems often begin at the periphery or emerging markets and work themselves back to the core or developed markets like the US. Since the early 2018 market peak 10 countries have seen their markets lose at least the bear market standard of 20%. The latest to join this group is China with a 21% decline. But it also includes notable markets like Brazil and South Africa.
The International Monetary Fund or IMF recent warnings about global debt and the US in particular was followed recently by a piece from Standard and Poors Global that noted US Corporate debt had reached 6.3 trillion. Other highlights include a record 2.1 trillion in corporate cash, though most of this is held by just 25 companies. Moving to the high yield or junk bond space and the report noted that the cash to debt ratio had fallen to a new record low of 12% in 2017. To put that in perspective it means that they hold $8 in debt, much of it covenant light, for every $1 in cash, and in 2008 this ratio hit 14%.
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