August 16, 2023

US Retail Sales Top Forecasts, Showcasing Consumer Resilience

📰 News Organizations

  • Fitch Warns Downgrade of Dozens of Banks, Including JPMorgan Chase. If top institutions like JPMorgan are cut, then Fitch would be forced to consider downgrades on all their peers’ ratings. That could potentially push some weaker lenders closer to non-investment-grade status.

  • Home Depot Earnings Top Estimates as DIY Spending Sustained. The retailer reported better-than-expected quarterly earnings, stuck to its full-year financial forecasts, and unveiled a new $15 billion buyback program but posted a 2% year-over-year sales decline as consumers pull back on big-ticket buys.

  • US Homebuilder Sentiment Declines for First Time This Year. Builder sentiment dropped six points to 50 in August. Anything over 50 is considered positive. Mortgage rates hit 7.24% Monday. The share of builders cutting prices rose to 25% in August from 22% in July.

  • Russia Imposes Emergency Interest-Rate Rise to Halt Ruble Selloff. The bank on Tuesday raised the rate to 12% from 8.5%, a day after the currency temporarily fell past 100 to the U.S. dollar for the first time since the weeks after Russia invaded Ukraine.

  • Tesla Launches Cheaper Model S and X Vehicles. Tesla continues to play the pricing card to build volume across its entire vehicle lineup, launching cheaper versions of its Model S and Model X electric vehicles that are both $10,000 cheaper than their respective earlier models.

  • ChatGPT Creator OpenAI Is Testing Content Moderation Systems. The startup said its latest technology, GPT-4, can be used to develop policies on appropriate content and can more quickly label or make decisions about posts, essentially doing what a content moderator can do.

🐦 Twitter

  • Some economists expect US consumers to stop spending so much starting in October when student loan repayments restart after a 3-year hiatus. But a survey shows 45% of borrowers expect to "go delinquent" & they won't be penalized for 12 months. Source.

  • Gas Prices in the US rise to their highest levels of the year @ $3.96/gallon. What was a big tailwind for CPI in May/June (negative YoY commodity prices) was less of a tailwind in July and much less thus far in August. The US inflation rate will likely increase again in August. Source.

  • Much weaker August Empire Manufacturing Index at -19 vs. -1 est. & +1.1 prior; new orders sank to -19.9, shipments fell to -12.3, prices paid rose to +25.2, and workweek fell to -10.7 (all trends worse vs. prior month). Employment dipped back into contraction. Source.

  • Correction ahead? The SPX is testing support at the 50-day moving average. Below that is the 200-day MA at 4129. That deeper support level coincides with a 50% retracement, as well as the high set earlier this year. If we go there, it would be a 9% correction from the highs. Source.

  • United States Steel Corp gets an improved offer of $35 all cash from Esmark. Stock jumping to its highest price since April 2022. Is a bidding war about to break out? Source.

As long as the Fed remains a step or two behind the curve and growth generally holds up, stocks should continue to outperform bonds. Stronger US growth (plus increased bond supply) will create a market-based tightening of rates if the Fed won't do it.

Bob Elliott

📓 Online Publications

  • US Retail Sales Top Forecasts, Showcasing Consumer Resilience. Estimates of U.S. retail and food services sales for July 2023, were $696.4 billion, up 0.7% from the previous month, and up 3.2% above July 2022. An increase in retail sales signals a healthy economy that is expanding.

  • Southern and Midwestern U.S. Markets Increased Inventory. Only 31 of the 100 largest metropolitan areas experienced an increase in the number of homes for sale in July compared with a year earlier. The places that are seeing the biggest increases are the affordable Southern and Midwestern U.S. markets.

  • Nearly 1 in 9 US Homes Command $1M As Luxury Prices Soar. The share of US homes valued at $1M or more stopped shy of a record notched last summer as high mortgage rates and low inventory drove home prices upward in June, the latest Redfin analysis shows.

  • Better HoldCo 1 Step Closer to Long-Delayed IPO. Shareholders on Friday overwhelmingly approved a plan to merge mortgage lender Better HoldCo with the Aurora Acquisition Corporation. The deal is expected to close before the end of August.

🎧 Podcasts

  • Foxconn’s Cautious Pivot To India Shows Limits Of China. The iPhone manufacturer is looking to move operations to India instead to reduce its reliance on China. This is partly in response to geopolitical tensions and because lockdowns in China caused major supply chain disruptions. Source(5:30)

  • SEC Lawyers Subpoena Fund Managers Over ESG Disclosures. They're looking at whether the funds are being fully transparent about screening companies on ESG, how they’re voting at companies’ annual meetings, or if asset managers have been following through on what they said. Source(2:46)

  • AI Jobs Engineers in Demand. Netflix's recent A.I. job post with a $900,000 annual compensation highlights the booming demand for A.I. engineers and the industry as a whole. Meanwhile, Upwork saw A.I. job listings surge by over 1,000% in Q2, reflecting the intense competition for these professionals. Source(17:15)

  • Aggressive Rate Cuts by Q4. Equity markets have factored in increased liquidity, while bonds have not due to due to high Treasury bond issuance. This mismatch is driving bond yields higher, with the aim of sustaining higher rates to manage inflation until a shift in narrative possibly leads to the Fed's aggressive rate cuts by Q4. Source(20:10)

  • Housing Market is Not In A Bubble. Jason Hartman emphasizes that the market is not currently in a bubble, attributing this to factors such as solid lending practices, high-quality borrowers, low inventory levels, and strong demand for housing. The likelihood of having millions of distress sellers is low. Source(13:08)