Commentary |
Investors remain on edge about the future of Federal Reserve policy and the possibility that the central bank won’t cut interest rates as much as Wall Street currently expects.
Fed Chairman Jerome Powell yesterday said that the central bank needs more data to determine whether the bump in inflation at the start of the year was just a blip or the start of a longer-term trend. He also emphasized that given the strength of the economy, the Fed feels comfortable remaining on hold for now. At the same time, Powell stated that he still believed that rate cuts were likely later this year, but the timing remains uncertain and will depend on the data.
The key upcoming reports that investors will be watching include the March payroll report tomorrow (Friday), as well as the Consumer Price Index (CPI) next Wednesday, April 10. Both sides of the aisle found takeaways in Powell’s comments.
Bulls mostly view it as “neutral” and feel the Fed Chief largely reiterated the current script, i.e., officials want more evidence that inflation is heading toward the Fed’s +2% target. Bears felt Powell’s remarks were less “dovish” than recent speeches and underscored that the Fed has no reason to rush rate cuts. Looking at the data, the picture remains mixed.
The ISM services index yesterday showed a substantial decline in March wholesale prices. However, PMI reads from S&P Global showed prices across both manufacturing and services sectors continued rising in March. Traders are simply pointing to the rise in many commodity prices as a sign that inflation is at risk of heating up again.
Thanks to a recovery in global manufacturing, demand for energy, metals, and other raw materials is expected to only keep climbing. Some insiders are now forecasting +$4 gasoline heading into the summer driving season as oil pushes closer to $90 per barrel. High gas prices can somewhat help counter inflation because it eats into consumer spending in other areas, but that’s obviously not a great outcome for US companies and their shareholders.
Today brings a slew of Fed speakers - at least 8 - including Fed Governor Adriana Kugler. The only data today is International Trade. The earnings calendar is also quiet with Conagra being the main highlight. Don’t forget, Q1 2024 earnings season kicks off a week from tomorrow!
AI Means a Four-Day Workweek is Coming for Most... Investments in Leisure and Experiences Could Payoff Big: Billionaire investor Steven Cohen argues that artificial intelligence will prove to be a durable theme in markets, believing that potential productivity gains from the technology are yet to be fully appreciated. In an interview with CNBC, Cohen said expectations around the productivity-enhancing benefits of AI were a factor in his 2023 decision to invest in startup golf league TGL. The broader point is that anything around leisure, travel, experiences, all that kind of stuff stands to benefit as AI begins to deliver, he said. Cohen added that he believes a four-day workweek is coming, when it happens is hard to know. The environment around AI sort of reminds me of the ‘90s, when the tech boom drove a productivity surge, Cohen said, adding that many of the companies that are likely to be the prime beneficiary may not have even been formed yet. He dismissed the notion, however, that the recent stock-market rally was mimicking the late stages of the 1990s dot-com bubble. We’re not in 1999, he said, adding that it may take a while for the AI theme to really take hold. Source MarketWatch
The "Silver Tsunami" is Here: In 2024, more than +4 million Americans will turn 65. This demographic phenomenon, known as "Peak 65", will continue through 2027 then start to slow. It’s the largest surge of Americans hitting the traditional retirement age in history! Not only do we have a massive wave of Baby boomers retiring (those born between 1946 and 196), but we are also starting to see a lot more from Generation X retiring (those born between 1965 and 1980) of which the oldest will soon be turning 60. American adults believe they will need $1.46 million to retire comfortably, a +15% increase from last year and a massive +54% jump from what Americans said in 2020 that they expected they’d need. Unfortunately, even though Americans believe they’ll need a lot more to retire comfortably, the average sum that US adults have saved for retirement has dropped to $88,400 in 2024 from $89,300 in 2023. It’s down more than -$10,000 from a five-year peak of $98,800 in 2021, a recent study found. You can read more HERE . For what it's worth... Starting in January 2011, the oldest post-World War II baby boomers began turning 65; since then, roughly 10,000 boomers have celebrated their 65th birthday every day. By the time the last of this generation approaches retirement age in 2029, 18 percent of the U.S. will be at least that age, the Pew Research Center projects. The Centers for Medicare and Medicaid Services estimates there will be +81 million beneficiaries in 2030. In 1960 In 1960 there were 5.1 workers per each person receiving Social Security benefits; that ratio dropped to 2.8 in 2022. By 2035, the trustees estimate 2.3 workers will be contributing for each Social Security beneficiary. This year, an average of over +67 million Americans per month will receive a Social Security check, totaling $1 trillion in benefits paid during the year. |
Fed Blocks Tough Global Climate Rules for Wall Street Banks: US regulators, led by the Federal Reserve, have thwarted a push to make climate risk a focus of global financial rules, according to people familiar with the matter. European central bankers have been advocating for the Basel Committee on Banking Supervision to agree on requiring lenders to disclose their strategies for meeting green commitments. In closed-door meetings, US officials have cited their narrow mandate and concerns that the Basel Committee was overstepping its purpose, some of the people said. The development coincides with a wider pushback in the US by some lawmakers against financial firms that factor environmental, social and governance, or ESG, elements into business and investing decisions. At the same time, Fed Chairman Jerome Powell has made clear in public comments that the Fed shouldn’t be mistaken for a “climate policymaker.” Source Bloomberg
More Than Three-Quarters of Baby Boomers Plan to Stay In Their Home As They Grow Older: A new report from Redfin finds that most baby boomers intend to stay put as they grow older. More than three-quarters (78%) of older American homeowners plan to stay in their current home as they age. The next most common plan is moving to a 55+ community; one in five (20%) baby boomers are considering moving into a 55+ community or have already done so. Next comes moving in with adult children, with 10% of baby boomers citing that as a possible plan, and moving to an assisted-living facility (10%). Those are followed by moving in with friends (6%). The fact that the vast majority of baby boomer homeowners plan to age in place could prolong the shortage of homes for sale. Inventory is sitting at historically low levels (though new listings have started climbing in recent months) in large part because homeowners who scored ultra low mortgage rates during the pandemic are staying put to avoid taking on a new rate at today’s elevated levels. Many of those homeowners are baby boomers. Baby boomers staying put is also one reason young Americans are having a hard time finding a family home, according to a separate Redfin analysis. It found that empty-nest baby boomers own 28% of three-bedroom-plus U.S. homes, while millennials with kids own just 14%. Baby boomers have an outsized impact on the housing market because they’re most likely to own homes: Nearly 80% of boomers own the home they live in, compared to 55% of millennials. Source Redfin
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Amazon’s “Just Walk Out Technology” Shows AI is Not Always What it Seems: There’s a grey area in artificial intelligence filled with millions of humans who work in secret — they’re often hired to train algorithms but end up operating much of their work instead. These crucial workers took the spotlight this week when The Information reported that Amazon’s Just Walk Out technology, which allowed customers to grab grocery items from a shelf and walk out of the store, was being phased out of its grocery stores. It partially relied on more than 1,000 people in India who were watching and labeling videos to make sure the checkouts were accurate. Amazon says on its website that Just Walk Out uses “computer vision, sensor fusion, and deep learning” but doesn’t mention contractors. The company told Gizmodo that the workers were annotating videos to help improve them, and that they validated a “small minority” of shopping visits when its AI couldn’t determine a purchase. There are plenty more examples of companies that have humans pulling the levers behind supposedly cutting-edge AI technology. But there’s a fine line between faking it till you make it — justifying the use of humans behind the scenes on the premise they will eventually be replaced by algorithms — and exploiting the hype and fuzzy definitions around AI to exaggerate the capabilities of your technology. This pseudo AI or “AI washing” was widespread even before the recent generative AI boom. Source Bloomberg
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