Stock investors today are anxious to see the "minutes" from the Federal Reserve's July meeting, as wells as earnings results from Target and TJX. Bulls are expecting the minutes to show that more Fed officials are growing reluctant to hike interest rates any further.

At its meeting last month, the central bank raised its benchmark rate by +25 basis-points and has indicated that one more could still lie ahead. Wall Street mostly anticipates the Fed will leave rates unchanged at its September 19-20 meeting but odds for a hike at the Oct/Nov 31-1 meeting have been rising.

Wall Street insiders think the more pressing question is, how long will the central bank keep rates at high levels? Economists at Goldman Sachs recently forecast the first Fed rate cuts could come as soon as Q2 of 2024, while several others think the second half of 2024 is more likely.

Bears however think inflation will remain too hot for the Fed's comfort and force the central bank to keep rates higher into 2025. The worry is that the longer interest rates stay high, the greater the threat of "stagflation," a combination of high inflation, slowing growth, and rising unemployment. That's a nightmare scenario for the Fed as a well as businesses and consumers. There's very little a central bank can do to right the ship - if they raise rates, it risks more job losses. But if they don't raise rates, inflation runs rampant.

During the "stagflation" period from 1974 to 1987, the US unemployment rate peaked at 14.5% and never fell below 6%. At the same time, inflation stayed over +5%, hitting a peak of +14.6% in 1980. The fed funds rate in 1980 hit 20%, its highest level ever.

Economists don't necessarily think those extremes are at risk of being repeated but any degree would be a tough environment for corporate profits.

Today, economic data of note includes Housing Starts & Permits and Industrial Production. Investors will also be digesting more retail earnings with results due from Target and TJX. Home Depot yesterday reported a -2% decline in sales, although results still topped analyst expectations.

The real disappointment was the company's forward guidance which forecasts fiscal year sales decline of as much as -5%. Other earnings today include Cisco and I'm still over-weight cash and staying conservative with my overall stock portfolio.

Fitch Warns Big Banks Could Be Downgraded: A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase. The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks. But another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC. Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist and U.S. Bank. Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads. Source CNBC

Traditional TV Viewing Continues to Decline... Lowest Ever Recently Reported: Broadcast and cable TV dropped to a new low in July 2023 in terms of total share among American viewers — dropping below 50% of total TV usage in the United States for the first time ever, according to Nielsen. Meanwhile, streaming services like YouTube and Netflix accounted for a record 38.7% of total U.S. TV usage, the category’s largest share reported in Nielsen’s The Gauge monthly report to date. Believe it or not, YouTube TV viewership is more than Netflix. The two most-streamed titles in July were licensed shows: “Suits”, the legal drama starring Patrick J. Adams, Gabriel Macht and Meghan Markle, on Netflix and Peacock; and the Australian kids’ animated favorite “Bluey” shown on Disney+. Source Nielsen

The "Richcession" is Real: By most measures, six-figure earners are the elite of America’s workforce. People making more than $100,000 a year were the most likely to survive the mass layoffs early in the pandemic and, when work returned, most likely to be able to work remotely, saving themselves exposure to COVID-19 and the time and money spent commuting. Now, however, cracks are showing in the top 25% of the income distribution, according to recent research from Bank of America. Unemployment is rising fastest among households making $125,000 or more, the bank said in a recent note based on analysis of its deposit data. As of last month, the number of high-income households receiving unemployment benefits was about 70% higher than the year before, more than double the rise in the lowest-income bracket, which includes households making $50,000 or less. That continues a trend that started at the beginning of 2023 but has become more pronounced this summer, the bank noted. Unlike most downturns, which hit lowest-paid workers first and hardest, this time layoffs have been concentrated in the professional sectors, with formerly high-flying tech companies cutting thousands of jobs even as restaurants and construction companies keep hiring. But the slowdown for the tippy-top could presage a bigger slowdown in consumer spending, Bank of America notes. Source Fortune

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Bubblegum Maker Bazooka to be Sold for $700 Million: Private equity firm Apax Partners has agreed to buy Bazooka Candy Brands for around $700 million. This is a pretty sweet salvage job by the sellers, Madison Dearborn Partners and former Disney CEO Michael Eisner. Madison Dearborn and Torante in 2021 agreed to take the company via SPAC at a $1.3 billion valuation, when it still included the Topps trading cards and collectibles business. But that deal was killed when Topps lost its exclusive licensing deal with Major League Baseball to Fanatics. The firms then sold off Topps to Fanatics for $500 million while holding onto the confectionary business, which is now going for $700 million (including debt). That means $1.2 billion in sale value versus the $1.3 billion SPAC. But given where most SPACs have traded post-merger, that haircut is probably a gain. Source Axios

Nestlé Testing Vending Machine that Makes DiGiorno Pizza in 3 Minutes: Nestlé is testing a way to make a hot thin-crust DiGiorno pizza on demand in places such as college dorms and airports as the world’s largest food company looks to move the brand “beyond the freezer.” The kiosk, which looks similar to a Redbox DVD rental machine, allows consumers to order a cheese or pepperoni pizza for $9 that is delivered through a slot in the machine ready to eat in three minutes. Nestlé launched a pilot kiosk at a Colorado Walmart in April and introduced a second one three months later at a company facility in Ohio where it develops frozen foods. Nestlé is using the two DiGiorno kiosks it has rolled out already to determine whether it will expand the pilot, the pace at which it would do it, and where the kiosks would be located. Source Fooddrive

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Tesla Launches Cheaper Model S, X Versions: Tesla has launched cheaper variants of its Model S sedan and Model X SUV with shorter driving ranges in the U.S., looking to increase sales as high borrowing costs hamper demand for expensive electric vehicles. Tesla has already slashed prices of its vehicles in the U.S., China and other markets, prioritizing sales growth over profit margins. The Austin, Texas-based company has also offered other incentives to reduce inventory in a strategy that CEO Elon Musk said was part of Tesla's recession playbook. The new S and X "standard range" models are priced at $78,490 and $88,490, respectively. Model S has a driving range of up to 320 miles, lower than the regular dual motor and tri-motor Plaid variants that offer up to 405 miles and 396 miles, respectively. Model X SUV has range of up to 269 miles, well below its more expensive versions that offer up to 348 miles. Both models will have the same battery and motors as the dual motor variants that cost $10,000 more, but their performance and range will be limited by software, a Tesla sales representative said. Source Reuters

Wall Street Ready to Scoop Up Troubled Commercial Real Estate: Wall Street firms are raising new funds to acquire office buildings, apartments and other troubled commercial real estate, looking to scoop up properties at a fraction of the price investors paid a few years ago. Cohen & Steers, Goldman Sachs, EQT Exeter and BGO, formerly known as BentallGreenOak, are among the prominent names raising billions of dollars for funds to target distressed assets and other real estate with slumping values, according to regulatory filings. Commercial-property sales have been moribund until recently because most sellers haven’t been willing to cut their prices to the levels that buyers are demanding. Now, a small but growing number of office owners have begun to capitulate, unloading distressed properties. This wave of fundraising is the latest sign that sales activity is expected to increase as more sellers yield on price. Fund managers also expect values to fall as regional banks, under pressure from this year’s rash of bank failures, unload commercial-property loan portfolios at discounted prices. Source WSJ

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