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Stock indexes are on track to notch a winning week with the S&P 500 and Dow also headed for new record highs.
There is not a lot to digest today with no significant economic data and a very light earnings calendar.
Enbridge, Fortis, PepsiCo, and Southern Copper are the main highlights. We are at the tail end of Q4 earnings season now and most of the big “market moving” names have reported.
The one biggie left is Nvidia, which reports on February 21. Many of those left to report are consumer goods companies and their insights will be of high interest.
Next week’s key releases include Arista Networks and Michelin on Monday; Airbnb, Biogen, Coca-Cola, Global Foundries, Invitation Homes, Marriott International, Moody’s, Restaurant Brands, and Zoetis on Tuesday; Cisco, CME Group, Kraft Heinz, Owens Corning, and Sony on Wednesday; and Applied Materials, Bridgestone, Deere & Co, DoorDash, DraftKings, Ingersoll Rand, The Southern Company, and Stellantis on Thursday.
With earnings winding down, investors next week will be turning attentions back to economic data with the calendar including several reports that could influence expectations for Federal Reserve policy. Those include the Consumer Price Index (CPI) on Tuesday, Retail Sales on Thursday, and the Producer Price Index (PPI) on Friday. For CPI and PPI, bulls are hoping for softer inflation reads that could revive expectations for Fed rate cuts this year. Likewise, a soft Retail Sales read would help calm concerns about robust consumer spending that some worry could stall the disinflation trend.
Of course stronger than expected results from these reports, especially CPI, will likely raise more doubts about current rate cut expectations. That in turn could see more investors move to the sidelines, especially with few major catalysts on the horizon.
With stocks already at relatively expensive levels, many Wall Street insiders think indexes may struggle to gain much ground between now and the next Fed meeting on March 19-20. It will be an even bigger challenge to push stocks higher if upcoming inflation and jobs data come in hot.
We also can’t forget the fast-approaching March 1 and 8 deadlines for Congress to pass funding legislation and avoid a government shutdown.
Additionally, the wars in Ukraine and Gaza are far from settled and could take some unexpected turns with US funding for both Ukraine and Israel up in the air. Bottom line, there may be more downside than upside risk over the next several weeks so more investors may choose to sit on their hands for now.
Banks Not Out of the Woods Yet Regarding Commercial Real Estate: High commercial real estate vacancies are expected to create some stress for smaller banks. “It’s obvious that there’s going to be a stress and losses that are associated with this,” said Treasury Secretary Janet Yellen yesterday. However, she said she does not see them as causing a systemic risk to the nation’s financial system. On Tuesday of this week, Yellen said she does “have a concern about commercial real estate.” She noted that higher interest rates and rising vacancy rates in office buildings have combined to cause problems — especially as real estate loans come due. These issues in cities with high vacancy rates, according to Yellen, are “going to put a lot of stress on the owners of these properties. For some banks this will be a concern, but on balance, the system is well-capitalized,” Yellen reported. Yellen also added that she believes the issue is manageable, noting that banking regulators and the Financial Stability Oversight Council that she heads are working closely with institutions on how to meet the needs of borrowers. The council is also closely monitoring non-traditional banking institutions, specifically non-bank mortgage lenders.
Big Office Leases Shrinking: Employers around the country are shrinking their office footprints and looking to rein in costs. The 100 largest leases last year totaled 26.8 million square feet, down from 30.4 million square feet in 2022, per the CBRE report. While companies are leasing less space, they're betting higher-quality offices in prime locations will get workers in more often, according to CBRE. Also interesting, is the fact that 58% of the 100 largest office leases by square footage in 2023 were renewals, per the report from CBRE, a commercial real estate firm. That's a big shift from 2019, when 68% of the top 100 were new leases and 32% were renewals. Also, check out the graphic below and look at who leases by far the most space. Source Axios
$3 for a Single McDonald’s Hash Brown? $18 for BigMac Meal? Customers Are Fed Up: Corporate America may be bumping up against the limit of its power to keep raising prices as consumers in some markets cry uncle. At McDonald’s, which has repeatedly boasted about its ability to raise menu prices without denting sales, executives are finally acknowledging that customers need a break. This week, as the burger chain reported weaker-than-expected sales at its US stores, CEO Chris Kempczinski addressed McDonald’s affordability problem, and indicated the chain would cut prices on some menu items. Eating at home has become more affordable, Kempczinski said. And he's right, even though grocery prices are still high, they rose just 1.3% overall in 2023, while dining out surged 5.2%, according to the latest Consumer Price Index report. That’s putting pressure on lower-income consumers, a vital base for the chain. Kempczinski didn’t offer details on the timing or size of any price cuts. But his focus on affordability marked a shift from just a few months ago, when he boasted that US menu prices, which went up as much as +10% in 2023 alone, weren’t deterring sales. Source YahooFinance
USDA Urges States to Fix “Unprecedented” Delays and Errors in Food Aid Programs: U.S. states must address unprecedented levels of delay and error in getting federal food aid to recipients, the Department of Agriculture said in letters sent to governors on Thursday. More than 42 million low-income Americans receive benefits from the Supplemental Nutrition Assistance Program (SNAP), the largest U.S. anti-hunger program, whose administration by states is part-funded by USDA. The COVID-19 pandemic and food price inflation increased SNAP enrollment in recent years and states are struggling to support higher case loads, said USDA Deputy Under Secretary for Nutrition Stacy Dean in an interview with Reuters. Consequently, some recipients are taking months to be approved for benefits or receiving the wrong amount, Dean said. Agriculture Secretary Tom Vilsack on Thursday sent letters to the governors of 44 states and the District of Columbia, Guam and the U.S. Virgin Islands urging them to reduce error rates and improve timeliness. States have managed high case loads before, not least during the Great Recession, without significant issues, Dean said. “We haven't seen this kind of problem in the program, it’s unprecedented." Source Reuters
AI-Generated Robocalls Banned After Troubling Deepfakes: The Federal Communications Commission on Thursday outlawed artificial intelligence-generated robocalls in response to an uptick in so-called deepfakes intended to sound like political candidates, including thousands of calls ahead of the New Hampshire primary last month using a vocal clone of President Joe Biden. The FCC unanimously adopted a ruling that robocalls that employ AI-generated voices are considered “artificial” voices under the federal Telephone Consumer Protection Act, effectively making the use of those voices illegal. Those deepfakes “are already sowing confusion by tricking consumers into thinking scams and frauds are legitimate,” FCC chairwoman Jessica Rosenworcel said in a statement last month, adding that Americans “could all be a target of these faked calls.” Source Forbes
Super Bowl Ads: More Star Power, More Candy and Other Trends: Celebrities in Super Bowl ads are reaching new heights. More than 40% of last year’s Super Bowl ads featured more than one celebrity, according to iSpot.tv, a nearly sixfold increase from 2010. Brands are leaning more on celebrities because there is “so much pressure to break out,” said Allen Adamson, a branding strategist. Stars help advertisers get noticed and tap in to social media, “because people will share that sort of thing more than they will share a product story,” he added. But the approach now risks a tragedy-of-the-commons effect. “There are so many celebrities appearing during the game, and it is really hard to tie the celebrity to the brand,” Adamson said. “It’s celebrity soup.” Advertising during the Super Bowl remains the surefire way to reach a large audience. The game consistently draws more than 100 million viewers, and last year’s edition was the most-watched ever, with an audience of 115.1 million. The game’s ratings dominance helps explain why the Super Bowl is the most expensive advertising real estate on television. Brands have ponied up roughly $7 million for 30 seconds of ad time this year. That is an astronomical leap from the $42,000 that brands shelled out for ad time during the inaugural Super Bowl, between the Green Bay Packers and the Chiefs in 1967, which aired on NBC and CBS. Seemingly every year, a specific industry dominates the Super Bowl ad buzz. This year, the industry making the biggest showing is candy and snack-food makers. Source WSJ
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