That sentiment was reiterated by several other Fed officials yesterday who stressed that they are prepared for a long battle, particularly with inflation still being fanned by the tight labor market and healthy consumer spending.
Wall Street is also starting to bet on a higher Fed funds rate with traders giving a nearly 35% chance of rates climbing to 5.25% to 5.5% at the June meeting, up from just 2% at the beginning of the month. That would imply a 25-basis point rate hike at each of the Fed's next 3 policy meetings.
While more bulls seem to be growing comfortable with a more "hawkish" Fed and the ability of the US economy to withstand the tighter financial conditions, worries about corporate profits are another matter.
Consumer goods companies are expected to have the toughest road ahead as the "disinflation" trend combined with less discretionary spending take a toll. The tech sector is another concern, partially due to higher rates but also because of the end of the pandemic-induced growth boom. Analysts and companies alike believe that enormous growth pulled ahead investment in technology by as much as 5 years.
With many businesses now looking to trim costs, there are worries that the pullback in tech investment could be more substantial than Wall Street is anticipating.
The biggest firms in the sector, including Meta Platforms Inc., Apple, Amazon, and Google-parent Alphabet, in aggregate missed consensus earnings estimates by 8%, according to Bank of America analysis.
Over 70% of S&P 500 companies have reported Q4 results now. For the first quarter of 2023, 42 companies in the S&P 500 have issued negative earnings guidance, according to Refinitiv.
Only 8 have issued positive guidance, while the rest have made no change or issued none at all. Results are due today from AbbVie, AstraZeneca, Cloudflare, Duke Energy, Expedia, Hilton Worldwide, Kellogg's, PayPal, PepsiCo, Siemens, S&P Global, TotalEnergies, and Unilever.
On the economic data front, the only thing on the calendar today is Weekly Jobless Claims.
Half in US Say They Are Worse Off, Highest Since 2009: Half of Americans said their personal financial situation is worse off than it was a year ago in a Gallup poll out Wednesday. On the other side of things, 35% of Americans say they are better off now than they were a year ago. Since Gallup first asked this question in 1976, it has been rare for half or more of Americans to say they are worse off. The only other times this occurred was during the Great Recession era in 2008 and 2009. On the other hand, today’s “better off” percentage is not unusually low, having descended to 35% or lower during other challenging economic times. This includes the late 1970s and early 1980s, the early 1990s, and from 2008 through 2012. In those periods, a higher percentage than today’s 14% volunteered that their finances were “the same” as last year. By contrast, before the pandemic in January 2020, Americans were almost three times as likely to say they were better off, 59% as worse off, 20%. The 59% reading is one of the highest in Gallup’s trends, along with a 58% reading in 1999. Source Gallup
2023 Inflation Forecasts Mapped by Country: Inflation surged on a global scale in 2022, hitting record-level highs in many countries, leaving many to wonder if will finally subside in 2023. While the IMF predicts that global inflation peaked in late 2022, rates in 2023 are expected to remain higher than usual in many parts of the world. Following the 8.8% global inflation rate in 2022, the IMF forecasts a 6.6% rate for 2023 and 4.3% rate for 2024 based on their most recent January 2023 update. For the optimists, the good news is that the double-digit inflation that characterized nearly half the world in 2022 is expected to be less prevalent this year. For the pessimists, on the other hand, looking at countries like Zimbabwe, Venezuela, Turkey, and Poland may suggest that we are far from out of the woods on a global scale. Source Visual Capitalist
Disney Plans to Reinstate Its Dividend and Cut 7,000 Jobs: Walt Disney Co. Chief Executive Officer Bob Iger announced plans for a dramatic restructuring of the world’s largest entertainment company that includes cutting 7,000 jobs and $5.5 billion in cost savings. The media and entertainment giant said it would now be made up of three divisions: Disney Entertainment, which includes most of its streaming and media operations; an ESPN division that includes the TV network and streaming service; and a Parks, Experiences and Products unit. The move marks the most significant action Bob Iger has taken since returning to the company as CEO in November. On Wednesday during its quarterly earnings call with investors, Disney also announced it would be cutting $5.5 billion costs, which will be made up of $3 billion from content, excluding sports, and the remaining $2.5 billion from non-content cuts. Disney also said it would be eliminating -7,000 jobs, or about 3% of its global workforce. Disney announced better-than-expected earnings results, led by big gains at its theme parks. Profit came to 99 cents a share, above the 74-cent average of analysts’ estimates. Revenue grew +7.8% to $23.5 billion, slightly above projections. Losses in the streaming business more than doubled to -1.05 billion from a year earlier, but that was better than management had forecast three months ago. Source CNBC
Road Tripping Retirees Set To Bolster US Gasoline Demand: The baby boomer demographic has driven many of the major financial trends of the last several decades. We shouldn’t expect this to end, and it has implications for oil demand, specifically that it may be higher than expected going forward. This trend is already occurring and is potentially one of the reasons that high gasoline prices and some recessionary data points have not dampened demand to the extent one might expect. When baby boomers originally entered the workforce, it helped drive down inflation. They simply produced more than they consumed. We now have the opposite. Retirees are growing, and they are consuming not producing, with the workforce that supports their consumption getting smaller and smaller. In 1970, only 10% of the United States population was retired and eligible for retirement benefits. Today that number has grown to approximately 17%. The primary goal of this group in retirement is travel, as per retirement surveys, and they often have income tied to inflation in some way. Retirements also accelerated during COVID which means the trend is here earlier, and stronger than expected. Source Forbes
Map of US Housing Shows Big Pandemic Shift in Equity-Rich Mortgages: The pandemic housing boom has seen home-equity wealth surge all over the country — but the gains aren’t evenly distributed. The share of equity-rich mortgages — those that have a loan-to-value ratio of 50% or lower, meaning the mortgage holder’s equity stake is at least 50% — almost doubled in the past three years according to new data released by Attom, a real estate data analytics firm. Almost half of all mortgaged homes now fall into that category. The equity share is even bigger when homeowners who don’t owe any debt are included. In general, states in the south and west of the country have seen the biggest gains. Out of the 20 zip codes that had the fastest increase in the share of equity-rich mortgages over the last three years, 13 were in Florida, according to Attom’s data. Some 62% of mortgaged properties in the state were equity-rich as of December, up 36 percentage points from the end of 2019. At the other end, among the 20 zip codes that have seen the largest downward shift in the share of equity-rich properties, 15 are in the New York City and San Francisco areas. Source Bloomberg
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A Firsthand Account of Microsoft's AI-Powered Bing Search: Leaning on its multiyear, multibillion-dollar partnership with the buzzy startup OpenAI, Microsoft is incorporating a ChatGPT-like bot front and center on the Bing home page. You can ask it questions—even about recent news events—and it will respond in sentences that seem like they were written by a human. It even uses emojis. Microsoft is also adding AI features to the "Edge" browser. Microsoft’s new Bing and Edge became available in a limited preview Tuesday. Wall Street Journal technology writer Joanna Stern says that after seeing the new Bing in action, she can confidently say this: A big change is coming to how we get information and how we interact with our computers. The new Bing is based on an improved OpenAI model that’s more accurate and relevant than what’s currently in its ChatGPT software. More important, it now has Bing’s vast knowledge of the world and internet. Source WSJ
Cities Race to Add EV Charging Stations: There's been a steady drumbeat of announcements from mayors about their plans to blanket their cities with electric vehicle (EV) charging stations — and to keep equity considerations front and center when choosing sites. Obstacles are plentiful — from the price of urban real estate to outdated zoning rules — but momentum is high. "There's a sense of urgency," Denver Mayor Michael Hancock tells Axios. "We know we've got to get this infrastructure built out." Ubiquitous coverage could coax more city dwellers to buy EVs, helping reduce vehicle emissions. The (stated) emphasis on placing chargers in low- and moderate-income neighborhoods could improve access not just for everyday drivers, but also for rideshare and delivery workers. "Frankly, the state of the industry is a little bit better than people think," Jonathan Levy, chief commercial officer at charging provider EVgo, tells Axios. "We just have a lot more work to do." One issue, Levy said, is that EVs today comprise just about 6% of new vehicle sales, "but the infrastructure we need when we're at 6% is about the same as the infrastructure that we need when we're at 100%." Source Axios
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