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June Retail Sales came in flat versus an expected decline of -0.3% and May figures were revised higher. Excluding vehicles and gasoline, June Retails Sales were up nearly +1% and the highest since March. The results are calming some fears that US consumers were starting to crack, a sentiment that has been echoed by many consumer goods companies for a while now. Bulls argue that consumers are just getting more choosey about what they spend their money on and are looking for “value” which is likely hurting companies that can’t seem to nail the right pricing strategy or simply have products that consumers don’t want right now.
Keep in mind, consumers are outright angry about the relentless price increases over the past three years and many are protesting with their wallets. They are also seeing more discounts and hearing companies say they’ve hit peak pricing-power, so it’s likely that more smart consumers are starting to hold out for lower prices.
While data and company executives alike do indicate that lower-income consumers are struggling, the latest data seems to show that better off Americans may not be feeling the same impacts and continue to spend, though maybe not as freely.
The change in sentiment about the economy on Wall Street has given investors more confidence in the economy and in turn, stocks beyond the perceived “safety” of big tech. Bulls also point out that healthy consumer spending in June did not fan inflation. In fact, inflation pulled back significantly according to the Consumer Price Index (CPI). Corporate profits appear to have held up as well, at least based on Q2 2024 results so far.
It’s still very early days but companies in the S&P 500 are reporting earnings growth of 9.3% for the second quarter, according to FactSet. However, many Wall Street insiders are worried that expectations have gotten unrealistic. The average analyst forecast now sees the S&P 500 ending 2024 north of 6,000, which would be a gain of some +27% for the year. The index gained around +24% in 2023 but it also lost a little over -22% in 2022.
Today, tech bulls are anxious to see results from ASML Holding, which is virtually the only company in the world that makes the equipment used to make the most advanced AI chips. The company’s results could have a big impact on current sentiment surrounding the technology with more investors recently worrying about a “bubble” in the sector.
Other earnings of note include Crown Castle, Discover Financial, Elevance Health, Johnson & Johnson, Kinder Morgan, Las Vegas Sands, Prologis, United Airlines, and US Bancorp. Economic data today includes the Fed’s Beige Book, Housing Starts & Permits, and Industrial Production.
IMF Warns Global Interest Rates Could Stay Higher for Even Longer: Global inflation is expected to come down more slowly in the second half of the year, raising the prospect of interest rates remaining higher-for-even- longer, according to the IMF. The reason is the price of services. That broad category ranges from housing and haircuts to restaurants and medical treatment. Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalization, according to a new IMF report released Tuesday. Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates. The IMF's report also warned that an escalation in trade tensions could raise near-term risks to inflation by increasing the cost of imported goods along the supply chain. They added that trade tariffs could generate damaging cross‐border spillovers, as well as trigger retaliation, resulting in a costly race to the bottom. Source Yahoofinance
Home Sellers Are Cutting Prices as Housing Supply Balloons in These Areas: Nearly a third of home sellers in Sun Belt cities are slashing their asking prices as the number of properties for sale in those markets surges. The share of home listings with a price cut was the highest in metropolitan areas across the South as homeowners competed to entice buyers, according to June monthly data from real-estate company Realtor.com. The report includes data for home listings in the 50 largest U.S. metropolitan areas going back to 2016. Forty-seven out of 50 metropolitan areas in the U.S. saw an uptick in for-sale listings with price cuts this June as compared with last year, the company said. The biggest annual increases were in Tampa and Jacksonville, Fla., and in Denver, Colo. The drop in home prices comes during one of the most expensive housing markets in U.S. history. Mortgage rates remain close to 7%, and home prices in May hit an all-time high, with the median price for a home hitting $419,300. Source MarketWatch |
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AI-Related Downsizing Is Growing More Common: Fears that AI will be stealing jobs were given fresh life recently when accounting giant Intuit announced it would lay off 1,800 employees as part of an AI-centered reorganization. Intuit's shift to AI-oriented labor is happening amid fears that the technology could displace droves of workers. Data shared with Inc. indicates that startups are turning to OpenAI's text generation tool, ChatGPT, in lieu of hiring freelancers on gig work sites, such as Fiverr, Upwork, and Toptal. According to an unpublished survey by the accounting firm Kruze Consulting, the number of startups paying for enterprise versions of ChatGPT has exploded since 2023. Nearly two-thirds of the companies on Kruze's client list of 550 VC-backed startups are paying for the service, Kruze reports, whereas, the average spend on freelance copywriters has plunged by -83% since November 2022. However, data indicate that AI's incursion into other roles has been less dramatic, at least for now. A recent survey by researchers at the Massachusetts Institute of Technology found that companies could only replace 23% of wages paid to human workers with AI tools performing the same jobs. Source INC
Equity Trading Crushes Estimates for Big US Banks: Equities traders across Wall Street’s biggest banks pulled off a clean sweep of higher-than-expected quarterly gains — by a startling margin. The 18% jump in combined revenue from helping clients bet on stocks was more than triple the increase analysts estimated. On conference calls, industry leaders pointed to a combination of swelling balances and a flurry of dealings, particularly in derivatives, led by their largest customers. “In institutional equities, we are back,” Morgan Stanley Chief Executive Officer Ted Pick said on a conference call Tuesday touting his firm’s $3.02 billion haul. “It continues to be an equities world. You see it in the asset price momentum in the US. You see now the potential for that to broaden to more names and more sectors.”Goldman took first place in the three months ended June 30 with a $3.17 billion haul, while Morgan Stanley came in second. The S&P 500 rose more than 14% in the first half. “The activity and the balances, et cetera, obviously have benefited from equity market inflation over the course of the year,” Goldman CEO David Solomon said Monday. Source Bloomberg
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Is Skepticism About AI Growing? The lure of AI to transform the world has led the stock market to new heights and revitalized the venture capital community after the 2022 downturn. But as stocks like Nvidia — the darling of generative AI stocks with its chip monopoly — recently retreated from all-time highs, a few voices have spoken up about what they view as the false promises of the new technology. Goldman Sachs is the most prominent of these critics, who also include MIT professor Daron Acemoglu and Silicon Valley pioneer Roger McNamee, a cofounder of Silver Lake Partners. Even VC heavyweight Sequoia Capital has raised concerns. The main question for Goldman’s Jim Covello, head of global equity research, is whether the $1 trillion likely to be spent on AI in the next few years will earn an appropriate return on investment. “What trillion-dollar problem will Al solve?” he asked, noting that “replacing low-wage jobs with tremendously costly technology is basically the polar opposite of the prior technology transitions I’ve witnessed in my thirty years of closely following the tech industry.”To justify its extraordinarily high costs, AI “must be able to solve complex problems, which it isn’t designed to do,” he explained in a recent Goldman report on the topic. Source Institutional Investor
Gen Z Sours on Tech Jobs: Tens of thousands of tech workers have lost their jobs this year, and the next generation is taking notice that the days of free meals and hefty stock options may be over. While tech giants such as Google, Amazon, and Apple used to near the top of the “preferred employer” list for high school students, they have since slipped, according to the 2024 Career Interest Survey by the National Society of High School Scholars, an academic honor society with over two million members. In 2024, Google fell to seventh place among preferred employers — three spots down from 2022. In 2018, Google had been the second-highest preferred employer for high schoolers, and it topped the list in 2017. Amazon came in after Google as the eighth-highest preferred employer for high schoolers in 2024, falling three places from fifth in 2022. And Apple fell from eighth to ninth place between 2022 and 2024. While the tech industry seems to be losing interest from Gen Z, healthcare is gaining. St. Jude Children’s Research Hospital, Mayo Clinic, and Health Care Service Corp. were the top preferred employers for high school students in 2024. Source Quartz |
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