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Wall Street is again feeling nervous about upcoming earnings from the world’s biggest companies after Q2 2024 results from Google-parent Alphabet and Tesla both failed to impress.
Alphabet’s earnings and revenue came in slightly better than expected, although business in its YouTube segment was below Wall Street’s expectations. Meanwhile, Tesla topped revenue expectations but earnings missed badly, falling for a fourth straight quarter.
Tesla’s profits were hit pretty hard by stepped-up discounting as the company tries to defend its marketshare amid growing competition. Keep in mind, a lot of companies have been forced to implement more price cuts and deals as they compete for consumer dollars that are not being spread around as freely and investors will be closely scrutinizing how margins are being impacted.
Investors also are going to be very tuned in to company executives’ assessments of overall consumer confidence. While most on Wall Street think the US economy will avoid a downturn, any signs that consumers are more seriously reining in spending could raise doubts and once again stoke recession fears.
Some Wall Street economists have warned that companies could get trapped in a “deflationary spiral” if consumers start holding off on purchases because they think that even bigger discounts are coming. Other economists believe that these types of spirals are more the product of economic downturns. Either way, if consumers adopt more of a discount mentality, it could dent growth for both companies and the economy.
Bulls believe that Federal Reserve rate cuts later this year could boost consumer spending and help lessen the pricing pressure in companies. AT&T, Boston Scientific, Carlisle Companies, Chipotle, Ford Motor, IBM, Invitation Home, KLA, NextEraEnergy, O'Reilly Automotive, and Thermo Fisher Scientific are today’s earnings highlights.
On the economic data front, Flash Manufacturing PMI for July will provide an early look at both manufacturing activity and input prices. Some recent data has indicated that new inflation pressures are now coming from manufacturing rather than services, which Wall Street has been keeping an eye on.
So far, manufacturing inflation has been more than offset by disinflation across other sectors. New Home Sales for June is also out today. It’s worth mentioning that President Biden is scheduled to make a national address this evening at 7 p.m. CST. This will be the first time he has publicly spoken to the nation since announcing he was leaving the Presidential campaign this past Sunday. I suspect the political drama is going to continue to dominate the headlines until the upcoming November 5th election is behind us. Who knows, we may even see more political drama after that if the election is contested in any way.
Seasoned traders and investors will tell that politics typically has very little impact on the overall stock market, but this time around it feels like the funds and larger traders are giving it much more weighting and attention.
Home Prices Hit Fresh Record High: Existing home sales fell for the fourth month in a row in June as record-high home prices and 7% mortgage rates weighed on buyers. Sales of previously owned homes fell -5.4% to an annual rate of 3.89 million in June, the National Association of Realtors said Tuesday. It is the slowest pace of home sales in any June since 1999, when the NAR began tracking the data. The median price of an existing home in June rose +4.1% as compared with the year before, to $426,900, an all-time high. Unsold inventory rose to the highest level in four years. Nearly 30% of properties were sold above list price, the NAR said, with homes receiving an average of 2.9 offers. All-cash buyers made up 28% of sales. The share of individual investors or second-home buyers was 16%. About 29% of homes were sold to first-time home buyers. Source Market Watch
GM Delaying Even More EV Projects: General Motors said it would delay plans for a new Buick electric vehicle and push back the opening of an EV truck factory, the latest retrenchment by automakers that had been pushing hard into battery-powered cars. GM Chief Executive Mary Barra told Wall Street analysts Tuesday that GM is deferring investments to ensure the company doesn’t get ahead of demand. She added that GM will be rolling out several new electric models in the coming months, because “they represent the largest growth opportunities for us.”Last week, Ford Motor said it would expand an existing factory in Ontario, Canada, to make combustion-engine pickup trucks, after moving away from plans to build an electric SUV at the facility. U.S. electric vehicles continue to grow, but the pace has eased and demand has not matched many forecasts. EVs made up about 8% of new vehicles in the second quarter, up from 7.2% a year earlier, according to Kelley Blue Book. Meanwhile, stout demand for gas-powered vehicles continues to fuel profits for GM and other automakers. GM on Tuesday raised its adjusted profit outlook for 2024. Source WSJ
American Politicians are the Oldest in the Rich World: Age-related concerns in American politics run deeper than the Presidency. Data compiled by the Inter-Parliamentary Union, a Swiss-based organization, show that America has the oldest legislators in the rich world. The average age of those who sit in the House of Representatives and the Senate is 59, almost a decade older than the OECD average for elected lawmakers. Around 45% of America’s representatives are over the age of 60. That is a higher proportion than any other country in the OECD, where the average is 19%. Denmark, Belgium and Colombia have the youngest legislators: only around 10% of the people in elected positions are boomers or older, and many representatives are in their 30s. South Korea and Japan, where seniority is revered, rank closer to America, with average ages of 55 and 56 respectively. The same data show that America has the least age-representative government of the oecd. In most countries lawmakers are roughly ten years older than the average for the population, and in Denmark, Germany, Finland and Belgium less than five years older. In America, however, the gulf is more than 20 years. The world was just getting to grips with push-button telephones when the average American lawmaker was born. Source The Economist
Retailers Move Toward “Check Zero”: Most Americans may not even remember the last time they wrote a check. Only 15% of adults said they wrote a few checks a month in 2023, according to a recent report by GoBankingRates. At the time of the late November survey, 46% of the more than 1,000 respondents said they hadn’t written a single check in 2023. These days, consumers are far more likely to “tap and go.”In fact, in the years since the Covid pandemic, Americans have fully embraced contactless and digital payment methods, while check writing has steadily declined into near-oblivion. As of July 15, Target joined a growing list of retailers, including the Aldi supermarket chain, Whole Foods, Old Navy and Lululemon, that no longer accept personal checks as payment. Even more businesses are likely to follow suit, according to Scott Anchin, vice president of operational risk and payments policy for the Independent Community Bankers of America. That’s in part because check fraud is a significant issue, he said. Source CNBC
Are America’s Recession Indicators Broken? The big question right now is whether the economy's gentle slowdown could morph into a painful downturn. But the signals that typically offer clues look more unreliable than ever. Recession indicators don't work like they used to. Many of them have been tripped, yet no big downturn has materialized. The quirks of the pandemic business cycle are the likely culprit. In the past, trends in temporary employment were a big tell — whatever happened in this sector soon happened in the broader job market. Or at least, that was the case ahead of recessions in 1991, 2001 and 2008. Temp employment peaked in March 2022; it has shed 515,000 jobs since then, a -16% drop. But total payroll employment has kept rising anyway. Business leaders "have mostly convinced me something fundamental is changed in the labor market about the role of temporary employment," Chicago Fed president Austan Goolsbee told reporters earlier this month. An inverted yield curve also has a track record of predicting recessions, going back more than a half-century. The curve has been inverted — meaning the cost for the government to borrow money in the short term has been higher than in the long term — for two years, the longest period on record. And still no recession. Source Axios
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