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Wall Street is braced for what could be a volatile week amid key inflation data as well as earnings results from several top retailers. Investors have generally been feeling more confident that Federal Reserve rate cuts will happen this year in part thanks to April jobs data earlier this month that showed a substantial slowdown in hiring and wage gains.
The big tests this week will be the Producer Price Index (PPI) on Tuesday and the Consumer Price Index (CPI) on Wednesday. If you recall, PPI in March accelerated at the fastest pace in nearly a year, and both headline and “core” (strips out food and energy) CPI rose more than Wall Street expected in March.
A portion of headline price gains for both PPI and CPI in March were driven by an increase in gasoline and other energy costs, which peaked in April and have since pulled back. That’s expected to help bring down headline prices a bit. However, the rise in PPI, which has risen every month so far in 2024, mostly stems from wholesale services prices, which continue to offset outright price declines for wholesale goods.
For what it’s worth, and despite the recent accelerations, headline and core PPI are running around the same levels as pre-pandemic. The Fed of course closely tracks “core” consumer prices, and the main upward pressure on core CPI is still coming from housing costs, which continue to climb. If both PPI and CPI slow down as expected, bulls believe it could fuel a “relief” rally of sorts by pulling more money back to stocks after reduced Fed rate cut expectations spooked investors to the sidelines in Q1.
Retail Sales on Wednesday will also be closely watched with some on Wall Street recently growing more nervous about the health of US consumers. On one hand, a decline in consumer spending is welcome as it helps lower inflation. However, too much of a pullback raises concerns about economic growth and the possibility of recession.
Today, there is really nothing of note on the earnings or economic data calendars.
The market has aggressively walked back the number of -0.25 rates-cuts it is anticipating in 2024 to between "zero and two" being the top guesses.
The question I have is how long can "cost-cutting" be the primary driver of corporate growth on Wall Street?
I would have to imagine at some point the Wall Street insiders will want to see "top-line revenue growth". And if rates do stay higher for longer, top-line revenue growth might be a tougher task to accomplish than many of the bulls have been forecasting.
Planet Fitness Hiking Rates First Time in 26 Years: Planet Fitness will raise the price of its “classic” membership by +50% and for the first time since 1998, from $10 a month to $15 for new members beginning this summer. The “classic” membership gives people access to one location. Planet Fitness’ $25 monthly “Black Card” membership offers more location access and perks. Planet Fitness is not hiking this fee, although executives said they may begin testing higher prices for the plan. The higher membership fees come as higher interest rates and construction costs have slowed down new gym openings. I'm interested to see if this helps or hurts their overall business model. Keep in mind, overall, roughly 19.6 million people owned a Planet Fitness gym membership as of the end of the first quarter. Assuming you raised everyone's fee by +$5 per month, that brings in an extra $98 million each month or just over +$1.175 billion in additional revenue per year. Source MorningBrew
Fed Flags Rising Delinquencies for CRE and Some Consumer Loans: The delinquency rate for commercial real estate ("CRE") loans and some consumer sectors rose in 2023 to multiyear highs, the Federal Reserve said Friday in a semi-annual report on Bank Supervision and Regulation. Loan growth slowed from its rapid pace in 2022, due to both weaker loan demand and tighter lending standards, the central bank said. "Overall asset quality remains generally sound," the report said. "The total loan delinquency rate was below one percent at year-end 2023, as the delinquency rate for commercial and industrial (C&I) loans was relatively stable and the delinquency rate for residential real estate (RRE) steadily declined in 2023." The delinquency rate for consumer loans, though, rose above 1% for the first time since Q1 2020, and the delinquency rate for CRE loans rose to a five-year high of 0.9%. At large banks, office loans showed the greatest delinquency among property types. However, while banks with total assets of under $100B have lower CRE delinquency rates than the large banks, a larger percentage of their total loans are exposed to the CRE sector, the Fed said. The consumer loan delinquency rate increase was driven by credit card and auto loan sectors, with credit card loan delinquency rate reaching 1.7% at year-end 2023, its highest level in at least five years. Source Seeking Alpha
There’s Not Enough Power for America’s High-Tech Ambitions: Companies are hoovering up electricity in a US economy increasingly driven by advanced manufacturing, cloud computing and artificial intelligence. At the same time, the clean-energy goals of companies and governments are running up against the need for projects to break ground fast. Georgia’s main utility, Georgia Power, has boosted its demand projections sixteen-fold and is pushing ahead on a hotly contested plan to burn more natural gas. Critics warn it will yield higher bills and unnecessary carbon emissions for decades. Some companies are scrambling to secure bespoke renewable-energy deals to power their development. Similar quandaries are rippling through other hubs of the new American economy, with utilities in Tennessee and the Carolinas forecasting their own unexpected surges in load growth. U.S. power usage is projected to expand by +4.7% over the next five years, according to a review of federal fillings by the consulting firm Grid Strategies. That is up from a previous estimate of +2.6%. For states like Georgia, the fear is missing out on what could be once-in-a-generation investments. Wall Street is salivating over an artificial-intelligence-fueled tech bonanza, while Washington is throwing billions of dollars into domestic manufacturing. The added wrinkle is that it is all happening as many parts of America—corporate America included—are trying to wean themselves off fossil fuels. Source WSJ
Traders Betting US Tariffs to Include Chinese Cooking Oil: Soybean oil futures surged on Friday as traders bet that Chinese used cooking oil may be included on the list of tariffs expected to be announced by the US. The Biden administration is set to raise tariffs on goods produced in China such as electric vehicles as early as this week, Bloomberg reported Friday, citing people familiar with the matter. The full scope of the incoming tariffs — including rates and the total list of sectors that will be impacted — is not clear. The White House declined to comment. Speculation spread in the market Friday that imports of used cooking oil from China could be included in the batch of tariffs. The US market has been flooded with supplies in recent months to make biofuel, eroding profits for soybean processors. Source Bloomberg
McDonald’s Working on $5 Value Meal: McDonald’s is working to introduce a value meal in U.S. stores to help offset an increasingly challenging environment for consumers, two people familiar with the matter told CNBC. The people said the $5 meal could include four items: a McChicken or McDouble, four-piece chicken nuggets, fries and a drink. The potential new offering comes at a time when low-income consumers are beginning to pull back on spending, particularly at fast-food brands. Mentions of low-income consumers on company earnings calls are at their highest levels in nearly two years, according to data from Bank of America. Executives from McDonald’s to Wendy’s to Dave and Buster’s have all noted the restraint in spending. Source CNBC
Drug Overdoses Quadrupled in Past 20 Years: Each year, drug overdoses tragically take the lives of thousands of Americans. And since 2002, the rate of deaths from a drug overdose has quadrupled, largely fueled by the highly lethal fentanyl, new data shows. Fentanyl has increasingly contaminated the illegal supply of cocaine in the United States because the drugs are made and stored together, experts say. In 2022 alone, nearly 108,000 Americans died from a drug overdose, according to the Centers for Disease Control and Prevention. That same year, the third leading cause of death in the U.S. was "unintentional injuries," which includes drug overdoses. Heart disease and cancer have consistently been the leading cause of death in the U.S. since the early-to-mid 1990s. In 2022, 107,941 people died of drug overdoses, or 32.6 deaths per 100,000 people, according to the CDC. The total number of deaths is a slight increase from 2021 (106,699 deaths). The rate of drug overdose deaths for men increased slightly between 2021 and 2022, 45.1 to 45.6 per 100,000. That same rate for women dropped 1.0% from 19.6 to 19.4 deaths per 100,000. A study from 2023 found that men are dying at higher rates not just from opioids but from methamphetamine and cocaine. Researchers said they found a "regular" and "big" pattern across all 50 states and Washington, D.C., showing men were at least two times more likely to die from using drugs compared with women. Source USAToday
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