Bulls are hoping the August Consumer Price Index (CPI) on Wednesday will deliver a softer-than-expected inflation read, in turn making a stronger case for the Fed to keep rates on hold next week and possibly signal an end to its tightening campaign.
Most Wall Street insiders are looking for the Fed to keep rates unchanged at their upcoming September meeting and have the odds at about a coin-toss on if the Fed will again raise rates at its meeting at the beginning of November.
Most are also starting to push back their estimates on when the first rate cuts might take place, the back half of 2024 or perhaps not until 2025 are starting to be talked about more frequently.
Wall Street is also anxious to see Retail Sales on Thursday amid concerns about US consumer health. Bears continue to warn that US consumer spending is hitting a wall as the extra cash accumulated during the pandemic runs out. Bears of course have been singing that tune for a long time now, yet consumer spending has continued to defy expectations. However, bears have been increasingly pointing to recent research paper from the San Francisco Fed, which estimates that by the end of Q1 2023, US consumers had spent $1.9 trillion of the $2.1 trillion in excess savings they had accumulated during the pandemic.
The researchers also warned that what's left is likely to be spent during Q3, the current quarter. Other economists believe the savings levels are much higher but many have nonetheless warned that this cash probably won't be a big driver of spending growth going forward. That's because most of it is held by higher income households that may choose to hold onto it in the face of any growing economic uncertainty that might be ahead.
Bears are also pointing to data showing growing credit card delinquencies, as well as a surge in "Buy Now Pay Later" loans that imply consumer budgets may be at a breaking point, especially with gas prices at the pump climbing, student loan repayments starting, and the continued highs costs of rents and housing.
Economists expect August Retail Sales slowed to +0.2% from +0.7% previously. The strong results last month actually helped fuel concerns that the economy was heating back up and that the Fed might have to raise rates even higher.
Bulls will welcome a slowdown from July's strong gains but renewed recession fears could quickly take hold if retail sales slip into negative territory.
Today, tech investors are tuning into Apple's big event at 12 p.m. (noon) CST where the company is expected to unveil the new iPhone 15, along with new AirPods and Apple Watch.
For what it's worth, investors have typically run Apple's stock up ahead of its annual event and sold it following the new product unveiling. This year, however, Apple's stock has already been under pressure following China's decision last week to restrict some iPhone usage.
Interesting Thoughts from JP Morgan CEO, Jamie Dimon - Dimon, speaking yesterday at the Barclays Global Financial Services Conference, tore into those who are predicting smooth sailing in the years to come for not factoring in several big risks that the economy faces. He highlighted problems with government spending, uncertainty in Ukraine, and monetary tightening by worldwide central banks. He did say that he thought the US consumer was "pretty good" and that the household balance sheet is in good shape even though excess savings is off the peak, wages are going up, asset values are healthy, etc. There are still, however, some concerns about that optimism as many storm clouds are lurking on the horizon. He said, “I’m more cautious than most people on the outlook”. Just six months ago, many economists predicted that the U.S. economy would be in a recession by now, and because the labor market has held up better than expected, some are breathing a sigh of relief. But Dimon cautioned the conference on Monday that because of the lagging effects of monetary policy, businesses should not start celebrating quite yet. He also said he wouldn’t be surprised to see 10yr Treasury yields at +5.5% or oil at $120-150. Dimon also cautioned that the tenuous relations between the United States and China could further deteriorate. He stressed that while he isn’t predicting a war in Taiwan, things could “go south.
90% of Companies Say They’ll Fully Return to the Office By the End of 2024: The debate over whether or not to return to the office is far from settled but the push to get employees back to the office is getting more aggressive. For instance, Goldman Sachs wants employees in five days a week and Google is factoring employees’ in-office attendance into their performance reviews. A whopping 90% of companies plan to implement return-to-office policies by the end of 2024, according to an Aug. report from Resume Builder, which surveyed 1,000 company leaders. Nearly 30% say their company will threaten to fire employees who don’t comply with in-office requirements. Only 2% of business leaders said their company never plans to require employees to work in person. Even though more companies have introduced stricter in-office requirements for employees, office occupancy has remained relatively unchanged from the past year. During the first week of September, the average occupancy rate in offices in the top 10 cities in the US was 47.3% of pre-pandemic levels, compared to 44% this time last year, according to data from Kastle Systems. Source CNBC
Instacart Sets IPO Terms Slashing Market Cap from $39 Billion Down to $9 Billion: Founded in 2012, Instacart sends couriers to grocery stores to pick out and deliver orders to customers’ homes. The company has raised more than $2 billion in venture-capital funding over the years and has long said it expected to go public. Instacart said yesterday it plans to offer 22 million shares at an estimated price of $26 to $28 per share with lead underwriters Goldman Sachs and JPMorgan in a bid to raise about $594 million in its upcoming initial public offering. Instacart will have about 331 million shares outstanding, giving it a market capitalization of about $8.9 billion, based on an IPO price at the midpoint of the proposed range. At the height of the Covid pandemic (2021) Instacart was valued at clos eto $39 Billion. Instacart plans to trade on the Nasdaq under the symbol CART. I should note, for the six months ended June 30, Instacart last month reported revenue of $1.48 billion, up 31% from the same period last year. Advertising and other revenue surged 24% to $406 million. It reported net income of $242 million during the six-month period, compared with a $74 million loss a year earlier, Source Marketwatch
US Household Wealth Leapt +$5.5 Trillion in Q2: Strong equity markets and a recovery in house prices boosted net wealth in 2Q23, leaving it +$37.6 trillion (tn) above pre-pandemic levels. The net wealth held by US households increased by +$5.5tn in the second quarter, according to data released by the Federal Reserve. The total value of assets held by the household sector rose to $174.4tn while liabilities rose just +$170bn to $20.1tn, leaving net household worth at $154.3tn. Rising equity market prices were a key factor with corporate equity and mutual fund holdings rising $2.15tn in the quarter. Meanwhile a partial recovery in home prices, caused by a dearth of supply of homes for sale offsetting the drop in demand in response to surging mortgage rates, meant non-financial asset holdings increased $2.6tn. The value of debt securities, pension and life funds and non-corporate business all increased as well with holdings of cash, checking and time savings deposits the only component to post a decline – of $200bn. This means that the value of financial assets held by the household sector, after initially being dragged down by a sharp drop in equities in the first quarter of 2020, stands +$41.1tn above pre-pandemic levels while the amount of liabilities – primarily mortgages but with consumer credit accounting for more than a quarter – is up +$3.5tn on fourth quarter 2019 levels. In aggregate household assets are now equivalent to 876% of annual disposable income while liabilities are ‘just' 101% of disposable incomes. Source ING
Smucker's Buying Hostess Brands for +$5 Billion: J.M. Smucker is acquiring Hostess Brands, which makes Twinkies, Ding Dongs and Ho Hos, for a total value including debt of $5.6 billion. Snacking is among the fastest-growing areas of the consumer food business, and Smucker CEO Mark Smucker said “indulgent” snacks have grown 20% faster over the past three years than those marketed as being more healthy. The deal with Smucker represents a major turnaround for Hostess, which has filed for bankruptcy twice, in 2004 and 2012, due to a combination of private equity owners saddling it with debt and failing to come up with new snacks that appealed to consumers. Entrepreneur Dean Metropoulos and private equity firm Apollo Global Management Inc (APO.N) returned Hostess to the stock market in 2016 through a deal with a special purpose acquisition company backed by the private equity firm founded by Alec Gores. By the end of 2020, Hostess had revamped its portfolio and was generating revenue of over $1 billion, an important landmark in its turnaround efforts. Smucker, which also houses coffee and pet food brands, has a market valuation of over $14 billion and had raised prices of its jams and jellies, which helped boost its profit forecast for the year. Hostess stated in its press release Monday. "Stockholders will receive $30.00 in cash and 0.03002 shares of The J.M. Smucker Co. common stock for each share of Hostess Brands common stock." Word on the street is that Metropoulos and its team may have made over a +$1 Billion on this deal. Source Reuters
Falling Mississippi and Ohio River Levels Hampering Barge Traffic Again: River levels on the Lower Mississippi continue to fall, causing issues at loading facilities on the rivers as harvest is underway. Farmers who rely on river terminals to haul their new-crop corn and soybeans are facing lower basis levels because of the loadout issues and higher barge freight. Executive Director Soy Transportation Coalition Mike Steenhoek, told DTN, "Unfortunately, the forecast for additional precipitation in the near future is not favorable. Moreover, any future rainfall that does occur will be largely absorbed by an increasingly dehydrated farm ground. Abundant and sustained rainfall will need to occur to change the water level trajectory along the inland waterway system." DTN Meteorologist John Baranick notes in his Sept. 6 weather blog, "A return of the ridge and heat is being forecast by most models for late September going into early October. It is the rollercoaster of conditions that we would normally associate with periods of good rainfall, but that has not come to fruition for more than a few lucky areas so far." Source DTN
'Greedy' US Firms Not to Blame for Inflation, Fed Study Suggests: Don’t blame greedy corporations for the surge in US inflation over the last few years. That’s the message from a new study by Federal Reserve economist Berardino Palazzo. Once the huge fiscal and monetary support provided to the economy is accounted for, “corporate profits margins were not abnormally high in the aftermath of the Covid-19 pandemic,” Palazzo wrote in a Sept. 8 note. Progressives such as Democratic Senator Senator Elizabeth Warren of Massachusetts seized on the rise in profit margins coming out of the pandemic as evidence of what came to be known as “greedflation” – companies taking advantage of stepped-up demand to jack up prices well in excess of their costs. Palazzo, though, argues that margins were boosted by “unprecedented” government support for small and medium sized businesses. They were also helped by the Fed’s accommodative monetary policy, which significantly lowered companies’ net interest expenses, he wrote. Source Bloomberg
85% Is the Magic Number for Productivity: So many of us were raised in the gospel of hard work and max effort, taught that what we put in was what we got out. Now, some coaches and corporate leaders have a new message. To be at your best, dial it back a bit. Trying to run at top speed will actually lead to slower running times, they say, citing fitness research. Lifting heavy weights until you absolutely can’t anymore won’t spark more muscle gain than stopping a little sooner. The trick—be it in exercise, or anything—is to try for 85%. Aiming for perfection often makes us feel awful, burns us out and backfires. Instead, count the fact that you hit eight out of 10 of your targets this quarter as a win. We don’t need to see our work, health or hobbies as binary objectives, perfected or a total failure. “There’s a lot of inconsequential stuff that goes into going 100%,” says Steve Magness, an exercise physiologist who coaches executives and athletes on performance. When we care too much, even minutiae starts to seem “like an existential crisis,” he adds. Sometimes, the harder we try, the worse we get, injuring ourselves or choking under pressure, Magness says. Quit while you’re ahead, and the sense that your whole self-worth isn’t wrapped up in this one moment can actually make you more likely to nail it. Source WSJ
Pandemic Population Boom in Rural Hotspots Sparks Resentment: Rural America is booming, but the population growth that’s boosting local economies is also putting a strain on everything from schools to housing and roads. The influx — which started during the pandemic — has continued even as Covid restrictions have lifted. The latest government data released just last month points to a second year of increases in 2022 after years of declines. The trend is sparking resentment as house prices in the top 10 rural counties that have seen the biggest population increases surging more than +40% over the past three years. Schools are overloaded and the shift is even impacting farmland prices. Rents have also surged. In the past two years, Harnett County and Moore County in North Carolina, Gallatin County in Montana, and Iron County in Utah have all seen rent increases between 13% to 24%, Zillow data showed. The number of people living in non-metro areas outgrew the urban population for the first time in three decades in 2021, and the rural population expanded again last year. But growth wasn’t evenly distributed, with the top 10 counties with the largest population gains growing by an average 5%, according to Census data. That’s more than the national average of 0.4%. In some places, the influx of new residents is deepening political divides in an already polarized country. The migration has the potential to change voting patterns in both the places people are leaving and the ones they’re going to. Source Bloomberg
Schedule A Call Now
Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.
Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.
CTG Daily Commentary is published by Capital Trading Group, LLLP and Nell Sloane is the editor of this publication. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.
It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.
Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.