Stocks recovered most of the prior week’s losses, shrugging off concerns over bank credit as well as ongoing trade tensons between the U.S. and China, choosing to focus on the potential for a Fed Rate Cut at their upcoming meeting October 28-29 and solid corporate earnings. We don’t blame them and although valuations may be stretched a bit, bull markets historically do not die as a result of this factor. Again, at this time, we believe any meaningful pullback is buyable.
· The release of the Fed’s September Beige Book, a summary of commentary of the current economic conditions within the twelve Federal Reserve Districts, was published this past Wednesday, the following which we found informative:
o “Overall consumer spending, particularly on retail goods, inched down in recent weeks, although auto sales were boosted in some Districts by strong demand for electric vehicles ahead of the expiration of a federal tax credit at the end of September.” In regard to spending, the report added that “spending by higher-income individuals on luxury and travel accommodation was reportedly strong. Several reports highlighted that lower- and middle-income households continued to seek discounts and promotions in the face of rising prices and elevated economic uncertainty.”
o “Employment levels were largely stable in recent weeks, and demand for labor was generally muted across Districts and sectors. In most Districts, more employers reported lowering head counts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies.”
o “Prices rose further during the reporting period. Several District reports indicated that input costs increased at a faster pace due to higher import costs and the higher cost of services such as insurance, health care, and technology solutions. Tariff-induced input cost increases were reported across many Districts, but the extend of those higher costs passing through to final prices varied.”
· JP Morgan CEO Jamie Dimon made news this past week with the following statement surrounding the bankruptcies of automotive lenders First Brands and Tricolor Holdings. “When you see one cockroach, there are probably more.” These events caused a nearly double-digit selloff in some regional banks that were purported to have problem loans. In our opinion, Dimon’s comments fly somewhat in the face of the pace of overall economic activity described by the Fed within their Beige Book outlined above. At this point, we believe these bankruptcies are one-offs.
· If Dimon and JP Morgan were so concerned about the current state of the economy, perhaps they should have held back on the 10-year, $1.5 trillion effort to “facilitate, finance and invest in industries crucial to national security and economic resilience, from critical medications and minerals to military equipment and semiconductors.” Despite Dimon’s comments, obviously they are not. That said, we applaud the announced by JP Morgan.
· “In 2023, food spending by U.S. consumers, businesses, and Government entities reached a high of $2.57 trillion. This translates to $7,672 in spending per person, a 7.5% increase from the previous year even as price increases eased up. This rise was primarily fueled by a 12.0% increase in spending on food away from home, which great to $4,485 per capita in 2023 from$4,004 in 2002.” (Source; USDA Economic Research Service). Apollo Global Management broke down the numbers even further and concluded that “Almost 50% of Households’ Food Consumption Is Food Away From Home.” Wow!
· Within an article pertaining to Investor Behavior amongst other things, Richard Lehman quoted Nobel laureate and behavioral scientist Daniel Kahneman. “Economists think about what people ought to do. Psychologists watch what they actually do.” Kahneman details how passive investing capitalizes on “hindsight bias” when touting the benefits. “The problem with looking back at past events is that we experience “hindsight bias” – a distortion of the probabilities of a past event by the fact that we know the outcome with certainty. In other words, we forget how uncertain (and in some cases downright scary) those prior events were when they occurred.”
It’s The Economy…”
· The University of Michigan reported that its Preliminary October Reading of Consumer Sentiment fell to 55.0 (-0.2% y/y) from a final September 55.1 as well as from a mid-September 55.4. The preliminary October expectations component fell to 51.2 (-1.0% y/y) from a final September and from a preliminary September. Lastly, the preliminary October current conditions component rebounded to 61.0 (1.0% y/y) from a final September 60.4 but slipped from a preliminary September 61.2. According to the Survey of Consumers Director, Joanne Hsu, “consumer sentiment moved sideways this month. At 55 index points, sentiment is virtually unchanged from September. Improvements this month in current personal finances and year-ahead business conditions were offset by declines in expectations for future personal finances as well as current buying conditions for durables.” (Source, Univ of Michigan)
Economic Reports scheduled to be released this week assuming a resolution of the budget impasse, include the following – on
Monday, the Index of Leading Economic Indicators as reported by The Conference Board; on Thursday, September Existing Homes Sales and the Weekly Report of Initial Claims for Unemployment Benefits; and on Friday September Consumer Price Index (CPI), October Consumer Sentiment (Univ of Michigan) and September New Home Sales.
Here we go! Q3 Earnings Season is ramping up. Companies expected to report quarterly earnings this week, to include Netflix (NFLX), GE Aerospace (GE), Coca-Cola (KO), RTX RTX), Texas Instruments (TXN), Intuitive Surgical (ISRG), Tesla (TSLA), Thermo-Fisher Scientific (TMO), AT&T (T), Lam Research (LRCX), GE Vernova (GEV), IBM (IBM), Intel (INTC) and Procter & Cambell (CPB).