Gotta’ keep moving. Stocks continued their climb yesterday on more trade optimism. Consumer sentiment slowed a bit but still remains solid.
MY TWO CENTS
1. Unflappable. Ah The Consumer. My favorite, if not platitudinous, topic. The term Consumerism is defined differently depending on which dictionary you use. The Oxford Dictionary offers two primary definitions, one common and the other “derogatory”. I will go with the latter and quote “the preoccupation of society with the acquisition of consumer goods”. We are clearly in an era of consumerism where many are inspired to purchase based on what they see on Instagram or Facebook, where they are influenced by influencers, who are digital taste makers living the lives we all want to live. That’s not the only driver in the digital world. Ease of acquisition offered by companies like Amazon have made it effortless to pull the trigger where you can get your order delivered the same day in some cases. Finally there is credit. With a long period of unprecedentedly low interest rates, consumer credit has skyrocketed in recent years. According to the Fed, outstanding consumer credit went from $2.591 trillion at the end of the last recession to $4.149 trillion. There have been many signs that the US economy is slowing and many of those signs have been coming from businesses. Business Investment makes up about 18% of GDP while Consumer Expenditures make up roughly 68%, so consumers’ habits can have real consequences for the economy. The good news is that consumers have not in any material way curtailed their activity throughout this current expansion. Economists have been watching closely for any signs of weakness to no avail. Consumers remain unflappable. Yesterday, the Conference Board released its highly followed Consumer Confidence Index, which came in below expectations at 125.5, down slightly from last month’s 126.1. Off slightly but still strong. Breaking it down, consumers were less confident in their current situations but slightly more optimistic about the future. This morning, the Bureau of Economic Analysis will release Personal Consumption for Q3 which is expected to have increased by +2.8% and Personal Spending which is expected to have ticked up by +0.3% in October. Economists will be watching these numbers closely as we enter the all-important holiday shopping season, which officially begins this Friday. Retail Sales have slowed in recent months but retailers are hopeful the strong employment situation and confident consumers will open their wallets. Stay tuned.
2. Wrap it up. Earnings season is pretty much a wrap today with Deere & Co., which beat Wall Street estimates by +0.4% this morning. Looking back on the season, it was a mixed bag. Companies appeared to beat estimates more frequently than in the past. This is largely due to analysts setting such low expectations… at the direction of the companies themselves. Remember that analysts are reliant on companies who provide them with information and guidance in order to make their recommendations. Speaking of guidance, that is a grey area which is not easily tracked, but suffice it to say that more and more companies have been giving a more gloomy outlook for the coming quarters. Revenue and earnings growth have slowed further this quarter. S&P500 earnings growth was actually negative compared to last year, falling by -0.7% year over year, in sharp contrast to Q3 of last year which saw a growth of almost +30%. You can’t blame that on the Fed.
THE MARKETS
Stocks continued their climb yesterday, once again reaching new highs, spurred on by positive trade news reported here before yesterday’s open. The S&P500 climbed by +0.22%, the Dow Jones Industrial Average traded up by +0.20%, the Russell 2000 advanced by +0.14%, and the NASDAQ Composite Index jumped by +0.61%. Bonds rallied as well and 10-year treasury yields slipped by -1 basis points to 1.74%.
WHAT’S NXT
– GDP is expected to have grown by +1.9% for the quarter annualized, same as the last reading.
– Personal Consumption is expected to have grown by +2.8%, down slightly from last month’s +2.9% growth.
– Durable Goods Orders are expected to have fallen by -0.9% compared to last month’s -1.2% fall.
– Personal Spending may have grown by +0.3%, slightly faster than last month’s +0.2% growth.
– Year over year PCE Core Deflator is expected to remain constant at +1.7%. This is the Fed’s favored gauge of inflation and it remains below their +2.0% target.
– Pending Home Sales are expected to have grown by +0.2% month over month, slower than last month’s +1.5% growth.
– The Fed will release its Beige Book, which details economic conditions across the various Fed regions.
– US Markets are closed for Thanksgiving tomorrow and will close early on Friday.
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