Published February 23, 2024
This week, we found Blaine Rollins’ note to have a wide range of interesting information. Why inflation appeared “sticky” in recent readings but remains on a downward path. The strength of this quarter’s earnings reports and CEO comments from those calls. And how a globe awash in cash is fueling the stock market. Here are some excerpts from his note:
“The song remains the same when looking at the CPI figures last week: Housing costs have yet to break…
@WhiteHouseCEA: Housing prices increased 0.5% in January, a tick above December’s rate. As CEA discussed in a blog post, CPI housing inflation has generally declined with lagged market rent inflation. But lately, it has remained elevated.
If only the BLS would use the Zillow rental index, we could move on and complain about something else…
@wabuffo: Here’s what y-o-y CPI monthly readings would’ve been if one plugged in Zillow’s data instead of the BLS’s for shelter inflation. We’ve been at 2% since June. Fed shoulda cut already.
Today’s Walmart call showed price deflation occurring across the store but the CEO wanted even more…
Chief executive Doug McMillon said in November that the world’s largest retailer could find itself “managing a period of deflation” in early 2024, in a potentially encouraging sign for the broader economy given Walmart’s reputation as a consumer bellwether.
McMillon said on Tuesday that Walmart’s general merchandise category in its US operations was “there” in terms of a “deflationary position”, but in the three months to January, “the slope of the decline softened”.
Prices are lower than a year ago, he told analysts, “but not as much as the trendline would have suggested” at the end of the preceding quarter. Prices for food and consumables were “slightly higher than a year ago”, he added…
“Our general merchandise prices are lower than a year ago, even two years ago in some categories,” McMillon said. Prices for eggs, apples and deli snacks have fallen from 12 months ago, but the likes of asparagus, blackberries, paper goods and cleaning supplies were up.
Financial Times
Mimicking Walmart, Kraft Heinz brand product prices are slowing rapidly but have not yet gone negative on a year over year basis…
@knowledge_vital: $KHC – Disinflationary data point of the morning: Kraft’s North America prices rose +2.5% in Q4, a large drop from +5.8% in Q3 and +9.4% in Q2.
Florida residents are getting an extra set of inflation figures to worry about which is now affecting home prices…
Florida’s southwestern coast — long one of America’s fastest-growing regions — is losing some of its boomtown swagger as a home-insurance crisis and other soaring costs make homes unaffordable.
Homeowners from Sarasota south to Naples, known for its eight-figure waterfront mansions, are having a tougher time selling their properties, and the buildup in inventory has caused home prices to fall at some of the fastest rates in the nation. Realtors point to rising insurance costs that were exacerbated by Hurricane Ian in 2022, prompting some homeowners to list their homes for sale and would-be buyers to walk.
“You’ve got people that went through the storm and just want to move on, and don’t really think the affordability is here anymore because of insurance,” said Marlissa Gervasoni, president of the Royal Palm Coast Realtor Association. “From what I’m seeing, I believe they are looking for areas that might be less costly.”
Bloomberg
Walmart’s figures today gave us some good insight into the U.S. economy…
+4% comp store sales on top of a +8.3% a year ago is a good stack of numbers. Average ticket of -0.3% shows deflation setting into the customer’s basket. The number of transactions was +4.3% so customers are shopping more often.
Walmart Investor Relations
Home Depot also posted numbers today which showed just how difficult January’s weather hit…
@conorsen: To show how much January weather impacted the economy, Home Depot US company comps by month: November: -2.7%, December: +0.6%, January: -9.1%.
Of course, bad weather for Home Depot is good weather for auto parts retailers…
@TheTranscript_: O’Reilly Automotive CEO: “As we progressed through Q4, results remained relatively consistent from a volume perspective, with each month performing better than our guidance expectations… We are off to a solid start in 2024, aided by favorable winter weather in January..”
In other earnings tidbits. Med-tech giant Medtronic confirms the rebound in hospital procedures…
@TheTranscript_: Medtronic CEO: “We had a strong finish to our fiscal year….Our accelerating revenue growth was broad-based, driven by procedure volume recovery, supply improvements, and innovative product introductions”
Also, positive comments from Wendy’s, Coca-Cola and Applied Materials…
“Why do we believe this economy is doing pretty well? We are basically in full employment. Grocery inflation is coming down. So quarter versus quarter the consumer should start to see net disposable income coming up slightly, feel a little bit richer, and feel a little bit like, yes, what I can treat myself and come a little bit more often into the restaurant.” – The Wendy’s CFO Gunther Plosch
“In North America, consumer spending in aggregate is holding up well”… “Another important fact that I highlight is the inflationary pressures, which are moderating or stabilizing across most of our markets.” – Coca-Cola CEO James Quincey
“In our discussions with customers, we’re hearing that overall market dynamics are improving. There is a reacceleration of capital investment by cloud companies, fab utilization is increasing across all device types & memory inventory levels are normalizing” – Applied Materials President & CEO Gary E. Dickerson
The Transcript
Quickly rising liquidity has mostly benefitted the U.S. equity market…
The non-U.S. equity valuations still look rather average versus the past 20 years.
Goldman Sachs
The flood of liquidity is helping everything…
The wave of money making its way into the credit market is acting as a shield for investors against every negative scenario – even the prospect of ever-fewer central bank cuts this year.
Risk premiums on high-grade and junk bonds fell Tuesday despite hotter-than-expected US consumer-price rises that pushed prospects for the Federal Reserve’s first rate cut firmly into the summer. A gauge of default insurance only rose to levels recorded on Monday.
The continued strength of corporate-bond spreads underscores the numbing effect of persistent flows pouring into credit funds, making managers flush with cash that needs to be invested. Even a blow to the main driver of bullish expectations for bond returns this year — interest-rate cuts by central banks as the battle against inflation approaches its end — is not enough to dent it.
Bloomberg
CBRE might have called the bottom in commercial real estate last week…
CBRE said Thursday it’s “cautiously optimistic” that the worst is over for office leasing, particularly for the Class-A properties that make up about two-thirds of its leasing revenue. The positive tone briefly helped quell worries about the market for commercial real estate that have roiled shares in property managers and lenders from New York to Munich and Japan in recent weeks.
CBRE’s results “point to us approaching somewhere close to the bottom of the cycle in terms of commercial property,” said Haig Bathgate, head of investments at UK wealth manager Atomos. “There’s evidently been a lot of negativity in this asset class.”
Bloomberg
Hot in 2021: Leaving the Bay Area. Hot in 2024: Moving to the Bay Area...
Many have discovered that launching a startup tech company without a California presence is like entering the boxing ring with one hand tied behind your back.
During the pandemic, scores of Silicon Valley investors and executives such as Rabois decamped to sunnier American cities, criticizing San Francisco’s government as dysfunctional and the city’s relatively high cost of living. Tech-firm founders touted their success at raising money outside the Bay Area and encouraged their employees to embrace remote work.
Four years later, that bet hasn’t really worked out. San Francisco is once again experiencing a tech revival. Entrepreneurs and investors are flocking back to the city, which is undergoing a boom in artificial intelligence. Silicon Valley leaders are getting involved in local politics, flooding city ballot measures and campaigns with tech money to make the city safer for families and businesses. Investors are also pushing startups to return to the Bay Area and bring their employees back into the office.
San Francisco has largely weathered the broader crunch in startup funding. Investment in Bay Area startups dropped 12% to $63.4 billion last year. By contrast, funding volumes for Austin, Texas, and Los Angeles, two smaller tech hubs, dropped 27% and 42%, respectively. In Miami, venture investment plunged 70% to just $2 billion last year.
“An ecosystem such as SF’s that has been built over the last 50-plus years doesn’t just die because of a pandemic for a few years,” said Mo Koyfman, founder of venture firm Shine Capital. He pointed to the proximity of universities such as Stanford as reasons why top-tier venture firms need to maintain a presence in the Bay Area.
I have been riding my Peloton wrong for six years now…
Let’s see if I can do it correctly for the next 50 years. If you haven’t read “Outlive: The Science and Art of Longevity”, pick it up and check it out. A great read. See you at the back of the pack.
If you think every workout has to be a sweat-fest that leaves you gasping for air, think again.
You should perform most of your cardiovascular exercise at a level that lets you carry on a slightly strained conversation. It broadly means exercising at a relatively low effort for a long time.
This type of training helps us produce energy more efficiently by stimulating our cells’ powerhouses, the mitochondria. Over time, this translates to better health and athletic performance.
Elite athletes spend much of their time training at this intensity. It is the secret to helping them go faster for longer, says Dr. Benjamin Levine, a sports cardiologist at UT Southwestern Medical Center in Dallas.
In fitness speak, that mellow intensity level is called Zone 2. Its benefits have recently been touted in books like the bestseller “Outlive: The Science & Art of Longevity,” by Peter Attia and on the eponymous performance-focused podcast hosted by Stanford University neuroscientist Andrew Huberman.
WSJ
Market Update
Coming back from a Monday holiday, stocks took a small step backwards Tuesday. Shares of Nvidia fell -4% as nervous investors sold ahead of the company’s earnings report later in the week. The stock is already up some +40% in 2024 after a blistering +300% rise in 2023. The company shocked analysts and investors in spring 2023 by announcing extraordinary numbers of orders coming in for AI-related semiconductors. The announcement sparked a massive rally across anything remotely related to AI and propelled tech indexes to new highs. Investors wonder how long the gravy train will last. Tuesday found investors selling leading market indexes lower by -0.6%. Another -3% drop in Nvidia shares Wednesday, though traders focused mainly on minutes from the most recent Federal Reserve meeting. Those minutes continued the theme that the Fed is cautious about cutting rates too soon, thus confirming a tick upward in rates as the notion of multiple 2024 rate cuts gets pushed out in time. Shares of cybersecurity darling Palo Alto Networks plunged -28% after cutting its outlook – a shock after the other cybersecurity companies reported strength. Also Wednesday, it was announced that Amazon will replace Walgreens Boots Alliance in the Dow Jones Industrial Average. But the fireworks came after the market close when Nvidia destroyed earnings estimates yet again. The company announced a tripling of sales over the year prior period and continued to suggest that AI-related spending is still early in the cycle. After hours, the company’s shares recovered the ground lost earlier in the week. But that was just a small taste as traders poured money into the company and anything related to chips or AI in Thursday’s session. Nvidia’s shares tacked on another +10% gain during the day while stocks rallied strongly worldwide leaving many global indexes at new highs. The S&P 500 added +2% on the day. After such a run Thursday, ebullient traders saw markets pause Friday as indexes were little changed.
Nvidia did it again, reversing a market downshift early in the week to lift indexes to new highs and tack on yet another winning week. The S&P 500 (SPY) rose +1.67% while the Nasdaq 100 (QQQ) added +1.44%. Of some interest, the Nasdaq 100 (QQQ) has only been higher once in the past four trading sessions. As noted last week, investors have generally been pulling back on the ultra-hot tech trade throughout February. The Nvidia earnings caused a one-day pause in that shift. Small cap stocks (IWM) reflect better the more cautious areas of the market and the impact of freshly-rising interest rates. The index was up only +0.23% this week.
Warm wishes and until next week.