😱📈 Will We See a 1% Hike?!
Welcome to the Sunday Primer!
This is our second edition of the Sunday Primer so if you are new to the show, we aim to give you a heads-up on what’s to come this week before it makes major headlines. We had quite an eventful week previously and the week ahead is much of the same so let’s get to business!
- Humphrey, Rickie, & Tim
Market Report
The August inflation report came in higher than expected. Even though the price of gas had its largest monthly decline in two years, inflation stayed high in food and electricity, which both increased by the most since the 80s. Shelter costs, which make up a third of CPI, also increased by the most since the early 1990s.
FedEx withdrew its FY2023 guidance and pre-announced Q1 numbers, which were atrocious. This resulted in FedEx falling ~22% in one day, its biggest drop since 1980.
FedEx prelim 1Q adj EPS $3.44, est. $5.10
FedEx prelim 1Q Rev. $23.2B, est. $23.54B
FedEx prelim 1Q Adj. oper income $1.23B, est. $1.74B
The company attributed its miss to higher fixed costs as volume decelerated (both international and in the U.S.), noting macroeconomic trends worsened later in the quarter, and expenses lagged worsening demand. Such a large miss from a big company like FedEx completely spooked the market.
US long-term inflation expectations fell to the lowest in more than a year in early September, which was an encouraging sign for the Federal Reserve. Per a survey from the University of Michigan, consumers expect prices will climb at an annual rate of 2.8% over the next five to 10 years, the lowest since July 2021 and they also see costs rising 4.6% over the next year, the lowest since last September. However, the market seemed to shrug off this news as the hot August inflation report took all the attention.
Forecast Ahead
Federal Reserve Interest Rate Decision (Wednesday, September 21st)
The Federal Reserve is set to announce its next policy decision next week. Currently, the market is pricing in a 20% chance that the Fed will raise rates by 100 basis points (1%), while there’s an 80% chance they will announce a 75 basis-point rate hike. After last week’s surprising inflation report, more investors are expecting a stronger response from the Fed.
Earnings Releases (Throughout Week)
Next week, we’ll get earnings reports from many notable companies that can give us a read on the state of the economy. These include Costco COST 0.00%↑ , Darden Restaurants DRI 0.00%↑ , KB Home KBH 0.00%↑ , Lennar LEN 0.00%↑, and General Mills GIS 0.00%↑ .
How is the consumer doing? What are they spending on? Costco will give us a read on the overall consumer and General Mills will tell us whether or not consumers are “trading down” and buying cheaper private label goods. Darden Restaurants will help answer whether people are still going out to eat or opting to eat at home amidst high food inflation.
KB Home and Lennar will give us a slew of information regarding the state of the housing market, though it doesn’t look pretty. Last week, the 30-year mortgage rate spiked to over 6%, the highest since 2008.
US Housing Data (Tuesday & Wednesday)
In addition to earnings from KB Homes and Lennar, we’ll also get a slew of economic housing data from the Census Bureau and the National Association of Realtors on Tuesday (Sept 20th) and Wednesday (Sept 21st).
With rates pushing higher and affordability near all-time lows, Wall Street expects the housing market to continue deteriorating, and some note that “in early 2019 and mid-2020, the housing market saw quick recoveries, but in both cases, housing demand was supported by substantial fed fund rate cuts that were coupled with a strengthening job market”.
This time around, we probably won’t have rate cuts anytime soon…
What We Read Last Week
DOJ Short-Selling Probe Eyes Bets on Amazon, Microsoft, and JPMorgan (Bloomberg)
U.S. Rail Strike Risks Stoking Inflation At Worst Possible Time (Bloomberg)
Patagonia founder gives company away in pledge to fight climate change (WSJ)
Google Loses Appeal over EU Antitrust Ruling, Fine Cut to $4.12B (CNBC)
Tesla Shifts Battery Strategy as it Seeks U.S. Tax Credits (WSJ)
Google Cancels Half the Projects at its Internal R&D Group Area 120 (TechCrunch)