This week was hardly bullish. Here’s what investors witnessed:
Oil prices gave back most of their OPEC+ production cut gains.
The Philadelphia Fed manufacturing index reached a new low for this economic cycle and missed consensus estimates. Other indicators from the Conference Board’s Leading Economic Index also fell.
Initial jobless claims surprised to the upside for the fourth straight week.
Weak earnings and more caution emerged from freight operators JB Hunt and Union Pacific as well as from auto retailer AutoNation. Netflix and Taiwan Semiconductor, a key Apple supplier, issued guidance warnings too.
Tesla reported a quarterly gross margin miss on recent price cuts.
The bottom line is that there is an ongoing negative shift in economic data, likely as interest rate hikes take further hold in the economy. That’s a red flag.
Oddly enough, though, investors don’t appear to be picking up on it judging by the resilience in the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average.
“The latest data is another piece of evidence suggesting there’ll be a U.S. recession soon, which fits with our own view at DB Research that expects one later in the year,” Deutsche Bank strategist Jim Reid wrote in a client note.
Good words of wisdom right now.
3 things you may have missed
1. The mood among AmEx cardholders: I caught up with American Express CEO Stephen Squeri, and he struck an upbeat tone on demand trends.
“The economy is definitely bifurcated, and I think at the lower end of the economy, you are seeing some stress, but we just don’t have that,” Squeri said, adding he is seeing strong demand for travel this spring and summer. The travel call-out is in line with what we have heard this earnings season from Delta and United Airlines.
2. Elon Musk goes storm-watching: One interesting highlight from Tesla’s earnings call was when Elon Musk said he doesn’t see the economy improving until 2024. The CEO predicted “economic stormy weather” for another year before “things start getting sunny around spring next year.”
Musk joins the likes of JPMorgan CEO Jamie Dimon in using weather to describe the economic outlook.
3. About that cost of credit: In a Yahoo Finance Live exclusive, Cleveland Fed President Loretta Mester told Jenn Schonberger that there is only one direction for interest rates in the near term: higher.
“I do think that, given how stubborn inflation is and given the still-strong labor market, I do think that rates are going to have to move up to above that 5% level,” Mester said.
C-Suite Quote of the Week
“We’re not seeing a lot of trade down [among consumers],” Procter & Gamble (PG) CEO Jon Moeller told Yahoo Finance Live. “We’re seeing, if anything, more careful usage of the product that they have bought. So they might use a half a sheet of a Bounty paper towel as opposed to a whole sheet. But generally, again, just looking at the numbers, the consumer is holding up extremely well.”
Chart of the Week
For those investors ignoring the potential impending debt ceiling risk, here’s a helpful reminder from the macroeconomic team at Goldman Sachs on how markets priced the 2011 debt ceiling debate: