Consumers are confident… about the future

Stocks slipped in yesterday’s session, closing off daily lows as investors wonder what might be lurking around the next corner. Banking regulators were on Capitol Hill yesterday, finally awake, but still unsure.

Chest out. On the surface, things appear to be calm in the markets, though below the surface (and not too far), jitters are certainly there. There is a sense that markets are riding in a packed, rickety bus, driving dangerously close to the edge of road high in the mountains. The Fed is at the wheel and saying that all is good, though the beads of sweat on the driver’s forehead are saying otherwise. Now, I have been writing a lot about that sort of stuff lately, using all species of whacky metaphors, but the message is the same. We are dangerously close to a recession, the banking system is clearly on alert, inflation is still too high, and the Fed continues to zealously raise interest rates. There it is.

This morning however, I will point something out that won’t make you want to take a long vacation without your phone, computer, or TV access. Here you go. Consumers are confident. It has been a while since I broached the topic, but my regular, long-time readers know that I have a thing for consumer confidence. The reason for my obsession is that confidence is where everything starts. Think about it. Would you know where GDP is if I didn’t tell you? Moreover, even if you did know, would it stop you from buying a new mattress, or from going on vacation? Probably not. What about interest rates? If I didn’t remind you that the Fed raised its Fed Funds rate, would you even know? Would you even care? If you own a home and have a mortgage, you are probably locked in, so… meh. If you were hoping to buy a new home and want to take out a new mortgage, you would certainly find out how Fed Funds influences your mortgage rate. Now we are getting to the meat of the discussion.

If you were worried about your job, or your friend or a family member got laid off, how would that affect you? You might reconsider that costly vacation or even that mattress. It all has to do with your confidence as a consumer. You may not follow the stock market every day, but you would surely know if your savings or retirement account lost value last year. That too is likely to affect your confidence. If consumers are not confident, consumers will stop… well, consuming. Consuming drives the economy (2/3 of GDP is from consumption). Consuming also drives… wait for it… inflation. That is the principal conundrum for the Fed. How to get consumers to soften demand enough to bring inflation down, but not so much that it causes a recession.

Yesterday, the most watched indicator of confidence, Conference Board Consumer Confidence was released, and it showed that confidence increased in the month of March. Wow, given that the Fed continues to raise rates, inflation is still high, and with the very public collapse of SVB, consumers remain assured. Economists were expecting the number to slip slightly from February’s reading, but apparently, they were wrong. Now, the survey results are broken down between current conditions and future expectations. The pattern there shows a slight pullback in confidence over current conditions which was overshadowed by a jump in confidence over future conditions. Ok, that seems reasonable. Given that, though we are seeing job cuts, job vacancies still remain high, the confidence seems reasonable. Well, we can actually check into that. According to survey results, only around 20% of those surveyed believe that there will be fewer jobs in 6 months from now. Further, only 13% of respondents expect their income to be lower in 6 months with a similar amount actually expecting their incomes to rise! That confidence gives hope that a so-called soft landing may still be a possibility. On inflation, 43% of respondents expect to purchase a major appliance in the next 6 months and expectations for inflation 1 year hence remain constant at around 5%. Be confident… but consume judiciously.

WHAT’S SHAKIN’ THIS MORNIN’

Micron Technology Inc (MU) shares are higher by +2.23% in the premarket despite announcing that it missed EPS and Revenue estimates. The reason for the gains is that Micron provided a stronger than expected guidance for the coming quarter. Additionally, some of the company’s commentary shows signs the down-cycle in semiconductors may be bottoming. In other words, a turn-around may be around the corner. Dividend yield: 0.77%. Potential average analyst target upside: +14.0%.

Medtronic PLC (MDT) shares are lower by -1.13% in the premarket after UBS cut its rating to SELL from BUY. The turnaround in sentiment also led UBS to its price target to $79 from $127. The stock closed at $17.51 yesterday. UBS is concerned that MDT is losing market share in the most lucrative target markets and expects pressure on near-term earnings. Dividend yield: 3.42%. Potential average analyst target upside: +14.2%.

YESTERDAY’S MARKETS

Stocks traded marginally lower yesterday as there was little bank or Fed news on the tape. The S&P500 declined by -0.16%, the Dow Jones Industrial Average fell by -0.12%, the Nasdaq Composite Index dropped by -0.45%, and the Russell 2000 Index slipped by -0.06%. Bonds fell and 10-Year Treasury Note yields climbed by +3 basis point to 3.56%. Cryptos gained by +3.27% and Bitcoin added +0.98%.

NEXT UP

• Pending Home Sales (Feb) may have declined by -3.0% after gaining by +8.1% in January.
• More hearings on Capitol Hill today featuring Fed Vice Chair for Supervision Michael Barr along with various other high-profile regulators.