What’s in Buffet’s wallet?

Stocks posted gains yesterday as investors were hopeful that the debt ceiling issue… will not be an issue for much longer. An Empire State regional Fed report shocked with a huge miss leaving economists wondering if that was the coalmine canary that they were seeking.

Shifting gears. When I first started researching for today’s report… WHEN IT WAS STILL DARK, and the earliest birds were having their worms, I was quite sure that I was going to write about how AI would be an important factor in US GDP growth over the next 7 to 10 years. Trust me, I am not just hopping on the bandwagon here, as you will learn when I actually write about it… some other day (I promise), but today, I had to shift to talk about yesterday’s economic release.

I certainly include what I refer to as, Regional Fed Reports in my economic calendars and I do give my readers “heads ups” when appropriate. Now, I know that the Fed is a boring topic by now, and that is putting it lightly for the group of super-genius economists who think that grey is a vibrant hue. Of course, we know that they control our portfolios’ destinies with their interest rate policy votes, which is why we have been so obsessively focused on the group for the better part of the past 5 years. Today, I don’t want to focus on interest rate policy, but rather, on a Fed biproduct that gets very little coverage in press. Yes, those regional reports. As you probably are aware, the Fed splits the country up into regions and each one gets its own division… we call them regional Feds, though it is not the technical term. If you want to learn more, you can read my monthly newsletter A Group of Extraordinarily Powerful Bankers here:  https://www.siebert.com/blog/2022/10/31/a-group-of-extraordinarily-powerful-bankers/ . Each month, those banks collect data from their respective regions. In most cases they accomplish this through a survey, which is pretty typical for many of the highly watched economic indicators that get a lot of market focus. As we approach an FOMC meeting, all those regions report additional anecdotal data about the economic conditions in their regions, and all that data is combined into the Beige Book, which is supposedly compiled for use by the committee in their decision-making process. This week we hear from New York and Philadelphia, while next week we hear from Kansas, Dallas, Richmond, and Chicago.

As I mentioned earlier, these reports don’t often get a lot of coverage… until they do. That only happens when there is some sort of blowout number, and we got such a number yesterday. The Empire State Manufacturing Survey of General Business Conditions came out yesterday. Economists were already expecting the number to come in weaker than the prior month. That is part of a bigger trend which has seen manufacturing activity and sentiment waning recently. Last month the index came in at 10.8 and economists were expecting a -3.9 reading for this month, but the actual number came in at -31.8, the lowest reading since April 2020! Negative numbers indicate a contraction, and the bigger the negative number… well, you know. Now that is a big miss, and it did cause equity indexes to sell off earlier in yesterday’s session. Digging into the survey itself we can see that current conditions in the areas of Shipments and New Orders declined by -53 points and -40 points, respectively. That can only be interpreted as things are getting tough for manufacturers, and that is precisely what the Fed wants. Further to that, Prices Paid by manufacturers increased only marginally, which is a good sign for inflation hawks. So, is this yet another indicator that shows the US heading at full speed to an economic calamity? Maybe not. You see, when asked about their feeling about conditions in six months from now, respondents have improved their responses on New Orders by around +8 points since last month’s survey. Further, respondents lowered expectations on Prices Paid which is a sign that they expect inflation to continue to ease. One last thing to note is that Technology Spending expectations in 6 months fell rather significantly since April. That might be something to consider when contemplating IT-based investments. One can glean some interesting insight by digging into some of the more arcane economic releases. Don’t worry if you don’t have time for that… I, along with my early bird friends, have you covered.

WHAT’S SHAKIN’ THIS MORNIN’ ☀⛅⛈

Capital One Financial Corp (COF) shares are higher by +6.29% in the premarket after a 13F filing indicated that Berkshire Hathaway took a stake in the company in the first quarter. In the past 30 days 50% of analysts have changed their price targets, 1 up, 10 down, and 11 unchanged. Dividend yield: 2.69%. Potential average analyst target upside: +22.3%.

The Home Depot (HD) shares are lower by -6.29% in the premarket after it announced a miss on revenue estimates, its largest miss in 20 years. The company lowered its outlook and blamed softening demand, lumber deflation, and bad weather in the first quarter. Dividend yield: 2.89%. Potential average analyst target upside: +12.6%.

YESTERDAY’S MARKETS

Stocks gained yesterday on hopes that debt ceiling negotiations would yield positive results. The S&P500 gained +0.30%, the Dow Jones Industrial Average climbed by +0.14%, the Nasdaq Composite Index rose by +0.65%, and the Russell 2000 Index jumped by +1.19%. Bonds slipped and 10-year Treasury Note yields added +3 basis points to 3.5%. Cryptos traded higher by +3.35% and Bitcoin gained +1.49%.

NEXT UP

• Retail Sales (April) are expected to have risen by +0.8% after falling by a revised -0.6% last month.
• Industrial Production (April) is expected to have been flat for the month after gaining +4% in the prior month.
• NAHB Housing Market Index (May) may have remained flat at 45.
• Fed speakers today: Mester, Barr, Williams, Goolsbee, Logan, and Bostic.