Ulta Beauty feels beautiful about its prospects for the year

Stocks sold off yesterday erasing earlier gains as investors got the jitters ahead of this morning’s speech by Fed Chief Powell. Even great AI-driven results from NVIDIA could not keep stocks buoyant.

A budget is a budget. Have you heard? Of course, you have. Mortgage rates have just hit 2001 levels. I’ll bet you will have to pause and think hard to even remember 2001. That was 2 dogs and many goldfish ago for my family. Of course, I was in a different stage of my life. My daughter, who turns 28 TODAY was just 6 years old and my son just 3 years old. Our household budget was important in those days as it still is today, but I do remember considering us to be lucky that mortgage rates we so reasonable at around 7.5% considering just a decade earlier, they were north of 10%, and before that, in the high teens. The years that followed saw mortgage rates declining and countless opportunities to refinance at lower rates. For some of my friends, mortgage refinancing became a sport with many of them racking up several as rates declined steadily leading up until the pandemic. That, by now, is an old story as rates have literally skyrocketed in the past year. Check out the following chart to see just how extreme the jump has been.

Clearly, this was part of the Fed’s grand plan to tackle inflation. Raise rates by so much that businesses and ordinary people could simply no longer afford to spend money on anything but paying off debt. Now, the relationship between interest rates and spending is not a perfect one. As you know, if you have a fixed mortgage, you have most likely locked in a lower rate for 15 to 30 years. Similarly with corporate borrowing, many companies issued longer-maturity, fixed rate bonds when rates were significantly lower. I covered this in an earlier piece that I wrote. Summing it up, quite a small portion of outstanding corporate debt is variable, as savvy corporate treasurers chose to fill their coffers with cheap cash when it was available. Clearly, if you were to take out a mortgage today, higher rates would impact your ability to pay up for a home and your purchase decisions beyond. Ok, so all of this is probably obvious to you by now. But there is another story developing in Washington, DC, which many folks never even think about.

The US Treasury, amongst other things, is responsible for maintaining the government’s budget. It pays the bills that keep America running. To do this, it collects taxes and borrows lots of money to keep things running smoothly. In fact, the Treasury is in the midst of a bond-issuing bonanza in the wake of the recent debt-ceiling debate in DC which caused the Treasury to nearly empty its entire bank account. Remember that when the Treasury, or any bond issuer for that matter, issues bonds, it is essentially borrowing money from the buyers of those bonds. The Treasury, like you and me, must pay interest on that borrowing, and with prevailing interest rates so high (thanks to its sister organization the Federal Reserve), the Treasury is going to be paying a lot more for that privilege. In other words, the government’s budget just got a lot more constrained, and that already growing deficit, is about to grow faster yet. Like you and me, the government may have to consider spending a bit less to keep its budget in check. At least until rates come down and it can refinance.

WHAT’S SHAKIN

Intuit Inc (INTU) shares are lower by -2.11% in the premarket after the company announced that it beat on EPS and Revenues in the past quarter. The company, however, provided current quarter guidance which was softer than expected. In the past month, 56% of analysts have revised their price targets, 13 up, 1 down, 10 unchanged, and 1 dropped. Dividend yield: 0.72%. Potential average analyst target upside: 9.5%.

Ulta Beauty Inc (ULTA) shares are higher by +1.24% in the premarket after it announced that it beat EPS and Revenue estimates by +2.33% and +0.72% respectively. The company raised its full-year guidance citing strong consumer demand for beauty products. Potential average analyst target upside: 24.2%.

YESTERDAY’S MARKETS

NEXT UP

• University of Michigan Sentiment (August) may come in at 71.2 in line with earlier estimates. 1-year Inflation Expectations may remain at +3.3%.
• Fed Chair Jerome Powell will speak at the Jackson Hole Conference this morning at 10:05 AM Wall Street Time. All ears will be glued to every word he utters.
• More Fed speakers: Harker, Mester, and Goolsbee. People will want to hear their thoughts as well, but the boss’ speech will get top billing in today’s session.
• Next week: More housing numbers, JOLTS Job Openings, Conference Board Consumer Confidence, GDP, PCE Deflator, and the monthly employment numbers from BLS. Check on Monday to get calendars and details for the upcoming week.