A shiny, new iPhone release… just before consumers must tighten their belts?
Stocks rallied yesterday in a relief rally led by recently beaten down tech stocks. With a rush of influential economic releases starting tomorrow, investors will have no choice but to pay attention to, of all things, Apple’s release event – it is after all the market’s most valuable stock.
Balanced diet. If you walked into my office, you would find lots and lots of screens, which I am sure would not surprise you. I use all those screens to monitor the markets and to conduct my daily business, which includes, among other things, researching for THIS NOTE . You would find one screen, however, that stands out amongst all others. That would be the large TV hanging on my wall, and it is conspicuously turned… OFF, much to the chagrin of our amazing IT team who, almost on the daily, enquires if the TV needs to be fixed. Here is a secret: I keep it turned off .
Now, I know that you turn on the financial news channels sometimes, and I commend you for that, because knowledge is paramount to just about everything, including investing. However, if you just turn it on from time to time, or while you prepare to run out of your house each morning, you may not be getting a realistic view of the financial situation across the globe. “What do you mean by that, Mark,” you are thinking. Well, I have been at this ”investing thing” for some time now, so I have spent a respectable amount of time watching those channels, and what I have found was that almost exactly 50% of all interviewees will tell you that the market is going up while the other 50% are convinced of a decline. In other words, the burden is on you to decide without the help of Jeffrey Gundlach, Pimco’s former bond king, the guy from “the Big short” movie, Abbey Joseph Cohen, or Joe Kennedy’s famous shoeshine boy for that matter. The important thing to note here is that there are always two sides to a story and when making investment decisions, you are wise to make sure you know both of them. I encounter far too many investors who seem to only find stories which are convenient for their portfolios. Go ahead… read that last sentence again. Most of us want to hear that everything is going to be ok and that great riches are right around the corner. That would be convenient, if it were true, however, my regular readers know well that I have many times written that “the market rarely does what is convenient for us.” Now, to answer your question from earlier, I am explaining all this so that you will understand why I may write something positive about the economy or the markets one day and something cautionary on the very next. I do this so that you have ALL the information… both sides.
Yesterday, I talked about a growing consensus that a “soft landing” may becoming more probable. The near-term challenge that arises from that thesis is higher bond yields which are confounding growth stock prices. Ultimately, however, a soft landing will lead to higher stock values in the future. That was yesterday. Today, I want to remind you that we are not out of the woods yet, and that a soft landing, though becoming more probable, is still far from guaranteed. Many experts are still expecting a recession. According to Bloomberg’s tally, an extensive list of top Wall Steet economists are still expecting a 60% (median) chance recession within the next 12 months.
Now that summer is done and dusted, in the US at least, many analysts are concerned that consumers will have to buckle down. Mega concerts, “Barbenheimer”, Instagram-able vacations, and sun-inspired spending sprees must now be paid for, according to many experts. For some, that means their now-depleted savings accounts are… well, um… depleted as the adjective suggested, and the spending must stop. For others, that means facing the reality of large credit card balances with growing monthly minimum payments (due to rising interest rates) must be paid. Prices for just about everything are still high, and student loan payment resumption will only further confound the monthly budgets. I tried, in earnest to get through today’s topic without a chart, but I had to share this one with you so you can see the magnitude of higher interest rates and spree-spending. Take a quick glance and follow me to the conclusion.
After seeing that chart and reading my commentary, you are probably not surprised to learn that credit card and auto loan delinquency rates are on the rise. Now, this does not ALL portend to an economic apocalypse, but it certainly does hint that consumers may be tightening their belts sometime soon, and that summer, may have been the last hoorah. A slowdown in consumption would lead to a slowdown in economic growth. A slowdown in consumption may also lead to weaker sales in certain sectors, namely some parts of consumer discretionary. That is probably why only 23% of respondents in a recent Bloomberg survey of Wall Street insiders expected things to remain positive for the foreseeable future. The balance, well, they are expecting consumption to turn negative in late 2023 or early 2024. Is there a silver lining? Well, if you look at that chart above, you will probably recognize that monthly interest payments are closely tied to interest rates. If they come down… and they will at some point, those budgets will loosen up again. Here is the best news. If you are a long-term investor, all of these challenges are just small detours on the route to ultimate success.
THIS MORNING’S EARLY MOVERS
Oracle Corp (ORCL) shares are lower by -10.26% in the premarket after it announced an EPS beat and slight Revenue miss for last quarter. The selloff is a result of weaker than hoped for cloud services sales growth which came in at +30% compared to the prior quarter’s +54% leap. Dividend yield: +1.26%. Potential average analyst target upside: +1.9%.
Apple Inc (AAPL) shares are trading +0.66% higher in the premarket ahead of its much-vaunted launch day today. Investors are expecting a new iPhone made of titanium with a USB-C charging port, a better camera, a couple of other cute things, and A HIGHER PRICE POINT. Also expected today are Apple Watch upgrades, and who knows what else will show up in the “there’s something else” portion of the presentation. Dividend yield: +0.53%. Potential average analyst target upside: +14.0%.
YESTERDAY’S MARKETS
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