September 26, 2023

Is Amazon’s artificial intelligence investment… intelligent?

Stocks had mild gains yesterday as investors looked to buy stocks on sale after last week’s selling. Bond yields rallied as bond traders factor in higher for longer and continued economic growth.

Confidence. I often write about leading and lagging indicators. My regular readers know that I often poke a bit of fun at some indicators. That is not to say that they are unimportant indicators of “where we are,” but they shouldn’t be confused as their having any value in telling us “where we might be going.” One of my favorite laggers is GDP, which we will get a reading on later this week. Sure, knowing Gross Domestic Product is important, but the report we will get on Thursday will be the third estimate of GDP from Q2. That’s right, we will find out what was going on in the economy in the quarter that ended at the end of June… a few days after summer began. In case you missed it, summer ended last week ☹. So, Q2 GDP reflects things that may have occurred last spring! To make things even more interesting, the report we will receive on Thursday is third release from the Bureau of Economic Analysis. They revise the number as more and more data gets crunched. Ok, ok, it is important to know all that, but as aforementioned, it is hardly an indicator of what may be going on in the economy today or the future, for that matter.

Imagine if you were a regional Fed president tasked with fighting inflation and keeping Americans gainfully employed at the same time. Your primary tool is interest rates. You raise them to slow things down, and vice versa. We all know about those pesky interest rate hikes by now. We also know, if we were paying close attention, that those rate hikes don’t necessarily have immediate effects on inflation. If you are relying on lagging data, it is like you are driving a car in traffic, but you are only permitted to look in the rearview mirror. Pro tip: don’t try that.

Anyway, the point here is that some indicators… indeed, most indicators,that we get, are lagging. Some lag more that others, but only a few of them might give us some insight on what we can expect in the future. THE FUTURE… you know that time in which we all hope things are going well for our portfolios. Let’s not get into it now, but the price of a stock, theoretically, reflects all future returns, NOT PAST RETURNS. Of course, a healthy economy, low unemployment, moderate interest rates, and low inflation will impact how well those stocks perform in the future, BUT NOT THE PAST, as in last spring. Get the picture? Sure, you do.

What might be a good indicator of economic health in the future? Well, you all know about my obsession with consumption, as in consumption made by consumers like you and me. Our buying habits account for more than 2/3 of economic growth. Who would have thought that your buying a Pumpkin Spice Latte at Starbucks would have such an impact on the economy (come on, you know you bought one)? A venti Pumpkin Spice Latte costs $6.45! I just checked… for a friend . You would only indulge in such a purchase if you were confident in your financial situation, wouldn’t you. If you were concerned about your employment, your stock portfolio, or some calamitous economic event, you may choose to go for the nasty-tasting-but-effective, free coffee at the office. Did you pick up on the key word I used a few sentences back? Sure, you did, it was confidence. Do you agree that consumers who are confident consume more, and that more consumption will increase economic growth IN THE FUTURE? Ask yourself if you think you will be financially better off, worse off, or the same in 6 months or a year. That will give you a good idea about your confidence and, ultimately, should impact on your decision whether or not to buy that coffee, that television, or that shiny new iPhone 15. Wouldn’t it be nifty if you could know what everyone else was thinking…everyone else’s confidence? You, know by now that I am setting you up, so let’s get on with it.

The Conference Board is good enough to conduct a survey once a month and it releases those results for you and me to ogle over. Guess what? We will get that very number today, Consumer Confidence. I hope by now, after reading this leadup, that you are eager to know what the number says. Is it going up or is it going down? Going up means that things may be looking up for the economy and the companies we invest in… or vice versa. There is a twist in it all, however. If the number comes in higher than expected, you may conclude that stocks will go higher on a brighter outlook, but the Fed is also watching that number, and they will view it through a different lens. Confident consumers demand more goods, and more demand almost always leads to higher prices… at least according to my economics professor, but he is not in charge of rates. Rates are under the control of Fed members… who are mostly… economists.

BEFORE THE OPENING BELL

Edwards Lifesciences Corp (EW) shares are higher by +2.03% in the premarket after Oppenheimer raised its rating to OUTPERFORM and its price target to $90. The company boosted its full year EPS guidance in July and is due to deliver Q3 earnings late next month. Potential average analyst target upside: +38.4%.

Amazon.com Inc (AMZN) shares are off slightly by -0.27% on high volume in the premarket after yesterday’s AI investment announcement which drove the stock higher by +1.2% in the regular session. Potential average analyst target upside: +32.0%.

YESTERDAY’S MARKETS