Stocks snapped a multi-day winning streak yesterday as profit takers rushed in late in yesterday's session… determined to spoil holiday parties everywhere. Existing Home Sales unexpectedly jumped in November with the biggest monthly rise since February.
Confidence shaken but not stirred. Ah, the consumer. Deep exhale. My regular readers are surely, at this very moment, half-rolling their eyes, because they know what’s coming; they know about my obsession with consumers. Why am I obsessed with consumers? Because their activity makes up more than 2/3 of the economy. That’s right, you and me, and everything we purchase, socks, food, cars, airline tickets, Chia Pets… everything. The recurring news story since March of 2022 has been that the Federal Reserve has been aggressively raising interest rates to deter us consumers from consuming so voraciously in order to cause retailers to lower their prices to keep the party banging.
Let’s get real for a moment. Even if you were using a credit card to buy that new shiny iPhone, knowing that the interest rate recently jumped on your card, did it stop you from buying it? What about eggs? What about when egg prices shot up by +300% last year? Did you check the Fed Funds rate before deciding whether to buy cage free or free range (though I suspect they are the same thing)? Of course not. Now, when it comes to really big-ticket items like cars and homes, which are typically financed with credit, interest rates are indeed a factor, and we can certainly observe the inverse relationship between consumption of those items and interest rates. To be clear, I am not saying that interest rates do not impact purchase decisions and that the Fed wasted its time with all those hikes. I am implying that there is something else.
Well, I am no longer going to imply, I am just going to get it out there. Confidence! Consumer confidence, to be more exact. I know that when you book that painfully expensive family vacation that you do think about how “things”are going. You may consider your job security, the economy, the political climate, etc. If you feel like stuff may hit the fan in the 6 to 9 months, you may let those tickets sit in the shopping cart for a few days while you ruminate. If you feel like everything is good and business is booming, you smile, and click on the “pay now” button… and then you panic … but it passes, because you are… confident. Wouldn’t you agree that consumer confidence is an important factor in consumption, and ultimately GDP? If you do, then surely if you want to check on the health of the economy, you would love to know how confident consumers are these days. I have good news for you. The Conference Board surveys a bunch of households and asks questions designed to gauge consumer confidence. I suppose you want to know what those surveys yield.
Just yesterday, Consumer Confidence came out for December, and the results came in above analysts' expectations, and, indeed, higher than in November. The most obvious conclusion is that consumers are getting more confident. But to be clear, consumers were more confident in 2021 on average than, and far more confident from 2017 - 2020. Ok, I tried to give you a break and spare you a chart, but I feel like you would like to see it, so check it out and keep reading to the finish.
And there you have it, 20 years of Consumer Confidence. You can see that confidence, relatively speaking, has held up quite nicely. Here are some highlights from the latest survey. On current business conditions, 61.8% of respondents thought conditions were normal while only 16.5% thought that they were bad, and 65.3% expected that conditions would remain the same 6 months from now. Only 5.9% of respondents expect to buy a home while 12.2% expect to buy a car within 6 months. In the sample, 55.8% are planning a vacation and 26% of them are planning to travel by plane. Finally, you will be happy to know that only 28% of respondents expect the stock market to be lower in a year, while 37.4% of respondents expect the stock market to be higher, with the former decreasing and latter increasing. This all tells me that consumers are pretty confident, and that is a good sign for the economy. What that means for inflation… let’s just hope that the declining trend continues. Stay confident, stay focused.
WHAT IS HAPPENING IN THE PREMARKET
Micron Technology Inc (MU) shares are higher by +5.96% in the premarket after the company announced that it beat EPS and Revenue estimates by +4.76% and +4.01% respectively. The company provided current quarter guidance that exceeded analysts' expectations. The company took the opportunity to mention that demand is strong for its “AI” offerings. Dividend yield: 0.58%. Potential average analyst target upside: +16.3%.
CarMax Inc (KMX) shares are higher by +4.45% in the premarket after it announced that it beat EPS estimates last quarter. The company’s forward PE of 25.28x is higher than the 7.26x median PE of its comps. Potential average analyst target upside: +4.9%.
YESTERDAY’S MARKETS
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