Stocks had a mixed close with tech stocks getting clobbered as investors punish them for… doing so well. A healthy market pulls back sometimes – even the strongest bulls take naps.
Your pain may be their pleasure. Do you still have a passbook savings account at your local bank? Of course, you do, because if you want a checking account, banks pretty much force you to have some sort of savings account. But where do you keep your real, so-called, hard-earned savings? In the markets, right? I used the plural of the word “market,” because I HOPE not all of your savings is in one single asset class, but that is a lecture for another Wednesday. No, this Wednesday is Fed Wednesday, when all eyes will be on the helmsmen of the USS US Economy.
Yesterday, I wrote about “other” factors that may affect FOMC members’ decision-making process. I want to be clear, Fed members ARE, indeed, “data” dependent. They look at the same numbers you and I look at. They plunk those numbers in elaborate models of their choosing. They too look for patterns and attempt to make forecasts. All of them, everyone, fantasies about being on the top step of the podium, wearing a gold medal for getting inflation to +2% without causing a catastrophic recession.
Medals are rare for the Fed in that event… trust me. I wanted to say that, because, though I frequently poke fun of the Fed, I know that it is there for a good reason, and its members truly want to do the right thing. No one wants to go down in history as a Fed member that ignored early signs of inflation, calling it “transient,” only to mash down on the brakes almost a year too late causing pain and stress to your savings account (I couldn’t help myself, sorry). Wait, it’s too late for that. BUT now there is an opportunity for redemption. Stocks have come roaring back, the economy is still moving, inflation is receding, and consumers are confident-ish. The numbers support that.
Now back to your savings. Are you saving more or less than you were during 2020? How about 2019 and the years prior? Not sure? I will show you a chart to help you. Check it out and follow me to the close.
Looking at this chart of savings as a percentage of income, one can only conclude that Americans are saving less. Another way to look at this is by saying that Americans are spending more. They may be spending more because things simply cost more, or maybe because people simply like to spend money. It’s hard to tell by this chart alone, but what is important is that consumption growth may not be able to continue at its current pace. That big 2020/2021 spike is the result of Government subsidies and less places to spend resulting from pandemic lockdowns. That is gone, and so is your savings!
But wait, there is another way for your savings to diminish. What if your stock portfolio loses -8%? 🤮That’s right, folks are relying more and more on the markets for their savings. Now, that is all good, and I hope that you are not using your portfolio as a checking account. But let’s face it, even though you ARE A LONGTERM INVESTOR, you spend less when your portfolio value goes down because you feel less… well, wealthy, right? Of course, I am right. The Fed knows this, and they also have a similar chart to the one above… maybe without my silly doodles on it, though. Do you know what else the Fed knows? Consumers, even ones that don’t own stocks, spend less when they hear that the markets are falling.
So, savings are going down. Consumers are likely to respond by cutting back on spending. Everyone’s favorite Nasdaq Composite has fallen by some -8% off its recent highs. That means your savings are worth less than they were when you barbecued that expensive, juicy steak during the Independence Day holiday. You are probably thinking that this upcoming weekend’s festivities should include something less lavish, like maybe, hot dogs. All of this is precisely what the Fed would like to see… at the expense of your savings… and tastebuds. The takeaway here is that the markets’ recent decline is likely to be viewed upon as a positive development by the Fed. Will it soften the policy statement today, or cause Powell to coo like a dove in his presser? Maybe not so much, but you better believe that FOMC members will be looking at this data as well. Pass the mustard, please.
WHAT’S HOT and WHAT’S NOT in the premarket
Microsoft Corp (MSFT) is not hot with its shares down by -3.6% in the premarket. The company announced topline beats on EPS and Revenues but report a miss in cloud computing revenue. Not exactly what an AI / Cloud anxious investor wants to hear. Microsoft’s forward PE of 21.90x is cheaper than the 44.6x PE of its peer group. Dividend yield: 0.7%. Potential average analyst target upside: +18.7%.
Advanced Micro Devices (AMD) is HOT with its shares up by +8.53% after it announced that it beat EPS and Revenue estimates. The company provided current quarter sales guidance that exceeded analysts’ expectations and expects strong demand to continue. Investors like that 😉. In the past 30 days, 9 analysts have upped their price targets while the same number trimmed them. Potential average analyst target upside: +18.7%.
Also, this morning: DuPont, Entegris, ADP, T-Mobile, Scotts Miracle-Gro, Hess, and Humana all beat on EPS and revenues while Generac, GE Healthcare, Johnsons Controls, Bunge, Lantheus, Marriott International, Altria Group, CDW, Kraft-Heinz, Norwegian Cruise Line, and Boeing missed the mark.
YESTERDAY’S MARKETS
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