This morning, the attention of Wall Street is on the business beat, with a trio of important reports on the economy in focus. At 8:30 A.M. (EDT), the Commerce Department reported that retail sales for the month of February increased 0.6%, which was a nice rebound from the revised 1.1% decline witnessed in the previous month, but it still fell short of expectations. The U.S. consumer has been showing signs of spending fatigue, perhaps worried about escalating credit card debt and shrinking savings accounts. This situation will be closely monitored by the Federal Reserve, as it considers when to begin loosening the monetary reins later this year.
There also was more news on inflation today, as the Department of Labor released its latest readings on producer (wholesale) prices. From the Fed’s perspective, the February Producer Price Index (PPI) was much hotter than expected, and follows the department’s companion report earlier this week showing increases in consumer prices. Specifically, the PPI and the core PPI, which excludes the food and energy components, rose 0.6% and 0.3%, respectively, month to month. On a one-year basis, the PPI and core PPI rose 1.6% and 2.0%, respectively. All in all, the data showed some reacceleration in inflation at the wholesale level.
In a separate report, we learned that initial unemployment claims for the week ending March 9th totaled 209,000, which was the lowest level in weeks. Continuing claims also fell below the 1.9 million mark. The report indicates continued tightness in the labor market. None of these three reports were ideal for the Fed in its battle to tame inflation, but Treasury market yields did not move much higher on the data. Surprisingly, the equity futures, which were higher heading into the economic releases, are holding those gains as trading soon kicks off stateside.
The Federal Reserve is watching the health of the credit markets, as it contemplates when to reverse monetary policy course. Any signs of stress in the lending markets may prompt the central bank to move earlier than expected, despite stubbornly elevated prices at both the consumer and producer levels. It is worth noting that Europe's private credit funds are increasingly borrowing from banks to boost their performance, raising concerns about the wider risks posed by this interconnectedness. According to MSCI Private Capital Solutions, research showed that a record 80% of new European private credit funds borrowed from banks via “subscription lines” in 2023, funding that allows them to lend before tapping their investors for cash. This has raised concerns about potential default risks on the Continent.
So far this week, we have seen some rotation among the major equity groups. Of note, the momentum trade in the technology market has lost some steam, likely the product of some profit taking in a sector that has surged on the euphoria toward the burgeoning artificial intelligence revolution. Shares of semiconductor giant NVIDA (NVDA) have taken a breather after a notable upside move following the release of impressive quarterly results. Shares of Magnificent Seven member Tesla (TSLA) have been anything but magnificent this year, taking another leg down yesterday. A downgrade from a prominent investment bank was spurred by forecasts of disappointing first-quarter deliveries, vehicle price cuts, and pessimism around the market for the electric vehicle maker’s long-awaited next-generation offering. The movement has been into some of the more value-oriented names.
Meantime, we did get some earnings news since the close of trading yesterday afternoon. Shares of Dick’s Sporting Goods (DKS) are trading higher in pre-market action after the sporting goods retailer reported strong January-quarter and full fiscal-year results, which included record sales growth in the final quarter of fiscal 2023. Likewise, the stock of Dollar General (DG) is looking at a higher opening after the retailer forecast annual sales above the consensus expectation. The company thinks that more inflation-affected customers will turn to cheaper-priced groceries and essentials this year. Dollar General has seen more shoppers visiting its outlets to browse for lower-margin, needs-based goods, over more expensive general merchandise. Conversely, shares of Under Armour (UA) are again under selling pressure in extended hours trading after the struggling apparel maker announced a leadership change in the corporate suite. – William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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