US FINANCIAL MARKET
Stocks, Bonds Climb as Data Fuel Fed Pause Wagers: Markets Wrap – Bloomberg, 8/23/2023
- Bonds climbed around the world as weak economic data in the US and Europe bolstered bets that major central banks will pause their interest-rate hikes to prevent a recession.
- The S&P 500 rose 0.9%. The Nasdaq 100 rose 1.5%. The Dow Jones Industrial Average rose 0.3%.
- Big tech led gains in stocks before Nvidia’s earnings.
- Traders also weighed a US government report saying that job growth in the year through March will probably be revised down by 306,000 — a smaller adjustment than some economists expected.
- Treasury two-year yields were down 10 basis points, dropping below 5%, as data showed American business activity barely expanded on subdued customer demand.
- The 10-year German rate sank as a contraction of private-sector activity in the euro area intensified.
- Another worrisome economic signal came from the US mortgage industry, with applications for home purchases tumbling to an almost three-decade low.
- Separate data showed new-home sales hit the highest level in over a year — as a surge in mortgage rates left many homeowners unwilling to move, keeping inventory on the resale market extremely limited.
- The advance in bonds Wednesday was also attributed to short covering after a selloff that recently drove US 10-year yields to the highest since late 2007 on speculation that interest rates would remain higher for longer to curb inflation — even if the Fed decides to pause its hiking campaign.
- The market is now eagerly awaiting Jerome Powell’s speech Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium for clues on the outlook for policy after officials last month lifted borrowing costs to the highest level in 22 years.
- Another event that will possibly set the tone for markets is an assessment on the outlook for artificial intelligence and how that will shape stock-trader sentiment over the next few months.
- That’s why the upcoming results from Nvidia, the company at the heart of the AI frenzy, will be so relevant.
- Investors also sifted through a batch of earnings from retailers.
- Kohl’s and Urban Outfitters climbed on earnings that beat estimates while Abercrombie & Fitch advanced after boosting its full-year outlook.
- Foot Locker sank after cutting its full-year forecast and reporting results that fell short of Wall Street’s expectations amid concern over weakening spending patterns.
- Traders are growing more optimistic on US equities, according to Charles Schwab’s Trader Sentiment Survey, which found 44% are now bullish — up from 32% in the second quarter.
- While 69% of Schwab’s trader clients still think it’s likely that the US economy will officially enter a recession, that’s down from 86% in the previous quarter.
- Peloton Interactive slumped after the fitness company gave a weak revenue forecast for the current quarter and said costs for a product recall were significantly more expensive than it anticipated.
- The Stoxx Europe 600 rose 0.4%.
- The Bloomberg Dollar Spot Index fell 0.2%.
- The yield on 10-year Treasuries declined 10 basis points to 4.23%.
- West Texas Intermediate crude fell 1% to $78.81 a barrel.
- Gold futures rose 1% to $1,944.90 an ounce.
Foot Locker Shares Sink 33% on Dividend Pause, Another Outlook Cut – Wall Street Journal, 8/23/2023
- Foot Locker shares plummeted after the company swung to a second-quarter loss, cut annual guidance for the second consecutive quarter and pressed pause on quarterly dividends.
- Revenue fell to $1.86 billion from $2.07 billion.
- Comparable-store sales decreased 9.4%.
- The Champs brand’s top line fell more than 27% during the quarter, while sales at the flagship chain and at Kids Foot Locker were each down nearly 6%.
- Margins were dented by an increase in promotional activity, including higher markdowns, along with higher shrink.
- Stripping out one-time items, adjusted earnings met analysts’ expectations at 4 cents a share.
- Foot Locker now expects sales to fall 8% to 9% this year, compared with prior guidance for a 6.5% to 8% drop.
- Comparable sales, which adjust for store openings and closings, are projected to decrease 9% to 10% instead of 7.5% to 9%.
- Adjusted earnings, which strip out one-time items, are forecast to be between $1.30 to $1.50 a share, compared with previous guidance for $2 to $2.25 a share.
- The sneaker and athletic-wear retailer will suspend cash dividends beyond a recently approved payout slated for October to ensure it can “fund our strategic investments appropriately,” Chief Executive Mary Dillon said.
Discounts at Urban Outfitters are fading, and customers are choosing ‘fashion over price’ – Market Watch, 8/23/2023
- Executives at Urban Outfitters on Tuesday said they expected fewer markdowns in the third quarter, as more customers choose “fashion over price,” particularly at its higher-end women’s clothing chains Free People and Anthropologie.
- The remarks could signal better news for clothing retailers targeting wealthier and middle-class customers — but fewer bargains for shoppers — after a spike in prices for basic necessities last year left people with less flexibility to spend on their wardrobes.
- While wealthier customers have fared better despite the higher prices, many stores have had to cut prices on clothing to clear shelves.
- Urban Outfitters’ second-quarter results on Tuesday beat estimates.
- Revenue rose to $1.27 billion from $1.18 billion in the prior-year quarter.
- Same-store sales rose 4.9%.
- For the second quarter, Urban Outfitters reported net income of $104.1 million, or $1.10 a share, compared with $59.5 million, or 64 cents a share, in the same quarter last year.
- Analysts polled by FactSet expected the company to earn 89 cents a share, on revenue of $1.25 billion and 4.7% same-store sales growth.
- Same-store sales at stores under its Free People and Anthropologie banners — which also include the Terrain and FP Movement brands and target a wealthier customer — jumped 26.9% and 10.6%, respectively.
- Management said on the call Tuesday that as supply chains even out, they believe “there could be lower markdowns in the third quarter compared to prior-year third quarter,” and that third-quarter sales growth could be in the “high single digits.”
- That compares with FactSet estimates for gains of 4.6%.
Peloton Stock Plunges 20% as It Warns of Continued Losses – Wall Street Journal, 8/23/2023
- Peloton Interactive shares plunged roughly 20% Wednesday to record lows after the company reported another decline in paying subscribers and said the costs of an equipment recall was denting its profit.
- So far, it has received about 750,000 requests for replacement seat posts, ahead of internal expectations, and been able to fulfill 340,000 of them.
- Revenue for the fiscal fourth quarter ended June 30 fell 5% to $642.1 million.
- Analysts polled by FactSet had forecast lower revenue of $641 million.
- The number of connected fitness subscribers declined by 29,000 in the quarter, and Peloton ended its fiscal year with 3.08 million.
- Peloton had said it expected to end the year with up to 3.09 million.
- The company posted narrower losses of $241.8 million, or 68 cents a share, compared with a loss of $1.26 billion, or $3.72 a share, for the same period a year earlier.
- Analysts surveyed by FactSet expected losses of 40 cents.
- The fitness-equipment company cautioned that it expected to have negative cash flow in each of the next two quarters as it keeps fighting high inventory levels, and another sequential drop in subscribers.
- Peloton has struggled with its pricing strategy and recently further lowered the prices for its treadmill and rower by about 14% and 6%, respectively.
- The company forecasts first-quarter revenue of $580 million to $600 million, significantly below analysts’ expectations of $647 million and reported-revenue of $616.5 million in the same period a year earlier.
- Peloton expects to end the September quarter with paying connected fitness subscribers of 2.95 million to 2.96 million, down from three million as of the end of the June quarter.
Kohl’s stock up after second-quarter earnings top analyst estimates – Market Watch, 8/23/2023
- Kohl’s stock was up in premarket trades Wednesday after the retailer topped its second-quarter profit target, although it said it could miss analyst estimates for its full-year earnings at the low end of its projected range.
- Sales by Kohl’s fell by about 4.8% to just under $3.9 billion, ahead of the analyst forecast of $3.76 billion.
- Kohl’s said its second-quarter profit dropped to $58 million, or 52 cents a share, from $143 million, or $1.11 a share, in the year-ago quarter.
- The latest figure handily topped the FactSet consensus estimate of 23 cents a share.
- Looking ahead, Kohl’s expects adjusted 2023 profit of $2.10 to $2.70 a share, compared to the analyst view of $2.38 a share.
Analog Devices stock slides as earnings fall short and company says it faces ‘near-term turbulence.’ – Market Watch, 8/23/2023
- Analog Devices stock was down in premarket trades Wednesday after the chip maker’s adjusted third-quarter profit missed Wall Street estimates.
- The company’s revenue fell 1% to $3.08 billion, slightly short of the $3.1 billion analyst estimate.
- Analog Devices said its third-quarter adjusted profit totaled $2.49 a share, while analysts expected earnings of $2.52 a share, according to FactSet data.
- Chief executive Vincent Roche said the company faced a challenging operating environment but its results were within its expectations.
- He warned that the company faces “near-term turbulence” and that “customer inventory adjustments we mentioned last quarter have accelerated as economic conditions deteriorate and our lead times continue to improve.”
Abercrombie & Fitch raises sales forecast as new clothing styles attract shoppers – Reuters, 8/23/2023
- Abercrombie & Fitch raised its annual sales forecast on Wednesday after its second-quarter results comfortably beat estimates on strong demand for latest fashion styles at its Abercrombie label and improved assortment at Hollister, sending its shares up nearly 18%.
- Abercrombie has been filling its shelves with a fresh collection of styles, including dressy apparel, knitwear and cargo pants, while also capitalizing on the demand for new denim silhouettes, as jeans become a post-pandemic workwear wardrobe staple.
- Q2 net sales up 16% to $935 million, vs estimate of $842.4 million.
- Revenue from the Abercrombie brand rose 26% in the quarter, while that from Hollister recorded its first growth, with an 8% rise, following a decline in the past five quarters.
- Abercrombie now expects fiscal 2023 net sales to rise around 10%, compared with its prior forecast range of 2% to 4% growth.
Advance Auto Names New CEO, Starts Review as Earnings Shrink – Bloomberg, 8/23/2023
- Advance Auto Parts named a new chief executive officer and started a strategic review of the business as it struggles to keep up with inflation.
- Shane O’Kelly, the head of Home Depot’s HD Supply unit, will become CEO of Advance Auto effective Sept. 11, the company said Wednesday.
- The aftermarket parts retailer reported quarterly profit that missed estimates and lowered its outlook for the year.
- Quarterly profit on that basis slumped to $1.43 a share, missing analysts’ average estimate for $1.63.
- On the earnings call, Greco said that “mid-single digits” wage increases had led to improved employee retention, and supply-chain improvements increased the number of parts in stock, both of which Tony Iskander, interim chief financial officer said, would “drive productivity.” Chairman Gene Lee said that the company would take less than a year to return to profitable growth.
- Adjusted earnings probably will shrink this year to $4.50 to $5.10 a share, the company said, down from its earlier forecast range of $6 to $6.50.
Hollywood Studios Make Public Their Latest Offer to Striking Writers – Wall Street Journal, 8/23/2023
- The coalition representing Hollywood studios and streaming services made what it believes to be its best offer to striking writers Tuesday evening, releasing the terms of its latest contract in the hopes of persuading the Writers Guild of America to accept the deal.
- Among the concessions the studios said they offered are a guaranteed minimum length of employment, controls around the use of generative artificial intelligence, wage and residuals increases and quarterly reports on viewing hours per title for streaming shows.
- The strike is approaching its fourth month and if a deal isn’t reached soon, the 2023-2024 television season and many high-profile movies are likely to be delayed or scrapped altogether.
- “We have come to the table with an offer that meets the priority concerns the writers have expressed. We are deeply committed to ending the strike and are hopeful that the WGA will work toward the same resolution,” said Carol Lombardini, president of the Alliance of Motion Picture and Television Producers.
SEC Takes on Private Equity, Hedge Funds – Wall Street Journal, 8/23/2023
- Wall Street’s main regulator is set to approve sweeping new rules aimed at overhauling the way private-equity and hedge funds deal with their investors, potentially the biggest regulatory challenge in years to firms such as Blackstone and Citadel.
- The Securities and Exchange Commission plans to vote Wednesday on a rule package that would impose new requirements on so-called private funds, which manage some $25 trillion in gross assets for pension plans, university endowments and wealthy individuals.
- SEC Chair Gary Gensler and Democrats have a 3-2 majority, so the commission is expected to approve the final rules.
- The rules would restrict a practice used by many private-equity and hedge funds to entice large investors by offering them special deals, known as side letters, for better terms than other investors.
- The SEC also would require private funds to provide their investors quarterly financial statements detailing their performance and expenses, and to undergo annual audits.
Goldman Is Cracking Down on Employees That Aren’t in Office Five Days a Week – Bloomberg, 8/23/2023
- Goldman Sachs, one of Wall Street’s most ardent return-to-office champions, is cracking down on laggards.
- The Wall Street giant is embarking on a fresh effort to enforce its policy of working from the office five days a week.
- Though revenue-producing employees have mostly returned full time, senior managers have grown frustrated by reluctance of staff in other groups constituting a significant chunk of its workforce.
- “While there is flexibility when needed, we are simply reminding our employees of our existing policy,” human resources chief Jacqueline Arthur said in a statement.
- “We have continued to encourage employees to work in the office five days a week.”
US ECONOMY & POLITICS
US Payrolls Were Likely 306,000 Lower Than Previously Estimated – Bloomberg, 8/23/2023
- US job growth was probably less robust in the year through March than previously reported, according to government data released Wednesday.
- The number of workers on payrolls will likely be revised down by 306,000 for March of this year, according to the Bureau of Labor Statistics’ preliminary benchmark revision projection. The downward adjustment was smaller than some economists expected.
- The final figures are due early next year.
- Last year, the government’s jobs reports showed hotter-than-expected payroll growth nearly every month.
- While the preliminary estimate suggests that strength was somewhat overstated, it doesn’t fundamentally alter the picture of a resilient and robust labor market that’s gradually cooling.
- The biggest downward adjustments were in transportation and warehousing, as well as professional and business services.
- Retail and wholesale trade payrolls are estimated to be revised higher.
- Once a year, the BLS benchmarks the March payrolls level to a more accurate but less timely data source called the Quarterly Census of Employment and Wages that’s based on state unemployment insurance tax records and covers nearly all US jobs.
US Business Activity Barely Expands on Subdued Customer Demand – Bloomberg, 8/23/2023
- US business activity expanded in early August at the weakest pace in six months, inching closer to stagnation amid sluggish demand.
- The S&P Global flash composite output index fell 1.6 points to 50.4 in August as manufacturing continued to shrink and services activity cooled, the group reported Wednesday.
- The figure raises concerns about the durability of the recent strength in retail sales.
- Service-sector activity slowed to the weakest pace in six months, and new business at both factories and services providers deteriorated.
- Tepid demand, fewer orders and shrinking backlogs prompted some US companies to reduce staffing levels and others to rein in hiring.
- The group’s measure of employment came close to stagnating as a result, retreating to its lowest level since mid-2020.
- In Europe, private-sector activity shrank at a fastest pace since November 2020, according to separate S&P Global data for the euro area.
US Home Purchase Applications Hit Lowest Since 1995 on Rate Rise – Bloomberg, 8/23/2023
- US mortgage applications for home purchases stumbled last week to an almost three-decade low, indicating residential real estate is reeling from the recent spike in borrowing costs.
- The Mortgage Bankers Association index of home-purchase applications fell 5% to 142, the lowest level since 1995.
- The Wednesday data also showed that the contract rate on a 30-year fixed mortgage increased 15 basis points to 7.31% in the week ended Aug. 18 — the highest since late 2000.
- Including a decline in refinancing activity, the overall measure of mortgage demand dropped 4.2%.
- Borrowing costs have continued to rise so far this week, and Mortgage News Daily, which updates more frequently, put the 30-year fixed rate at almost 7.5% on Tuesday.
- The MBA’s overall gauge of mortgage applications, which also includes refinancing, fell to 184.8, near the lowest level since 1996.
US New-Home Sales Rise to Highest Level in Over a Year – Bloomberg, 8/23/2023
- US new-home sales rose in July to the highest level in over a year as homebuilders continue to benefit from limited supply in the resale market.
- Purchases of new single-family homes increased 4.4% to an annualized 714,000 pace after downward revisions to prior months, government data showed Wednesday.
- The median estimate in a Bloomberg survey of economists called for a 703,000 pace.
- The median sales price of a new home climbed to $436,700 from a year earlier, according to the Commerce Department’s report.
- The number of homes sold in July and awaiting the start of construction — a measure of backlogs — declined to lowest level this year.
- The data showed there were 437,000 homes for sale as of the end of last month.
- That represents 7.3 months of supply at the current sales rate, matching the lowest since early 2022.
- Sales rose in the Midwest and West to the highest level since early last year, while they fell in the Northeast and South.
Recession Fears Have Been ‘Blown Out of the Water,’ Long-Serving Fed President Says – Wall Street Journal, 8/23/2023
- James Bullard, who was the longest tenured of the 12 regional Federal Reserve Bank presidents when he stepped down last month, thinks the U.S. economy faces new risks of stronger growth that could require higher interest rates to keep up the fight against inflation in the months ahead.
- Here’s what he had to say (with this partial transcript lightly edited for clarity):
- I think it’s turning out that the Fed’s policy has been very successful, and I think that will be the buzz at Jackson Hole.
- I don’t know what will be in the speeches, but the talk will be that this has been quite successful.
- If you look at [the consumer-price index], headline CPI inflation was 9%; it’s now just a little over 3% and on a declining trend.
- The core inflation measures [which exclude volatile food and energy prices], which were hanging up for a while, have turned down.
- This is all looking very good because this is occurring in an environment with 3.5% unemployment.
- There were a lot of heavy predictions of recession. I think those were just overblown.
- There was risk of recession, but it wasn’t as high as it was made out to be on Wall Street.
- Because of the SVB situation, rates actually went down in the spring. And there’s been an unwitting easing of financial conditions, which is feeding into a stronger second half for the U.S. economy.
- The faster growth is a bit of a threat because the forecast was that you’d have very weak growth or even a recession, and now that doesn’t really look like it is materializing.
- So you’d have to upgrade your outlook for inflation probably based on that alone.
- You still have a very tight labor market, and now you have a reacceleration in the U.S. economy.
- The risks are tilting a little bit more toward the idea that inflation won’t fall as fast as anticipated.
- You’ve got inflation above [the Fed’s 2%] target, and it’s probably going to be relatively sticky above target.
EUROPE & WORLD
India First to Land Near Moon South Pole After Russia Fails – Bloomberg, 8/23/2023
- India became the first country to land a spacecraft near the moon’s south pole after Russia’s attempt at a lunar touch down in the same area ended in failure following an engine malfunction.
- Chandrayaan-3 — India’s spacecraft that launched last month — achieved a soft landing at 6:04 p.m. local time on Wednesday, after Russia’s Luna-25 crashed into the moon on Sunday.
- A rover, named Pragyan, or wisdom, is set to analyze the chemical makeup of the moon’s surface and search for water over the course of one lunar day, which is equivalent to 14 days on Earth.
- India is the second country, along with China, to have an operating rover on the moon.
- Scottish leader and national hero, William Wallace, was executed in London. – 1305
- Japan declared war on Germany in World War I. – 1914
- Nicola Sacco and Bartolomeo Vanzetti were executed for the murders of two men during a 1920 robbery, despite worldwide protests. – 1927
- Nazi Germany and the Soviet Union signed a non-aggression treaty. – 1939