Consumer Price Index aka Inflation came in at 8.5% for the month of July. Showing that inflation peaked in June and things might just be turning around. This sent the stock market mooning on Wednesday with the S&P 500 climbing 2% and the Nasdaq up almost 3%
MARKET RETURNS:
Tale of the Tape
Economy
Inflation was lower than anticipated, coming in at 8.5% versus the expected 8.7%. With energy prices coming down in the last 2 months, those prices have brought everything else down with it. This is big for the Stock Market because inflation has been the number 1 concern for the Federal Reserve. Investors may be expecting the Fed to slow the rate of their interest rate hikes.
“The deceleration in the Consumer Price Index for July is likely a big relief for the Federal Reserve, especially since the Fed insisted that inflation was transitory, which was incorrect. ... If we continue to see declining inflation prints, the Federal Reserve may start to slow the pace of monetary tightening,” said Nancy Davis, founder of Quadratic Capital Management.
However, I highly doubt that will happen because during the last Federal Reserve meeting they were very clear. They are not done until they see a substantial change in inflation. Just because we see inflation decline slightly for one month means nothing. We still have inflation over 8% when their targeted inflation is 2%. This might just show the Fed that they are moving in the right direction. It will take more months of good inflation numbers for the Fed to start laying off the interest rate hike pedal.
Some Things to Keep Watching:
Core Inflation: which removes energy and food prices that can be volatile, continued to rise in the last month. Although, it increased less than expected at 0.3%, still an increase
This was driven mainly by housing expenses as rent is trying to play catch up to the cost of real estate. Rent has increased at its fastest rate in 30 years
This is being driven by people who are no longer able to buy homes, going back into the rental market and driving demand UP
Also, with everyone traveling and eating out more, service costs are rising as well (Seriously, someone quoted me $100 to cut my lawn). All this to say, we have a long way to go with inflation
For the first time this year, wage gains outpaced inflation.
Wages increased 0.5% month over month while Inflation declined 0.6%.
However, wage gains also put pressure on inflation
Stocks
Always Remember, "NEVER BET AGAINST THE MOUSE"
Remember last week's newsletter when I said this:
Well, I should have taken my own advice
After releasing that newsletter, I thought I was acting with too much emotion and not enough reasoning so I canceled my buy order for Disney.
Disney came out with earnings on Wednesday and absolutely demolished every estimate that was placed by analysts.
Disney+ added 14.4 million subscribers and now has a total of 152 million subscribers which is way above the 147 expected by Wall Street
Park revenue grew by 72% bringing in $7.4 billion in the quarter
Earnings aka Profits were way ahead of expectations. They made $1.09 per share versus an expected $0.96 per share.
Every part of the business is firing on all cylinders. Total subscribers from Disney+, Hulu+, and ESPN+ are now 221 million which is more than Netflix, which sits with 220 million subscribers.
However, it was not all positive news. Disney's cash flow is getting absolutely bodied as they continue investing heavily in streaming. In order to strengthen their cash position much like Netflix, Disney announced price increases for their various streaming services:
Disney+ without ads will cost $10.99, up from $7.99 monthly, and Disney+ with ads will cost $7.99 monthly (new tier).
Hulu's subscription without ads will also rise from $12.99 to $14.99, beginning Oct. 10. Hulu with ads will increase from $6.99 to $7.99.
ESPN+ is increased by 43%, going from $6.99 to $9.99
REALITY: Disney is in a great position as a company with amazing Intellectual Property, Parks, Cruises etc. Disney just showed why I believe we were all living in LaLa Land. Streaming costs way too much for these companies to impletement, for them to charge so little. So although people complained about price raises from Netflix, it was inevitable for every other streamer to do the same thing.
Stats of the Week
My favorite news website, that I legit have been reading almost every single day for the last three years, just got sold for half a BILLY to Cox Enterprises
Cox, who owns AutoTrader and Kelley Blue Book, agreed to acquire Axios for $525 million
Ironically Cox is headquartered in my neck of the woods
Axios is heavily focused on local journalism and believes this is the right move. Currently, Cox owns the Atlanta Journal-Constitution which is one of the few local papers that continues to defy Google and grow
I hope the content, style, and middle-of-road take remains
For right now the leaders of Axios will stay on which will be wonderful
But for the time being congrats to the Axios team for this one
One of the greatest toys ever created turned 90 Years Old on Monday
That toy being LEGOS, the bane to every parent's existence
Did you know Legos were originally made of wood or that every piece Lego made since 1958 can be used with modern Lego pieces?
Price increase Ford just announced for the f-150 Lightening. Now the starting price for the base model is almost $50,000
They said it was due to battery material cost increases
EVs even with the recent Bill passed to help reduce the cost and push the US into an electric future are still extremely expensive for most people to take the dive in.
The average cost of a Bachelor's or Bachelorette party.
Bachelor parties are typically much more expensive
I get celebrating but WTF GUYS!! Jennifer Kingston of Axios has the best line of why people are willing to spend so much on one night of partying
"the pressure to stage Instagram-worthy celebrations are driving up the cost of pre-nuptial revelry."
"Everything 'wedding' in our society is getting bigger and better and crazier," says Corie Wagner, an industry analyst at Savings.com.
If this is you, please go read this post, Don't Fall For It
I think Morgan Housel has the best line when talking about trying to show off for the benefit of other people
Page 93 in the Psychology of Money, "When you see someone driving a nice car, you rarely think, "Wow, the guy driving the car is cool." Instead, you think, "Wow, if I had that car people would think I'm cool."
In other words, the people you try to impress DO NOT CARE!
Looking Ahead
The biggest focus this week will be on Retail. We get the US Retail Sales number for the month of July, which is expected to have grown only 0.1%. Which is a massive change from the 1% strong growth we saw in June. Seems inflation and Fed’s interest rate hikes are finally causing demand to slow down.
Along with that, we also get Big Box retailers reporting earnings: Walmart, Target, Lowe’s, and Home Depot. Late last month, Walmart lowered profit guidance for the quarter and the year. We can expect lackluster numbers from retailers which will bolster the position that people are not spending as much. This would lead some people to believe we are in a recession.
However, just because retailers might be doing bad (or not as great) does not mean things are bad as a whole. It may just mean spending has shifted to other things. The main thing to watch will be the increase in service spending versus goods spending. I expect it to the much higher. Cause I know myself and a number of people that have been doing a lot of concerts, sporting events, and just general outings.
Sports I Care About Update
Why am I still rooting for this team?
The Number of one of the Greatest Basketball Players of All Time, Bill Russell, has been retired by the NBA. This is the first jersey ever retired by the NBA
Bill Russell passed away two weeks ago
Players who are currently wearing the number may continue doing so but it will no longer be issued to new players
Every NBA team will have a patch on their right shoulder in the shape of a clover and the No. 6 this season in honor of Bill Russell.
The number of Tennis World Open Championships the GOAT Serena Williams has won
In a Vogue piece, she insinuated that she will be retiring from the sport after playing in the US Open
Thank you for Rocking With ME
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Remember GENEROSITY > greed
God bless Each and Everyone of y’all
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