Welcome back to the Rambling Mind Newsletter. This is your Market Update.
Lots of good news to send you into the Thanksgiving Holiday week.
Inflation is basically gone
The Federal Government did their job
Surprisingly Good Earnings from Retailers: Target, Walmart, & Home Depot
Stats of the Week:
$127 Billion in Student Loans Forgiven as of October
$150 Billion/Year is the cost of Climate Change
$47 Million opening weekend of the Marvels (worst in the history of a sequel)
$107,000 average income of homebuyers in the last year. Remember the median household income in the US is ~$74,000 (not a good stat)
Single Women are buying their first homes at twice the rate of single men
Markets
The S&P 500 is just 6% from a new all-time high. November is giving us so much to be thankful for (at least investing-wise). In November, the S&P is up 7.4%, the Nasdaq composite is up 9.8%, and the Russell 2000 index of small-cap stocks is up 8.4%. This is with a backdrop of all kinds of pessimistic news from wars to inflation to government shutdowns. Like I always say when it comes to investing, IGNORE THE NOISE!
This newsletter is 1,891 words a 9-min read
Tale of the Tape
Economy
❄Cool
Inflation for October came in at a nice 3.2% down from 3.7% in September. This report sent stocks roaring on Tuesday evening.
🔢By The Numbers: Year-over-year inflation was flat
Core Inflation which excludes food and gas prices rose 0.2% in October which was slower than the 0.3% in September
Almost every part of the economy that seemed to resist the Fed's fight against inflation is finally giving way
Shelter inflation rose only 0.3% after rising 0.6% in September
Energy inflation fell 2.5% after rising 1.5% in September
💬In Their Words: EY-Parthenon economist Gregory Daco wrote, "Ain't no reason to believe the last inflation mile will be the most difficult. Slower consumer demand, reduced housing rents, lower profit margins, easing wage growth and restrictive monetary policy represent the ideal disinflationary combo heading into 2024."
Takeaway: Inflation although not back at the Fed's 2% target is showing strong signs that it has dissipated. After this report, I am certain the Fed is done with its rate hikes. This is the catalyst the stock market has been wanting for a while.
You hear that? That is a sigh of relief from every federal government agency in the US. The Federal Government was actually able to do its job (I know I’m shocked too). The House and Senate passed a new funding bill to ensure the government and all the various services would not shut down on Friday.
🔍Details: This is not a complete funding bill but it is something called a “laddered” continuing resolution. The bill will be in two parts. Part 1 will fund the government until January 19. This will give time for details to be hashed out on the bigger bill:
Part 1 of the bill includes funding for the Food and Drug Administration, military construction, veterans benefits, transportation, housing, urban development, agriculture, energy and water programs
Part 2 of the bill will include or decide on budget cuts, aid for Israel, or added border funding.
💬In His Words: Newly elected House Speaker Mike Johnson said, “Separating out the CR from the supplemental funding debates places our conference in the best position to fight for fiscal responsibility, oversight over Ukraine aid, and meaningful policy changes at our Southern border.”
Kelechi's interpretation: Bruh we ain't got time for everyone else's issues. We gotta handle the main things first.
Earnings
Your wife or girlfriend's favorite store to act rich and blow all kinds of money. Reported earnings on Wednesday and surprisingly they completely smashed expectations.
🔍Details: Sales continued to decline as shoppers continued: buying only the necessities, comparing prices for deals, and postponing big ticket items. Despite these challenges, Target was able to increase its profits year-over-year by better managing its inventory levels and expenses.
Revenue (Sales): declined by 5% from last year down to $25.4 Billion
Profit (Earnings): increased by 36% from last year to $971 million
💬In His Words: Chief Financial Officer Michael Fiddelke said on the call, “A store can run more efficiently when their back rooms are free of inventory. A distribution center runs more efficiently, with fewer touches, when it’s not as full, too.”
📈Stock Move After Earnings: The Stock took off 17% after hours.
👀What to Watch: Target's CFO said they are completely focused on moving sales back into positive territory. However, he cautioned that it would not happen this year even with the heavy holiday shopping season upon us. Shoppers are still price-sensitive and cautious.
Wally World reported earnings on Thursday and it did not make investors happy
🔍Details: Sales increased in the third quarter more than analysts had estimated. However, Walmart gave a cautious forecast of the holiday season shopping similar to Target. Walmart also stated that there will be pressure on profits as inflation goes away. Walmart unlike Target is a budget-driven store when inflation is high, they can charge more to increase margins.
💬In His Words: CEO Doug McMillon said on the company’s earnings call, “In the U.S., we may be managing through a period of deflation in the months to come and while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”
📉Stock Move After Earnings: The Stock fell 7% after reporting because of expectations. Investors expected Walmart to continue flying high, especially with the heavy Christmas season. Walmart said slow your roll. This I believe is a heavy overreaction from investors. However, you can see how a story can shape the movement of a stock. Walmart had positive earnings but that did not matter to investors at all.
👀What to Watch: Growth of its E-commerce sales. Walmart highlights a 24% growth in sales from last year with Walmart+ helping it develop new sources of revenue. This is also why I believe the post-earnings reaction from investors was too much. Walmart is creating new ways to make money but investors are stock in it not making as much money as they wanted. Always remember, Wall Street is short-term. You are long-term.
Unexpectedly, Home Depot reported tremendous earnings for Q3 driven by an increase in home improvement projects.
🔍Details: Due to inflation, consumers put big renovation projects on the back burner since last year. Home Depot reported a reduction in purchases over $1000.
The good news was an increase in sales of building materials more than made up for the losses.
Higher mortgage rates are encouraging some customers to remodel their homes rather than try to upgrade to a new house
💬In Their Words: Chief Financial Officer Richard McPhail said, “The consumer — and particularly the homeowning consumer who is our customer — is healthy. They’re employed. They’ve seen income gains and wealth gains in recent years. They have excess savings and they remain engaged in home improvement.”
He added, “A customer who might have remodeled their entire home may be opting for a partial remodel. Maybe they won’t redo their entire kitchen. Maybe they’ll just do the countertop and backsplash. And so it’s really just the downscaling of projects that we’ve seen.”
📈Stock Move After Earnings: Stock Rose 7% after the earnings release
👀What to Watch: Home Depot still expects a decline in customers' sales. Home Depot gave a forecast of profit declining by 9-11% next year. This is an important lesson to learn, investors do not mind a loss what they mind is not knowing about what is to come. By Home Depot sharing this information, they can control the narrative and give investors hope of what is to come. Stocks do not only move based on good financial pictures but also on how investors feel in the short term.
Stats of the Week
The Biden Administration is living up to its campaign promise of forgiving student loans. It may not be the massive student loan forgiveness that most people wanted but it is still a substantial amount being forgiven.
As of October, $127 Billion in student loans have been wiped away for 3.5 million borrowers. This is the highest by any president in history. Over $93 Billion has been forgiven through the Income-Driven Repayment Plans and Public Service Loan Forgiveness. Before Biden, less than $1 Billion had been forgiven through those programs.
🤔How?: Removing the complications of actually getting the benefits you were promised. Also, the process was simplified to ensure people understood what they needed to do to get loans forgiven.
The amount climate change is costing the US (government and consumers) every year. Everything from natural disasters to paying more for gas or higher food prices. This is according to a new report from 750 experts in the latest National Climate Assessment, the 5th installment.
A few interesting notes from the report:
A $1 Billion environmental disaster happens every 3 weeks. In the 1980s, this happened every 4 months. We've already had 25 of them this year
Say good local industries such as ski resorts, farms, and fisheries
Expect to pay more for insurance, food, and health (heat and pollution)
The Marvels, Marvel Cinematic Universe's latest superhero flick made $47 million on its opening weekend. This is the worst opening weekend ever for a movie sequel. It made $100 million less than the first movie, Captain Marvel. It was expected to make between $75-$80 million.
It didn't help that the movie was not promoted by actors due to their strike. But the question is being asked if this is the end of Superhero movies after a glorious 10-year run dominating the box office.
This is the average income of a homebuyer between July 2022 and June 2023. This is a major increase from the $88,000 the year prior. Remember with averages bigger numbers tend to skew the overall pot. This means there are fewer people with lower or middle incomes ($60-$80,000) buying houses and more people in the higher income brackets buying homes. This just reiterates just how expensive the housing market is.
More Housing Stats: Single women are buying their first homes at twice the rate of single men. They are slightly older at 38 vs 33 for the single male buyers.
The average age of a first-time homebuyer is 35 up from 29 in the 1980s
Older people are buying up all the smaller 3 bedroom 2 bath homes
The average age of a repeat buyer is 58 compared to 36 in 1981
The price of a gallon of gas as of last week. It is 46 cents cheaper than it was last year. Which means more money to spend on the turkey and less on travel. Celebrate your food coma properly.
Looking Ahead
Sports I Love
International Break last week so my heart is at peace
Extras
We all know that on average, women outlive men. Thank God cause I know I do not want to live without my future wife (sorry Babe). However, the gap is growing wider.
🔍Details: In 2021, the life expectancy for women was 79.3. For men, it was a measly 73.5. The largest gap since 1996. This is largely due to Covid as men are more likely to work in industries with high rates of exposure like transportation or plants. But women were also more likely to get vaccinated.
The second factor is drug overdoses. Men are more likely to abuse various drugs such as opioids than women (seems women can adapt to pain much better than men).
Microsoft on Wednesday unveiled its first in-house chip. It is called Maia and is designed to work with the Azure Cloud system to power its AI processing needs. Microsoft joins Amazon, Google, and Apple as companies that have in recent years moved away from third-party manufacturers and developing in-house chips for various products.
Amazon will let manufacturers sell cars directly to consumers from their website. It is a way for companies to avoid an amalgamation of laws that prevent this in many states.