Last week the markets were lower after a year-end bash that left more than a few hungover. This week, with clearer heads and renewed optimism, markets recovered last week’s losses and look to be ready to start anew. For some this means a realization that interest rate cuts may not be imminent, and for others it means the economy is more resilient than they had believed. Either way, we are still in a bit of a holding pattern as the economy slowly reveals the extent and pace of the coming slowdown and what that means for companies and by extension the stock market.
Let’s start off with a piece of good news. While the deal has not yet been signed, a bipartisan spending agreement has been reached between Republicans and Democrats in the House. Of course, the devil is in the details, but both sides have agreed in principle on a $1.59 trillion deal for the current fiscal year. This includes $886 billion for defense spending and $704 billion for non-defense spending. How this ultimately shakes out is unknown, and some of the more fiscally conservative members have issues with the numbers. However, I am hopeful that a final agreement can be reached by the deadline next Friday.
As for inflation, it appears that the sticky parts, i.e. labor and shelter, continue to be sticky. The Consumer Price Index (CPI) advanced 0.30% in December, exceeding expectations for a 0.20% rise and accelerating from the 0.10% increase in November. Shelter contributed to more than half of the monthly increase. On a year-over-year basis, CPI rose 3.4% compared to the 3.2% increase expected and 3.1% prior. Core CPI, which excludes food and energy, also rose 0.30% from November, and 3.9% year-over-year. What this highlights is that the gap between current inflation and the Federal Reserve’s 2% goal will take some time to close. It also suggests that interest rates cuts may be pushed back into the second half of the year.
In company news, we are beginning to hear more announcements regarding layoffs. Just this week Newell Brands announced it is downsizing 7% of its workforce. It is not alone. Among others that made announcements are Unity Software (25%), Rent-to-Own (10%), Duolingo (10%), BlackRock (3%), Amazon/Twitch (35%), Amazon/Audible (5%), and Salesforce which is implementing a hiring freeze. While the weekly jobless claims have hovered around 200,000 for some time, I would expect that we might see this number increase in the coming months as “rightsizing” picks up steam.
As for more happy company news, it seems Starbucks is making a move to enter India. I imagine this may be one of the last regions of the world which the company hasn’t conquered. Ironically, when it said it was entering China some years ago, I thought it was crazy. It turns out I was wrong, and management did in fact know better. Perhaps the same will happen with India. In other news, Hertz announced it is reducing its electric vehicle fleet by 20,000 cars or approximately a third. It cites maintenance and repair costs as being the reason. If you’re on the lookout to purchase an EV, you may find a bargain at Hertz later this year. And while we’re talking cars, Qualcomm announced it plans on bringing artificial intelligence to automobiles sooner rather than later, with an estimated revenue of $9 billion annually. Get ready for your car to know more about you than your significant other.
In closing, I want to alleviate the stress some of you may feel regarding taking down your Christmas decorations. I read this week that there’s a movement afoot. Why not leave the decorations up year-round? As one influencer was quoted saying, “there’s always something to celebrate.” Corey Davey, an interior designer in Dallas, says an increased desire for a sense of comfort at home is one reason people are keeping their trees up year-round. And Karol Ward, a therapist in NYC, suggests it is a way to express playfulness and boost mood. Perhaps they’re onto something. If you are still looking at your tree and feeling guilty, just know you may be a trendsetter. Now you know.Bruce J. Mason, MBA