The week started off strong but weakened as it went on. The winner this week was the Dow Jones Industrial Average which looks to finish flat. Both the Nasdaq and S&P 500 look to give back some of the gains won last week. The market may have gotten a little ahead of itself, although investors appear immune from bad news for the time being. Earnings announcements, still trickling in at this late date, have the potential to move markets as we saw with Target this week. And while we’re not talking about recession, the fear is simmering but widely ignored. Next week will be a short trading week as markets will be closed for Thanksgiving and only open an abbreviated schedule on Friday.
I haven’t written much about cryptocurrencies since they are very speculative in nature. I say speculative, but in truth, cryptocurrencies are somewhat controversial. Some people see it as liberation from the tyranny of the Federal Reserve and its banking system, while others see it as a variation on the Dutch tulip bulbs of the 1600s. Are they in the same category as SPACS and NFTS? Probably not given their more widespread adoption. However, there have been some spectacular losses due to hackers and more recently exchanges going bankrupt. The most recent is FTX which you may have heard about on the news this week. The new boss at FTX, who oversaw the bankruptcy of Enron, said “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy information as occurred here.” Let that sink in. We should expect investigations on several fronts and if all goes well, perhaps some regulations around the cryptocurrency industry to help prevent events like these from happening again. For now, know that these types of investments are high risk due to a lack of oversight and an absence of regulations.
As for company news, we are beginning to see an uptick in layoffs. No, I’m not talking about Twitter. Amazon announced this week it plans on laying off 10,000 employees in the months ahead. The areas being targeted are corporate and technology roles. Another company looking to furlough workers through the holiday season is FedEx. This is somewhat surprising since the economic data suggests consumers are still consuming, albeit with credit. The company is set to furlough an undisclosed number of drivers starting December 1st and will remain on furlough for ninety days thereafter. Management cites weaker-than-anticipated demand for package deliveries as a driving factor for parking planes and cutting cargo flights.
As for consumers, both Walmart and Home Depot reported earnings this week. They both beat expectations with mid to high-single digit revenue gains year-over-year. More importantly they both raised guidance for the year ahead. Who didn’t come out with an upbeat report? Target would be the answer to that question. Its stock was down 14% after its Grinch-like announcement. The company expects comparable store sales to fall in the fourth quarter which would be a surprise indeed. And therein lies the risk with retail right now. While companies remain upbeat, excepting Target, it does appear consumers are stretched, which may or may not be accounted for by both companies and analysts. It is too soon to suggest consumers will pull back, but if the spending does slow that might signal the Fed has accomplished its task. Adding further to the evidence things are slowing, the yield curve has inverted to its deepest level since 1982. Historically speaking, long periods of inversion have predicated future economic downturns. As a practical matter, anytime the long-dated curve has inverted, slower growth and Fed rate cuts have followed with no exceptions to the rule. And in every instance but one, a recession has followed.
For the story of the week, I turn to a subject I’ve never broached before… baby names. It isn’t something I’ve given much thought to for almost twenty years now. But I came across a list of the top baby names for 2022 and was surprised at how much has changed over the past fifteen years. Among the top girls’ names are Olivia, Emma, Amelia, Ava, and Sophia. The top boys’ names are Liam, Noah, Oliver, Elijah, and Mateo. Evelyn is the only new girl name to crack the top 10 in 2022 – pushing Harper out. Isabella moved up one place, from seven to six, and Charlotte fell three spots, from six to nine. Luna moved up two spots, from nine to seven. Levi and Leo are moving up in the rankings, while Mason and Ethan both fell out of the top ten. Other names quickly rising are River, Athena, and Iris. It seems if one is looking for how society and culture is changing, one need not look any further than the names we choose for our children. Now you know.Bruce J. Mason, MBA