Thursday, October 31, 2019
The Fed helps consumers, consumers help companies
Wednesday was one of the year’s busiest days for business and economics news.
And the day’s top stories confirmed the most prominent themes of this current market moment — the consumer is the lynchpin of this economic expansion and companies levered to consumer health bear this out.
The day began with the first look at third quarter GDP, which came in better than expected. The U.S. economy expanded at an annualized rate of 1.9% in the third quarter, besting estimates by 0.3% while this number was bolstered by consumer spending as personal consumption rose 2.9%.
Wednesday’s “GDP report showed that consumer spending remained buoyant offsetting the ongoing business investment slump,” said Gregory Daco, chief U.S. economist at Oxford Economics.
And while investment was the weakest spot in this report, residential investment rose 5.1% last quarter. Andrew Hunter at Capital Economics said this number shows that, “lower rates are starting to benefit some sectors.”
A view certainly held by Federal Reserve Chair Jerome Powell.
The Fed cut interest rates by 25 basis points on Wednesday afternoon, its third cut in as many meetings. Powell said during his press conference that, “The U.S. economy is in its 11th year of expansion, and the baseline outlook remains favorable...Household spending continues to be strong — supported by a healthy job market, rising incomes, and solid consumer confidence.”
Powell added that, “we also see now more clearly the effects of more accommodative monetary policy on various kinds of consumer activity.” This is the central banker version of saying, “We’ve been right.”
Then after Wednesday’s closing bell, a rush of earnings crossed the wires with stronger-than-expected results out of Apple (AAPL) and Starbucks (SBUX), consumer-centric stories that economic bulls can get excited about.
And though the Fed obviously doesn’t care about any one company’s earnings, the kinds of results offered last night by Apple and Starbucks reveal why the Fed chair felt confident in backing such a pro-consumer view of this expansion.
Apple on Wednesday reported fiscal fourth quarter results that beat estimates on the top and bottom line with iPhone and Services revenue also topping estimates while the company raised revenue guidance for the current quarter. While Starbucks said its same-store sales rose 5% during the most recent quarter — the Street was looking for comps to rise 4% — with same-store sales up 6% in the U.S. Both stocks traded higher after hours.
So ,while every company has its own story to tell, the broadest themes being revealed in recent economic data are showing up in corporate earnings reports and the Fed sees its policies are part of what makes this possible. As Bespoke Investment Group analyst George Pearkes quipped on Wednesday, Powell himself even sounds at times like a CEO discussing earnings.
Which I guess means Wednesday’s rate cut really counts as a beat and raise for the Fed.
What to watch today
8:30 a.m. ET: Employment Cost Index, Q3 (0.7% expected, 0.6% in Q2)
8:30 a.m. ET: Personal Income, September (0.3% expected, 0.4% in August); Personal Spending, September (0.3% expected, 0.1% in August)
8:30 a.m. ET: Initial Jobless Claims, week ended October 26 (212,000 prior); Continuing Claims, week ended October 19 (1.682 million prior);
9:45 a.m. ET: MNI Chicago PMI, October (49.0 expected, 47.1 in September)
9:45 a.m. ET: Bloomberg Consumer Comfort, week ended October 27 (63.4 prior)
6:30 a.m. ET: Clorox (CLX) is expected to report adjusted earnings of $1.54 per share on $1.51 billion of revenue
7:40 a.m. ET: Kraft Heinz (KHC) is expected to report adjusted earnings of 53 cents per share on $6.13 billion of revenue
8 a.m. ET: Sprint (S) is expect to report an adjusted earnings loss of 2 cents per share on $8.19 billion of revenue
4 p.m. ET: Pinterest (PINS) is expected to report an adjusted earnings loss of 4 cents on $282.06 million in revenue
From Yahoo Finance
Today’s Influencers with Andy Serwer features comedian, producer, actor, and chairman & CEO of Entertainment Studios, Byron Allen. Tune into Yahoo Finance at 5 p.m. ET to watch.
Fiat Chrysler and Peugeot owners agree to $50B merger [Yahoo Finance UK]