In the third quarter, GDP, adjusted for inflation, grew at just 0.5%. That’s down from 1.6% growth in the second quarter. The year over year growth rate came to 2.0%. Economists had forecast year over year growth of 2.6%. As recently as July, economists predicted that the recovery would gain steam in the second half of the year
Consumers’ holiday spending intentions are a tad lower than in 2020, according to the latest survey from the Conference Board. On average, consumers intend to spend $648 on gifts this holiday season, according to the survey. That’s down from $673 in 2020. But it still leaves gift budgets at historically high levels.
As bond yields have tumbled because of the Federal Reserve’s lower interest rates for longer monetary stance, investors have compensated by buying longer duration bonds. The logic is pretty simply. A one-year Treasury now yields 0.11%. A two-year Treasury pays 0.45%. A five-year Treasury yields 1.18%. The benchmark 10-year Treasury was paying 1.61% at the close today, October 26. Want more yield? You can buy the 30-year Treasury for a yield of 2.04%. The problem is that the longer the duration of a bond–the more time until maturity–the bigger the downward move in bond prices if/when the Federal Reserve decides to raise interest rates or if/when the financial markets decide to anticipate a Fed move by selling bonds ahead of any move by the U.S. central bank.
In September new home prices across 70 cities in China fell for the first time in six years. The drop of 0.08% is more significant than the absolute number seems because China counts on property-related industries for almost a quarter of its GDP. And because real estate is a primary source of budget cash for local governments. The timing is troubling. September is traditionally a peak season for the China’s new home market.
Today, October 19, Procter & Gamble (PG) reported fiscal year first quarter earnings of $1.61 against Wall Street projections of $1.59. (That’s down 1% from the first quarter of the prior fiscal year.) Sales grew to $20.34 billion versus Wall Street expectations of $19.89 billion. Organic revenue growth was 4% against Wall Street expectations for 2.1%. So as the close today of the stock is down 1.18%. And the results today are seen as disappointing. To figure out why, look beyond those top of the report numbers to the squeeze on margins from higher raw materials costs and from rising expenses for shipping.
China’s economy grew more slowly than expected in the third quarter. Gross domestic product (GDP) expanded 4.9% in the July-September quarter from a year earlier, the national statistics bureau said today, October 18. That’s a big drop from the 7.9% year over year growth in April-June. Economists had projected growth of 5.2% for the quarter.
As we contemplate the extraordinarily strong earnings from Wall Street’s big banks last week, it’s important to remember that Wall Street isn’t Main Street.
U.S. retail sales rose by 0.7% in September. That follows an upwardly revised 0.9% gain in August, the Commerce Department reported today. The biggest surprise came in autos. Motor vehicle and parts dealer sales rose 0.5% in September after a 3.3% decline in August. Excluding autos, retail sales advanced 0.8% in September. Economists surveyed by Bloomberg were looking for a 0.2% decline in overall sales and a 0.5% rise excluding autos.
Need anymore evidence than the stock market action yesterday and today? Yesterday, October 13, with the Standard & Poor’s 500 down for three straight sessions and the index lower by 4.1% from its September 2 high, the market reversed. Suddenly everyone wanted to buy risk again. The most momentum-y of momentum stocks tacked on 4% or more. CrowdStrike gained 7% on the day. Veeva Systems (VEEV) added 4.55%. SentinelOne (S) moved up 7.5%. Even China’s internet giants showed big gains with Tencent Holdings (TCEHY) up 3.62% and Meituan (MPNGF) gaining 4.43%. Today, October 14, investors and traders piled in to pick up the momentum favorites that had been left behind, relatively, in yesterday’s risk-on move. As of 3 p.m. New York time Nvidia (NVDA) up “only” 1.30% yesterday was ahead 3.32% today. Applied Materials (AMAT) u only 1.14% yesterday was up 2.78% today. PayPal (PYPL), which gained just 0.20% yesterday, higher by 4.13% today
Inflation wasn’t so bad in September–as long as you didn’t eat or use any energy. Headline inflation measured by the Consumer Price Index rose 0.4% from August and climbed at a 5.4% year over year rate. Core inflation, which excludes increases in the prices of food and energy on the grounds that they’re “volatile” rose by 0.2% from August.
In the last few days both Goldman Sachs and the International Monetary Fund have cut their forecasts for global economic growth. The predictions don’t call for a big slowdown in growth but the trend is definitely downward.
Big bank earnings begin on Wednesday and Thursday. Unfortunately, won’t tell us anything useful about the margin pressures from rising global supply chain shipping costs or higher prices for raw materials. Those are the factors that could produce a quarter’s worth of warnings and unpleasant surprises once third quarter earnings season starts on October 13. But to learn about the effect of those margin pressures on earnings we’re going to have to wait for reports from the consumer and industrial companies that are on the front lines of these trends.
