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Fed likes what it's seeing in labor markets and continued moderation in inflation but wants more time to ensure trends are entrenched.
On Tuesday, we talked about how this week was going to be giving us a closer look into the state of the consumer. We have gotten a few data points since then and they seem to point to pockets of what makes up “the consumer” are under pressure and starting to pull back. The evidence here comes in the form of results from companies like Starbucks (SBUX)reporting same-store sales down 2% in the US and 7% internationally and of course Monday’s McDonald’s (MCD) double miss on lower volumes as well. While these are massive companies, both here and overseas, it is speculated that some of these declines may be in part due to boycott efforts against both companies over their position(s) on the ongoing Israel/Hamas conflict. Outside of these cases, we did see results from Mastercard (MA) that continue to point to strength in consumer spending, results like those from Stanley Black & Decker (SWK) CEO that, despite revenues shrinking 3% as compared to Q2 2023 showed gross margins rising 6% over the same period. Similarly, PayPal (PYPL) came out swinging, beating EPS estimates by $0.20 and outpacing revenue estimates on transaction margin dollar growth of 3% compared to the previous quarter. Additionally, SOFI Technologies (SOFI) posted an earnings beat attributed to improved Lending and Financial Services while also seeing a modest decline in personal loan delinquencies.
Today we’ll have Amazon (AMZN) and Apple (AAPL) report Q2 earnings. Given this backdrop of a stressed but still spending consumer despite recent labor market adjustments it doesn’t look to us that either of these results are going to be causing any major shift in sentiment. Having said that, we are interested to see what effect China’s response to US sanctions will have had on Q2 results. Overall, we expect to see more business as usual from markets, but to quote chair Powell from yesterday’s post-announcement presser, “Certainty is not a word that we have in our business.”
Speaking of yesterday’s meeting essentially, the Fed likes what it’s seeing on inflation, labor markets, and economic growth but wants to see more data confirming that these trends are entrenched. From the Q&A session, takeaway points include the above quote, the reminder that the Fed is, “data dependent but not data point dependent” and Powell stating that the Fed is getting closer to the point of considering a rate cut, but they’re not there yet. Regardless of Chair Powell’s comments analysts were not deterred from trumpeting that the next easing cycle is upon us and will definitively start in September. Looks like we’re back to risk-on.
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