Adam Gault
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Core retail sales see the best month since January 2023. (0:16) GM backs off its big EV prediction for 2024. (3:49) Stifel still sees a market correction. (4:51)
This is an abridged transcript of the podcast.
Our top story so far. Core retail sales rose more than expected last month, indicating some resilience in the U.S. consumer. Headline sales were flat in June, better than expectations for a -0.3% decline.
Core retail sales, which exclude motor vehicles and parts, rose +0.4% vs. the consensus of up +0.1%. The retail sales core control group, which feeds into GDP, jumped 0.9%.
Economists at Wells Fargo noted that, excluding auto dealers and gas stations, “it was the best month since January 2023, and that means upside risk for Q2 consumer spending.”
“This is not exactly the sort of moderation in consumer activity that tends to get a warm reception from financial markets these days,” they said. “A softening in consumer spending signals the demand pressure sustaining prices is abating and clearing the path for rate cuts later this year.”
“Yet, our sense is that retail sales may not offer all that much perspective on this issue… Today’s data mark the four-year anniversary of cresting above the pre-pandemic peak. Retailers have increased their trade by more than a third ($177.4 billion) during that four-year stretch. But the thing to know is that most of the points were scored in the first half. More than 83% of the gain in retail sales happened in the first two years.”
This morning also brought June figures on import and export prices. While these numbers are not particularly market-moving in and of-themselves, import prices do feed into core PCE, the Fed’s inflation measure of choice.
Export prices retreated -0.5% M/M in June, compared with the -0.1% decrease expected. Import prices came in flat vs. the +0.2% consensus.
Guy LeBas, strategist at Janney, says with no change in import prices, his model indicated core-PCE is at 0.2% for June, with that figure rounded up. That’s a print that would likely be welcomed by doves.
In today’s trading, the divide between the Dow (DJI), S&P (SP500), and Nasdaq (COMP.IND) continues.
The price-weighted Dow is up more than 1% due to a big price gain in UnitedHealth (UNH) post-earnings. The S&P is up slightly, and the Nasdaq is lower.
In the bond market, the longer end of the curve was under more pressure than the short end. The 10-year yield (US10Y) eased back to around 4.20%.
Among active stocks today, financial earnings continued to arrive.
Bank of America (BAC) beat Wall Street expectations as sales and trading revenue growth bolstered the bank’s Global Markets unit.
CEO Brian Moynihan said: “Our Global Markets business delivered its ninth consecutive quarter of year-over-year revenue growth in sales and trading, earning double-digit returns.”
The bank expects Q4 net interest income to rise to about $14.5 billion. That compares to the Visible Alpha consensus of $14.4 billion.
Morgan Stanley (MS) reported Q2 earnings and revenue that beat consensus estimates, but its provision for credit losses was bigger than expected.
EPS of $1.82, topped the $1.65 consensus. Net revenue of $15 billion beat the $14.3 billion consensus. Provision for credit losses of $76 million vs. the $55 million Visible Alpha consensus.
And Charles Schwab (SCHW) slumped after CFO Peter Crawford told investors that the company may look to reduce its bank level debt. That, in turn, may affect its stock buyback plans.
In its Winter Business Update slides, Schwab sees “opportunistic capital return over time,” but its stock repurchases are currently on hold.
In other news of note, General Motors (GM) declined to reiterate its previously announced forecast that it would have 1 million units of electric vehicle production capacity in North America by the end of 2025.
The word from a GM spokesperson is that the automaker would meet EV demand. “We’re being flexible. We haven’t announced a new capacity target, and we will build to demand.”
CEO Mary Barra said at the CNBC CEO Council event on Monday that the Detroit automaker would not build 1 million EVs next year because the market’s not developing. But she thinks that it will get there.
General Motors delivered 21,390 electric vehicles in Q2 and saw first-half EV sales of 38,355. While both those marks were records, they were also far off the pace anticipated a few years ago. A bright spot for GM is the Cadillac LYRIQ, which was noted by the company to be one of the fastest-growing EVs in the industry. Notably, over half of LYRIQ buyers with a trade-in in Q2 were from rivals such as Tesla (TSLA) and Lexus (TM).
And in the Wall Street Research Corner, Stifel says its call for a correction is already wrong from a timing standpoint, but their analysts still believe that a correction is looming and will happen by Halloween.
They said: “Our concerns and expectation for just over a 10% S&P 500 correction by Oct-2024 are largely the same, but our timing in expressing those concerns three months ago was too early and thus wrong. Our view now is the 5,000 range for the S&P 500 (prior view a 10% correction to 4,750), still by Oct-2024.”
Stifel also anticipates slower-than-expected growth in the second half of 2024 and has a negative view for equities, particularly overextended growth-focused names. It prefers defensive value segments of the market such as Health Care (XLV), Consumer Staples (XLP), Utilities (XLU), and quality as a whole.
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