Good Morning!

The typical U.S. homebuyer is feeling the pinch with a 20% surge in monthly payments from last year. High mortgage rates are keeping sellers at bay, causing a staggering 19% decline in available homes – the largest in 1.5 years.

And there's more pain! The 30-year yield is on the rise too!

🩴 Economists and Fed officials aren’t the only ones backtracking on recession calls. Earlier this week, BofA scrapped its projection of an economic downturn over the coming months in favor of a soft landing. The banking giant is predicting 2% GDP growth this year, followed by an 0.7% expansion in 2024 and 1.8% in 2025. There remains a long road ahead in getting inflation back down to target, however. BofA doesn’t see PCE prices falling to 2% until the second half of 2025. In terms of monetary policy, it expects the first rate cut in June 2024 followed by a slow pace of easing.

💪 Amid countless recession calls, the US services sector has shown remarkable strength. It’s also at the core of the Fed’s battle to bring down inflation. The sector expanded for the 7th consecutive month in July, albeit at a slower pace than in June (and less than forecasted). Inflationary pressures persist though as the prices paid subindex rose well above expectations. Even so, prices paid remain within their normal historical range.

⚒️ A higher-than-expected rise in productivity and a slowdown in unit labor costs bodes well for lower inflation. Labor productivity increased at the fastest pace since Q3 2020 last quarter, rising at an annual rate of 3.7%. Unit labor costs, meanwhile, increased at an annualized 1.6%. That was well below market expectations of 2.6% and marked a sharp deceleration from the previous quarter’s 3.3% rise. This combination of higher productivity and lower labor costs should help limit the impact of higher wages on inflation.

🍎 The bar was set low but Apple grinded out beats on the top and bottom lines in Q3. The company’s revenue, however, declined for the third straight quarter as weak demand for phones, computers, and tablets continues. Sales were down on an annual basis across categories with the exception of Services and Other Products, which grew by 8% and 2%, respectively. While Apple does not provide guidance, it suggested current quarter sales would be in line with the previous one which implies revenue of $89.25 billion (or a 1% YoY decline). Analysts were expecting $90.19 billion. On the bright side, the company expects sales of iPhones—by far its biggest money-maker—to improve in Q4.

📈 Amazon’s cost-cutting and operational streamlining efforts are starting to bear fruit. The retail giant posted its biggest earnings beat since Q4 2020 yesterday, nearly doubling Wall Street’s estimates for profits. With revenue rising 11% from a year ago, the company also returned to double-digit growth after a stretch of moderate expansion spanning 6 quarters. Sales from its all-important Amazon Web Services (AWS) division–which account for 70% of operating profits–rose just 12%, however, marking the unit’s slowest growth on record. For the current quarter, Amazon predicts more of the same, which is to say it raised sales guidance above analysts’ expectations.

🍭 Apparently, the “Saudi lollipop” was made with extra-long-lasting flavor. Last month, Saudi Arabia implemented a 1-million-barrels-per-day production cut in an effort to boost oil prices. An announcement extending the cut into August quickly followed. Yesterday, the de-facto OPEC leader said it was extending cuts yet again through September. It also warned the reductions to production could get deeper. Oil prices, meanwhile, are hovering near YTD highs and are on pace for their sixth consecutively weekly gain, the first such streak since early 2022.

👀 What we’re watching today:

• $ENB Enbridge

• $D Dominion Energy

• $LYB LyondellBasell

• $PPL PPL

• $MGA Magna

• $FWONK Liberty Formula One

• $CBOE CBOE

• $LBRDA Liberty Broadband

• $EVRG Evergy

• $CRBG Corebridge Financial

• $IEP Icahn Enterprises

• BOE hikes: The Bank of England raised interest rates by 0.25 bps to 5.25% and warned borrowing costs were likely to remain high.

• Freight costs: Shipping container rates have jumped by the most in over 2 years.

• US vs. China: Chinese deal activity in the US has hit a 17-year low due to geopolitical tensions.

• Seasonality: September is historically the worst month of the year for US stocks.

• Zombies: The share of companies in the Russell 2000 with negative earnings is over 40% and rising.

• Loan recoveries: JPMorgan says recovery rates for risky credit have hit all-time lows.

• Regulatory contrast: While regulation in the US is murky, crypto firms face clearer rules in Asia.

• Just like us: Much like the human race, ChatGPT is getting worse at basic math.

• LNG deal: ConocoPhillips has agreed to a 20-year deal to buy ~2.2 million tons of LNG from Mexico Pacific.

• LNG SPAC: Crown LNG Holdings is looking to go public in a $685 million SPAC deal.

• PE warning: Apollo’s CEO Marc Rowan says the private equity industry’s lucrative era of rising valuations is over.

• Book deal: KKR is close to acquiring book publisher Simon & Schuster for $1.65 billion.

• Snacks for sale: Snack maker Shearer’s Foods is exploring a potential $3 billion sale.

Sources:

• https://twitter.com/MikeZaccardi/status/1686707160548343808?s=20

• https://www.cnbc.com/2023/08/03/apple-earnings-live-updates.html

• https://www.redfin.com/news/housing-market-update-monthly-mortgage-payments-near-record-high/

Grit is a publisher of financial information, not an investment advisor. Grit does not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient. Grit does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.

THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN. INVESTORS SHOULD OBTAIN INDIVIDUAL INVESTMENT ADVICE BASED ON THEIR OWN CIRCUMSTANCES BEFORE MAKING AN INVESTMENT DECISION

No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and Grit undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.

Grit does not accept any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.

By using the Site or any related social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.

Please read: Terms of Use, Privacy Policy, Disclosure Policy and Disclaimer Policy

If you have any questions please contact us at [email protected]