Market 01/26: PCE continues downward trend as expected

PCE inflation decreases - spending increases strongly

PCE continues decline in December 2023

Fed's preferred inflation gauge - PCE December increases +0.2% MoM and +2.6% YoY.

Core PCE inflation index (excluding food and energy) increases +0.2% MoM and 2.9% YoY - lowest level since 2021.

=> continues monthly decline and close to market expectations (thoughnot yet reaching the 2% target) → Pushes Fed to cut interest rates.

Compared to the same period last year, durable goods prices continue to deflate, while service inflation decreases slightly.

However, compared to November, service inflation records a significant increase.

SuperCore PCE inflation indices (Core PCE excluding housing) all increase compared to previous month.

Although the disinflation process is proceeding as expected, Viet Hustler believes the Fed will continue to wait and monitor data for a bit longer:

Market reduces expectations for Fed rate cut from March: down from 70% last month to about 46% currently.

Data Fed monitors for pivot decision: inflation + labor market + retail sales.

Personal spending increases faster than income level

December data recorded:

Income decreases slightly from previous month, increases 0.3% MoM as expected.
However, spending increases strongly 0.7% MoM, higher than expected 0.5%.

In which the level of government wage increases is at record high, significantly different from private sector.

Disposable Personal Income DPI increases 0.1% MoM, lowest level in three months
→ Pushes savings rate down to lowest in a year.
- Savings rate decreases to 3.7% from 4.1% of disposable income.

→ People use savings to pay for their expenses.

Pending home sales rise to highest in 5 months

Pending home sales increase +8.3% MoM up 77.3, the highest level in 5 months.

→ Recent mortgage rate declines are helping to stabilize the market.

Earnings report updates: Intel, Visa, LVHM

Intel ER: Stock plunges as 2024 outlook is not optimistic

EPS: 0.54 USD adjusted, lower than expected 0.45 USD.
Revenue : 15.4 billion USD, expected 15.15 billion USD.

Q1/2024 Forecast:

EPS: 0.13 USD, much lower than expectations of 0.34 USD.
Revenue: 12.2 -13.2 billion USD, below expectations of 14.2 billion USD, breaking 7 consecutive quarters of growth due to overall sales decline caused by weakness in subsidiaries + reduced PC chip demand.

→ Intel stock fell more than 10%, equivalent to 20 billion USD market cap in just 2 hours.

VISA ER: positive earnings but negative outlook on consumption.

Revenue: up 9% YoY, reaching 8.6 billion USD (higher than expected by 50 million USD).
Operating margin: 69% (up 5% YoY).
Non-GAAP EPS: 2.41 USD (higher than expected by 0.07 USD).

→ Positive earnings report thanks to high card swiping volume from holiday shopping and robust travel.

However, VISA's outlook is affected by concerns slowing economic growth + high interest rates pressuring consumers, especially low-income individuals. → Q2 sales forecast bleak.

VISA stock dips slightly despite positive earnings report.

Louis Vuitton ER: Recovery in luxury goods

The world's largest luxury goods group announces 2023 revenue higher than expected, increases annual dividend.

Revenue: +13% YoY, reaching 86.2 billion Euro (93.46 billion USD), far exceeding forecasts.
Specifically:
- Fashion and leather goods: +9%",", reaching €42.2 billion →","Main growth sector in revenue.","Wines and spirits: -","7%",", reaching €6.6 billion.","Perfumes, cosmetics: +","7%",", reaching €8.3 billion.","Watches, jewelry: +","3%",", reaching €10.9 billion.","Image","Image","The luxury sector went through a difficult period after Covid due to tightened consumer spending, especially in the US and China.","However, the positive report results have satisfied investors.","Some other news:","14% of CRE loans (commercial real estate), of which 44% office building loans > current market value of the collateralized real estate itself.","Banks are holding more than 2,900 billion USD in CRE debt.","Office building prices down 40% from peak.","CRE prices down more than 20%.","Image","Image","Tesla recalls nearly 200,000 Model S, X and Y vehicles in the US due to rearview camera defect.","Tesla stock is no longer so “Magnificent” this year.","Elon Musk's AI startup aims to raise $6 billion at a proposed valuation of $20 billion to compete with OpenAI.","China: PBoC continues strong re-lending for businesses (especially small businesses) - promoting growth.","Image","Image", reaching €42.2 billion → Key revenue growth sector.
- Wine, beverages: -7%, reaching €6.6 billion.
- Perfume, cosmetics: +7%, reaching €8.3 billion.
- Watches, jewelry: +3%, reaching €10.9 billion.

The luxury sector went through a difficult period after Covid due to tightened consumer spending, especially in the US and China.

However, the positive report results have satisfied investors.

Some other news:

14% CRE loans (commercial real estate), of which 44% office building loans > current market value of the collateral real estate itself.
- Banks are holding more than 2900 billion USD in CRE debt.
- Office building prices down 40% from peak.
- CRE prices down more than 20%.
Tesla recalls nearly 200,000 Model S, X, and Y vehicles in the US due to rearview camera failure.