The post-pandemic resilience of the American consumer continues to show strength. October’s retail sales data indicates continued spending, especially as the holiday season approaches. This is important, as consumption comprises 70% of all U.S. GDP. Overall US retail sales rose by 0.4% from the previous month, seasonally adjusted, and increased 2.8% year-over-year unadjusted. Good news. However, the question for today is what (if any) will policy changes impact spending behavior? For example, what could be the impact of tariffs? What if we see less government handouts? How will that impact lower-income households?
"Consumer Confidence"
Is the Market About to Broaden Beyond Tech?
Has the market finally started to broaden beyond tech? Whilst it’s still too early to answer – there were signs of life this week in sectors which have failed to work this year. By way of example, the Russell 2000 and the Equal Weighted Index caught a bid – as the market started to price in at least one rate cut before the end of the year. And that makes sense. Companies that depend on leverage to supplement cash flows will stand to benefit more from rates cuts (vs their larger cap peers – who profit from higher rates due to cash hoards)
Divergent Signals
The market is wildly enthusiastic about all things “AI”. If you’re a company – and you don’t have an AI narrative – the market doesn’t want to know you. However, I also think this is potentially a blind spot. AI will undoubtedly be important and will change the way we do things (as we effectively re-wire tech) – but it’s a tool. For example, whilst Wall Street celebrates that an iPhone might be able to better answer our questions – Main Street sees things very differently. Do you think the majority of consumers understand the optimism on Wall Street? And similarly, do you think Wall Street understands why consumers are complaining?
Consumer Confidence Drops as Delinquencies Continue to Rise
Warren Buffett expressed caution around overpaying in his most recent letter. Jamie Dimon – JP Morgan CEO – said today there’s a 50% chance of recession – with a soft landing slim. News of falling consumer confidence and rising credit delinquencies also hit the tape today. This begs a question: is the consumer in 2024 stronger than what we saw in 2023? My guess is no.
For a full list of posts from 2017…