Dow Jones Industrial 35,067.20 -1.15%, S&P 500 4,478.38 -2.27%
Nasdaq Composite 13,909.24 -0.36%, US Ten Year 4.055%, Crude Oil $82.61
In economic news the big story this week was the downgrade of the United States credit rating by Fitch Investor Services from AAA to AA+. This is the second such downgrade following Standard & Poor’s in 2011. The downgrade caused the expected gnashing of teeth by the Administration as its does not reflect well their fiscal policies, but practically speaking it is “inconsequential,” according to Bank of America CEO Brian Moynihan, while JP Morgan CEO Jamie Dimon insists that “It really doesn’t matter much.” Based on current economic activity in the country the bank chiefs appear to be correct. Meanwhile the July jobs data was a bit weaker than expected, and the June and May figures were adjusted downward, leading some to believe the central bank may be done raising short term rates. Expectations of a recession have declined while Powell’s “soft landing” now appears possible.
Stocks took a breather from the surge that began in June with their first down week in the past eight. While the rate of inflation has been falling, prices are still rising, with oil topping $80 for the first time since April. Two mega-cap companies reported earnings yesterday, with Amazon easily beating expectations on both the top and bottom lines. The stock rallied strongly into today. Apple also beat on both revenue and earnings, but the stock nonetheless fell due to lower iPhone sales. For stocks generally, they now face what some call “macro headwinds,” worries over interest rates stemming from what is now over $1 trillion in household debt and $32 trillion in government debt. While August is historically a good month for stocks, returns back down from those in July. The August summer doldrums set in and many traders go on vacation. From Yardeni Research:
Returning to one of the stocks mentioned above, Amazon (AMZN – $141), which had been one the worst performers during the 2022 rout in technology stocks and well into 2023, has clearly found its legs, its price rising 65% from its April $85 low. Their recent Prime Day beat all expectations. One analyst even raised their price target from $111 to $184! E-Commerce is here to stay and will continue to gather more and more of the consumer dollar as online commerce continues its inexorable climb.
Courtesy Merrill Lynch: data U.S. Census Bureau
While Amazon may dominate e-commerce there are other players to consider. Booking Holdings (formerly Priceline, BKNG – $3,068) dominate the online travel and restaurant reservation service. Within traditional retailers, Wal Mart (WMT – $158) has developed in its own online commerce platform that now comprises 13%, or $80 billion, of its annual sales. The company has raised its dividend every year for fifty years.
Have a Great Week,