Peter Boockvar

With the Fed very likely not hiking in a few weeks, it takes some of the market moving drama out of today’s number. As today’s figure will get revised not once, not twice but three times from here, it would be pretty silly for the fate of that June meeting to be decided today. 

As seen with the results and stock price response, Lululemon certainly is a consumer spending bright spot. In their call they said “our business remained strong in North America and across our international regions…Guests responded well to our spring merchandise assortment.” They saw particular strength in China, “ahead of our expectations in just one more sign of the potential within this market.” 

On the guidance, “We continue to be mindful of the uncertainties in the macro environment and as a result, we remain prudent as it relates to planning the business. That being said, we’re pleased with the strength we experienced across the business in Q1 and also the start we’ve seen in Q2.”

While a portion of the population is spending on athleisure, the Dollar General and Macy’s results show that others can just afford the basics and little more. DG said “Overall, we had softer than expected sales in the quarter, which we believe was primarily driven by deterioration in the macroeconomic environment, including headwinds from lower tax refunds than customers expected, and reductions in SNAP benefits, as well as unfavorable weather during the months of March and April.” 

“Regarding tax refunds, we believe our customers were caught off guard by the reduced amounts, which exacerbated the inflationary pressures they were already experiencing. Our customers typically use these refunds to repay debt, purchase big ticket items, make repairs, build a safety net and savings, or a combination thereof. The changes this year are contributing to their financial insecurity, and many are using lower refunds to simply afford basic household essentials, while others are contracting their overall spending.” 

Macy’s said this in their Q1 call:

“On our fourth quarter earnings call we said that we expected pressure to be more intense in 2023 compared to 2022. Subsequently, demand trends began to worsen in mid March and further accelerated in April. We believe cooler temperatures and headlines surrounding layoffs and the banking crisis were factors but so were the compounding effects of some previously identified macro headwinds. The US consumer, particularly at Macy’s (which has the largest exposure to the lower and middle income consumer), pulled back more than we anticipated as they reallocated spend to food, essentials, and services. We have planned our business for the remainder of the year assuming mid March through April headwinds continue and potentially worsen.” 

Quite the tale of two consumer cities. It is why the direction of the stock market has such an influence on consumer mood and where it goes will help to influence the soft/hard, recession/economic debate. 

Shifting to tech and Dell, the $100b tech powerhouse, they said this in their call:

“Consistent with our commentary in recent quarters, the demand environment remains challenged and customers are staying cautious and deliberate in their IT spending. We continued to see demand softness across our major lines of business, all regions, all customer sizes, and most verticals.” They did though see “some early signs of demand stabilization in commercial PCs in our small and medium business segments and across our transactional business.”

With guidance, “Looking ahead, we expect the cautious IT spending environment to continue in Q2.” 

The Fed’s balance sheet shrunk by another $50b to $8.385 trillion and now just above where it was before the collapse of SVB where it stood at $8.342 trillion. How the markets absorb the upcoming flood of Treasury supply can help to determine how much more QT the Fed has left as we see what reserves are left in the banking system. 

Fed’s Balance Sheet

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