Yes, about 70% of companies reporting earnings will beat the estimates in the coming month and as about 100 lowered guidance going into this, it’s part of the expectations game. That said, Q1 earnings will be down y/o/y for a 2nd quarter and should be viewed in two parts, 1)pre March 9th, the day SVB unraveled and 2)what’s happened since, including the first two weeks of April. That goes for what the banks say today, what were deposit trends post March 9th? What has been demand for loans since then? Any loan loss provisions trends that have changed since? And goes for every single other company to report in the weeks to come so if you have a chance to question a CEO, separate out the quarter and get a sense on how April started.
I highlight this for the obvious reason that March 9th was likely a seminal moment in the road the economy has traveled during the interest rate shock seen over the past year. And also because I need to mention Fastenal again because they touch just about anything in the world of industrials as well as the customers of the businesses they are selling into. According to their website, “Our customers span a spectrum of industries, sizes and profiles – from local fabricators, contractors, and k-12 schools, to global manufacturers, national construction companies, retail and e-commerce giants, and major hospitals and universities.”
In their earnings call they said “in our monthly numbers, the March daily sales came in a bit softer. We’re now in our fifth month of ISM below 50, and it had ticked down in March and we’re seeing that in our business, particularly the fastener side, the OEM piece of the business…Now, one month does not make a trend, it’s too early to have a good read on April and we don’t have a lot of forward visibility. We do continue to anticipate that we will outgrow our marketplace, which frankly isn’t growing right now. However, the quarter did finish on a softer note.”
Jamie Dimon said this in the JPM earnings release, “The US economy continues to be on generally healthy footings – consumers are still spending and have strong balance sheets, and businesses are in good shape. However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks. The banking situation is distinct from 2008 as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending. We also continue to monitor for potentially higher inflation for longer (and thus higher interest rates), the inflationary impact of continued fiscal stimulus, the unprecedented QT, and geopolitical tensions including relations with China and the unpredictable war in Ukraine.”
I quoted the comments yesterday from Delta on business travel and they said this on their call on leisure, “Consumer demand was well ahead of pre-pandemic levels and drove strength in domestic and international travel.” Also, “The hybrid workplace is blurring the lines between business and leisure trips.” They are confident in travel from here, “I think we feel really confident in the summer and what we have on the books and what we’re seeing real-time in terms of demand.”
The Atlanta Fed’s Wage Tracker rose 6.4% y/o/y in March and that is up from 6.1% growth in February and back within 3 tenths of its multi year high. For perspective, wage growth in this stat averaged 3.4% in the 20 yrs leading into Covid. For a ‘job switcher’, wages rose 7.3% y/o/y vs 6.7% in February. For those ‘staying’ they grew by 5.9% y/o/y from 5.8% in February. Demand for ‘high skilled’ labor is still being paid for as wages here accelerated to 6.4% and that is a fresh high dating back to data from 1997. If you’re aged between 16-24, you saw an 11.6% y/o/y wage gain, though off the multi decade high of 13% last October.
Bottom line, inflation will continue to disinflate from here but 2024 is where it settles out at a much higher pace than the 1-2% we saw pre Covid and higher wages, even if they’ve plateaued, will be a main contributing factor as companies try to recapture lost margins.
Atlanta Wage Growth Tracker
Add Singapore to the list of central banks that are now holding policy steady as the Monetary Authority of Singapore maintained its current currency band after 5 straight meetings of tightening. They follow the BoC, RBA and RBI. They said “With intensifying risks to global growth, the domestic economic slowdown could be deeper than anticipated. While inflation is still elevated, MAS’s 5 successive monetary policy tightening moves since October 2021 have tempered the momentum of price increases. The effects of MAS’s monetary policy tightening are still working through the economy and should dampen inflation further.” We remain bullish and long Singaporean stocks.
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