When there is a major divergence in the stock market where you have a few names leading indices higher with most everything lagging is not just some intellectually debate among technical analysts on what that portends looking ahead. There is a fundamental analytical conflict as well. The top nifty 8 stocks don’t live in their own isolated economic universe. They share the same air and world as the rest of us and are subject to the same economic waves, both up and down as we all do. So when these 8 stocks are up about 50% cumulatively year to date while the SPX equal weight is up by just 1.2% and the Russell 2000 is higher by only 1.3% it’s only natural to question why the disconnect. That is because who do you think the customers are of the nifty 8? The other 2492 companies. Also, the same customers of the retailers that are spending more on food, beauty, drug and on some leisure/travel/hospitality and not much on anything else are the same exact consumers of what those nifty 8 companies sell. You can’t separate out the two groups.
Now we know the current AI craze, and I’m amazed with what the new iteration can do, is mostly driving the market action of the big 8 but if it’s going to be a profitable add on to their businesses, won’t it be a huge benefit to the rest of us in terms of our own productivity and efficiency? I would think so but the other 2992 stocks aren’t being rewarded for those potential benefits apparently, at least not yet.
I want to chime in again on the possible liquidity shift when the debt ceiling gets raised and the $500b+ of debt the Treasury will quickly sell in order to refill its coffers and what that could mean for money flows in stocks and other things. There is an influence but it’s only short term. A company’s stock will overtime reflect its fundamental earnings picture, not the ebbs and flows of the Treasury General Account.
The Fed’s balance sheet continues to shrink after the SVB failure’s temporary reversal. It declined by another $46b for the week ended May 17th and at $8.456 trillion is getting close to where it was right before SVB’s downfall at $8.340 trillion.
Here are some notable comments from the Walmart earnings call:
“In the US, both Walmart and Sam’s Club performed well with good transaction growth, positive units in food, and strong e-commerce growth. We continue to gain market share in the grocery category, including with higher income and younger shoppers.”
“After a strong start, sales growth moderated as the quarter progressed.” We’ve now heard this from many and I reiterate my point we’ve had a 2 part economy this year. One pre SVB and one post SVB.
“At the headline level, consumer spending has proven resilient. But below the surface, we continue to see signs that customers remain choiceful, particularly in discretionary categories.”
“In terms of inventory, we’re in good shape. In-stock is improving and excess inventory keeps coming down.”
Proving that inflation in some parts of the economy remain persistent, “In the dry grocery and consumables categories like paper goods, we continue to see high single digit to low double digit cost inflation. We all need those prices to come down. The persistently high rates of inflation in these categories, lasting for such a long period of time are weighing on some of the families we serve. This stubborn inflation in dry grocery and consumables is one of the key factors creating uncertainty for us in the back half because of the cumulative impact on discretionary spending and other categories, specifically general merchandise.”
Burberry, the high end fashion company, said things looked good in mainland China, the rest of Asia and in Europe but “In Americas, we are seeing some softening in the region due to the recent macroeconomic slowdown.”
Japan said inflation ex food and energy rose 4.1% y/o/y in April, a further acceleration and up from 3.8% in March but one tenth below the consensus. It’s now double the 2% target but Governor Ueda today they can still be patient and it would be “premature” to tighten policy just yet. Oh man, monetary policy is just in its own world there. Ueda said “The cost of impeding the nascent developments toward achieving the 2% price stability target, which are finally in sight, by making hasty policy changes would likely be extremely high…It is appropriate to take time to decide on adjustments to monetary easing toward a future exit.”
The Japanese 10 yr inflation breakeven was unchanged but at .85% it’s the highest since December 30th, 2022.
German said its April PPI was up 4.1% y/o/y which shows further deceleration due to lower energy prices but also very easy comps. Reflecting the easy comps, in April 2022 PPI was up 34% y/o/y. The German 10 yr inflation breakeven was up 2 bps to 2.32%, near a 3 week high.