March 22, 2024 | Consumer Spending

MARKETS

S&P 500: Down -7 points to 5234, VIX: 12.92

Asia: Japan +0.18%, China -0.94%, Hong Kong -2.16%

Europe: Euro Stoxx 50 -0.56%, FTSE +0.67%, DAX +0.17%

FX: USD (DXY) up 0.34%, EUR down 0.38%, GBP down 0.42%, JPY up 0.25%, CNY down 0.41%

Energy: WTI Crude down 0.31% to $80.82, Brent down 0.26% to $85.56

Cross markets: Terminal rate unch at 5.33%, Implied rate cuts 2-years from terminal down ~3bp at 181bp, 5/10 yield spread +2bp

Treasuries: 2-year yields down 4.9bp at 4.587%, 10-year yields down ~5.7bp at 4.209%, 30-year yields down ~4.7bp at 4.388%

WHAT WE'RE THINKING

Snapshot: US equities are mixed with the Russell 2000 (RTY) underperforming. The S&P 500 is still on track for a weekly gain of >2% after broad strength yesterday.??FDX is the upside standout after a solid EPS beat, improved guidance (cost cutting discipline) and $5B buyback. Softline apparel/retailers LULU and NKE are the downside standouts after both companies reduced guidance citing a soft start to the year.??The sell-off in LULU/NKE weighs on consumer-focused stocks and credit cards. BBY is a notable exception after receiving its second sell-side upgrade in as many days.??Tech is a relative outperformer on continued leadership from semis and GOOGL is extending gains from earlier this week on a potential AI licensing agreement with AAPL.??Treasury yields are lower across the curve.??The Dollar Index is higher with CNY weakness in focus after officials set a weaker-than-expected daily fixing, which fuels speculation that China could tolerate lower levels.??Gold is lower, industrial metals are mixed and crude is little changed.??Bond yields continue to drift lower after this week delivered a series of dovish central bank developments.?

• Commentary from Fed officials at Today’s ‘Fed Listens’ event adds support to Wednesday’s encouraging message on rate cuts and slower pace to QT.?
• The BOE’s Bailey and ECB’s Nagel also sound incrementally dovish in comments made this morning.?
• Concerns around US consumer spending emerge with LULU and NKE capping off a string of consumer-focused earnings disappointments. ASO and DRI both issued poor results/downbeat guidance this week. European luxury goods provider Kering also guided FY24 lower. Last week, it was the dollar stores with DG/DLTR missing and guiding lower, while a lower pace of mortgage approvals at LEN was attributed to elevated debt levels.??
• The focus next week shifts to global inflation data with updated CPI reports from Australia, Spain, Tokyo and France as well as the US February PCE data on Friday.?

Consumer: Retail earnings disappointments over the last two weeks may only be the result of a ‘share of wallet’ shift to hard goods.??This is a subset of the massive shift to goods spending during the pandemic that swung back to services and experiences in the aftermath.??Consumers needed new clothes (LULU/NKE) to attend the experiences (dinner at DRI) and are now returning to hardware store (pull a chart on HD) to replace the broken patio furniture they bought during the pandemic. These share of wallet shifts become less pronounced each time they occur as consumer spending patterns return to equilibrium.??This theory makes the most sense given the Fed’s most recent Z.1 (March 7) revealed that US savings deposits are still ~$406B above 2019 levels, checking accounts are ~$3.3T above and money market balances are ~$1.6T over 2019 levels.

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Benign: This week’s incrementally dovish Fed meeting put the benign macro narrative that includes slower inflation, eventual rate cuts and reliant growth back in focus.??We’ve discussed this a lot, but benign macro conditions tend to compress realized equity volatility, which leads to multiple expansion.??This accounts for the current 21x forward multiple on the SPX.??Less benign macro conditions (focus on inflation, rate cuts and growth data) will result in higher volatility and lower multiples.??Next week’s February PCE inflation print has largely been de-risked thanks to Powell’s nonchalant view of hot Jan/Feb CPI prints.??This makes the March CPI report due 4/10 the most credible near-term threat to the outlook.

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We’re actively repositioning client accounts as these stories progress and markets evolve.??Please send me a note if you’d like to hear more detail, see historical performance or discuss becoming a client at Jackson Square Capital.??–Andrew Book a call

FACT OF THE DAY

Finland has the most heavy metal bands per capita in the world with 43 bands per 100,000 people.??Below is ‘Hevisaurus’ performing live from Vuosaari House in Helsinki.?

WHAT WE'RE DOING

Adobe Plunges After Earnings: Andrew Graham and Keith Kirkpatrick join the Watchlist to discuss the outlook for Adobe. Although there are challenges in the near-term, Adobe may benefit from the adoption of generative AI over the longer term. Watch Now

What do Advisors see for 2024? Speaking as one of five featured advisors on Barron’s Advisor Q&A, Andrew explores why we’d see a pull-back to start the year and predicts small-cap stocks will outperform large-caps for the year.??Read More on Barron’s

When does bad news become bad again? A meaningful slowdown in job creation over the coming months would likely flip the ‘bad-news-is-good’ for equities script.??Pricing in an economic slowdown or recession would weigh on deep cyclical and small cap stock valuations, making for an attractive entry point. Read on CNBC?

See more of JSC in the Media.

THIS DAY IN HISTORY

March 22, 1894: The first Lord Stanley’s Cup championship game is played in Montreal Canada. The first championship was won by the Montreal Amateur Athletic Association, and it wasn’t until 1906 that professional teams first became eligible to challenge for the Cup.

CATALYST CALENDAR

Next week: 1) Australia’s Feb CPI Tuesday; 2) Spain’s Mar CPI Wednesday; 3) Tokyo’s March CPI Thursday; 4) France’s March CPI Friday; 5) US Feb PCE Friday. Earning highlights: 1) Tuesday am: MKC 2) Wednesday am: CCL, CTAS, PAYX 3) Wednesday pm: JEF 4) Thursday am: MSM, WBA 5) Thursday pm: OXM, SMTC

Jackson Square Capital produces Inside Markets. We also offer financial planning and investment management services. Learn more here and catch up on our recent media appearances.

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This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.