In this podcast, Motley Fool senior analysts Jason Moser and Ron Gross discuss:
- How the Consumer Price Index report fueled a historic rise in stock prices on Thursday.
- China’s potential for scaling back COVID restrictions.
- The role layoffs will play in the coming months.
- Disney‘s parks division being the lone bright spot in an otherwise disappointing quarterly report.
- The latest from The Trade Desk, Lyft, and Marqeta.
- Carnival‘s intriguing strategy to battle rising food costs.
- Two stocks on their radar: Outset Medical and Titan International.
Motley Fool contributor Rachel Warren talks with Anjee Solanki, national retail director at Colliers, about the top retail trends this holiday season and how consumer spending continues to change.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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This video was recorded on Nov. 11, 2022.
Chris Hill: It’s the Motley Fool Money radio show. I’m Chris Hill joining me on the show Motley Fool Senior Analyst, Jason Moser and Ron Gross. Good to see you as always gentlemen.
Jason Moser: Hey.
Ron Gross: Hi, Chris
Chris Hill: We’ve got the latest headlines from Wall Street. We’ve got a closer look at retail trends heading into the holidays. And as always, we’ve got a couple of stocks on our radar. But we begin with the big macro on Thursday morning, the latest consumer price index report sent the stock market soaring. The S&P 500 rose five-and-a-half percent, the Nasdaq rose more than seven percent. All because inflation rose just 0.4 percent in October Ron, which was lower than economists we’re expecting. If you had told me at the time, it was going to be a report that was a little cooler than economists were expecting, I would’ve guessed the market would be up. I wouldn’t have guessed this.
Ron Gross: Oh boy. If you didn’t like Thursday, Chris, you weren’t trying because there was something for everyone across the board on Thursday. This is a big sigh of relief really, I think perhaps indicating that inflation is moderating. Some of the things that factored into that better-than-expected report were a decline in used vehicle prices that had a relatively big impact. Apparel prices, medical care services also went lower, but there was offsets, offsetting that were still higher fuel costs and really more importantly, higher shelter costs, which make up about a third of the CPI index. That acceleration was fueled by the biggest jumping cost of hotel stays in more than a year. That’s important to note. It’s really about hotels in this specific circumstance. One thing to note is I think we’re seeing rent and housing costs come down, but there’s a lag and that’s not going to show up in the data for a while. But when it does, I think you’re going to start to see people even get more excited. We got the better-than-expected print, as they say, on Wall Street and treasury yields fell sharply on the better-than-expected news. As I said, I think investors are hoping we’re seeing peak inflation and now they’re waiting for what’s called the Powell pivot. It’s when the Fed chairman will slow or stop the interest rate hikes. I think we’ve still got a long way to get to the Fed’s inflation target of two percent. Don’t think the rate increases are going to stop anytime soon. Future is tied to the Fed fund rates indicate an 80 percent probability of a 50 percent basis point hike in December. But I think there’s hope that inflation is coming down. We can either avoid a recession or it will be mild and that’s why the markets rallied so much. I don’t ever recall seeing an index up more than seven percent in one day.
Chris Hill: Same although Jason, I don’t know about you, but why don’t we wait for Jay Powell to actually pivot before we actually name something that Powell pivot. But to Ron’s point, we got this report. Eyes go back to the Federal Reserve, Johnte.
Jason Moser: I’m making a mental note here. I feel like after the show we need to establish a Powell pivot Twitter feed because it’s just too good. I mean, you can just go so many different directions. That was the headline we all wanted to see. Inflation easing better than expected. The market’s performance this week has been mind-bending at times. I think that’s great. I think Ron made a lot of good points there in regard to potentially we’re seeing inflation starting to ease in a more persistent fashion. You look at the prices that exclude food and energy, for example, that core inflation that policymakers see is more reflective of the trend that was up just 0.3 percent from September versus an expectation of 0.5 percent. We are seeing data from Zillow and CoreLogic that shows that rent prices are coming down in even property management software accompany RealPage. They reported that apartment rents fell 0.6 percent in October from September. That’s the third largest drop it’s recorded since 2010. Those are also very encouraging signs. But you look back in history here just a few months ago, I mean in August, we had the same thing play out. Better-than-expected inflation in the market received the news very positively the following month, we went back to inflation, back on the rise. I’m hopeful that this is the beginning of a more long-term trend. But I think he got to take it with brain and soul.
Chris Hill: Agreed. I don’t think any economic conversation or recession conversation is complete without talking about the labor markets, especially in this environment, labor market remains strong. Unemployment’s sitting at 3.7 percent only that’s pretty darn good. Which also maybe pretty darn bad depending on what your point of view is. But we do have some indication that it’s softening. I think layoffs are certainly accelerating technology and financial sectors. I think we’re seeing that I feel like the cutting in the financial sector is more cyclical and typical while the tech sector is really reacting to, I think I’ll use the word bubble, the bubble that occurred over the last few years and the over-hiring that resulted and it’s just necessary to pair that back, as costs are too high and companies need to right-size their business a little bit to get their profitability of where they want it to be. A little bit additional softness in the labor market is probably necessary to get the Fed where they want to be.
Jason Moser: Well, and we saw signs of that already this week. We have better platforms starting to execute some layoffs, Redfin as well. It seems like there’s a crystal ball element to our conversation. But Ron, it does seem like over the next 6-12 months, this is something investors should be watching when it comes to specific companies, particularly the larger tech ones, isn’t it?
Ron Gross: For sure. We’ll want to listen to guidance for our earnings estimates coming down. They’re actually doing pretty well. I would have predicted that we would have seen the earnings come in a little weaker and guidance being a little weaker. I’m not seeing it as bad as I thought which may bode well again for not having a deep recession. But we’ll have to watch costs. China news on Friday about the easing on some of the COVID restrictions is good, the Goldman Sachs described it as marginal and it won’t really amount to more than a fine tuning. They really have to go further away from their COVID zero policy for journey to make a huge impact. But that may help with supply chain issues and some other issues as well with respect to costs. But we’ll have to watch individual companies. How is profitability looking? What does guidance look like?
Chris Hill: I’m glad you mentioned China because Jason, for those who missed it on Friday, China announced the pullback of some of the countries COVID restrictions, including one dealing with international flights to the point that Ron made with the reference to the Goldman report, there was not a specific timeline. If you want to take a bearish view of this announcement, you can take, well, there weren’t a lot of specifics. There wasn’t a timeline. Let’s wait and see. If you want to be a little bit more optimistic, you could look at the announcement from China and say, well, this is really the first indication of the central government moving away from that zero COVID policy. I’m just thinking of all of the times over the last couple of earnings seasons that we’ve heard companies talk about inflation, supply chain, China on their conference calls. Maybe I’m looking through rose-colored glasses, but I’m choosing to be a little bit more bullish on this China announcement. What about you?
Jason Moser: Well, I mean, I appreciate that perspective. I want to be more optimistic and hopefully, again, maybe this is really the first sign. Maybe they’ve started to wake up to reality here and understand there are better ways to handle this, I think, then adopting that zero COVID stance. Maybe the easing of these controls, maybe this is that first-step. I’m not sold that it is. I think it’s odd to see this news coming out as, I think the country is dealing with its worst outbreak in more than six months. I don’t know what ultimately changed there. Maybe it ultimately amounts to nothing. Maybe this is just like a headline and then that’s really all. I think you go back to pre-COVID. I mean we were having this conversation regarding China and supply chains well before COVID….
Read More: The CPI, Layoffs, Disney’s Report, and More Top Market News | The Motley Fool