Financial and Economic News: November 29, 2023Nov 29, 2023
Cyber Monday Surge
First up, we’re talking about some big news for online shoppers and consumer spending. This year’s Cyber Monday sales cashed in at $12.4 billion, exceeding the initial estimate of $12 billion. That’s thanks to robust Black Friday sales and the rising popularity of buy-now-pay-later options. But wait, didn’t I say last week that a majority of middle-class Americans are still grappling with feeling strapped for cash? So, where is all this money coming from? Well, as you might have guessed, flexible payment choices, including buy-now-pay-later plans contributed to almost two thirds of sales, with an estimated $7.3 billion spent from Nov. 1 to Nov. 26, a 14% boost from last year.
Now, retailers are closely monitoring this holiday season to gauge consumer resilience, and that’s why sales from both Black Friday and Cyber Monday play a crucial role in helping them navigate the difficult economic environment we’re currently in. That’s not all, the projected increase in online sales for November and December is an impressive $228 billion, almost 5% more than last year. Now, I always want to be sensitive to people’s unique financial circumstances, but the CFO in me is telling me that this is a good opportunity to remind you to think critically about what you spend your money on. These types of payment plans can be super attractive, but they can hurt your financial health in the long-term. So, while you’re planning your holiday shopping list, just make sure that you’re spending smart.
Holding The Line On Inflation
Next up, economists are preparing themselves for an extended period of high interest rates, courtesy of the Federal Reserve's focus on a key inflation measure. According to a recent Bloomberg survey, expectations for the annual core personal consumption expenditures (PCE) index, excluding food and energy, have nudged up to 2.5% by the end of 2024, which is only a slight increase from last month’s 2.4% prediction. While this may sound complicated, this subtle percentage shift basically just suggests a prolonged period of elevated interest rates.
While broader PCE indicators and other consumer price indices are poised to dip thanks to a drop in energy prices, the Fed prefers to rely on the core measure as a more dependable gauge of underlying inflation trends. So despite recent signs of a slowdown in price hikes, the Fed still remains cautious, and continues to insist that they’ll need more solid proof that things are cooling down before changing their stance on inflation.
Looking ahead, economists are hoping that the Fed will begin easing monetary policy in the second quarter of 2024, but in the meantime, however, the consensus seems to be that the central bank will maintain higher interest rates until the end of 2025. Last but not least, we’ve been seeing a lot of positive signs that the job market is standing strong, but experts are anticipating potential interest rate cuts starting around the second quarter of 2024 for two main reasons: a softer demand for workers and U.S. households having less disposable income.
Consumer Confidence Bounces Back
Despite those two more somber stories, we have actually seen a promising economic turn in that we learned this week that US consumer confidence rebounded for the first time in four months. If you’re not 100% clear on what that means, the Consumer Confidence Index rose from October's 99.1 to a robust 102 in November, surpassing the anticipated 101 points.
Now, this positive shift is attributed to an optimistic outlook on short-term income and job prospects, despite a lot of people experiencing those lingering concerns about rising prices. Dana Peterson, Chief Economist at the Conference Board, echoed this, saying that easing inflation and a resilient job market are contributing to improved consumer finances, and enabling people to save-and subsequently spend-more.
Specific indicators show that people are still positive about job availability, but it’s important to still be aware that a lot of folks are still concerned with job attainability. And while around two-thirds of respondents remain mindful of the possibility of a recession, there's reason to be cautiously optimistic, especially due to the dwindling chance that it may not materialize in 2023.
The Dividend Dilemma
Looking at the stock market, it seems that investors who brought in $60 billion by turning to dividend-focused ETFs are now facing some unexpected challenges. While these funds were expected to be safe investments, major players like the $18 billion iShares Select Dividend ETF (DVY) are now down 5.4%, trailing the rest of the tech-dominated market. This cautionary tale really highlights the risks of trying to time the market, as these investors looking to profit during the Fed’s tightening cycle have instead landed with underperforming stocks vulnerable to rising yields. Whoops! (And it's a big-not to mention expensive-whoops).
Among the other casualties are the SPDR S&P Dividend ETF (SDY), which is down 3%, the Schwab US Dividend ETF (SCHD), down 2.4%, and Vanguard’s High Dividend Yield ETF (VYM), which didn’t drop, but has maintained its flat performance for the year. This tells me that current market dynamics favor growth-oriented stocks, rather than dividend-focused funds.
Now, the shift towards value in a market focused on growth poses challenges for investors looking for dividends. I said on my podcast-Investing In Stocks-last week that stock dividends are in theory a great way to generate passive income, but things have been far from normal in the markets lately. This year, only $786 million moved into dividend ETFs, indicating a trend towards bonds that offer higher interest rates for a more reliable income. So, while conventional wisdom tells us that dividends are one of the most stable income sources, market trends are placing increased significance on price appreciation for your overall portfolio value. So that’s something to consider for the time being.
Tesla’s Bumpy Road
Shifting gears to the auto market, it looks like green stocks are headed for a fourth consecutive year of losses. In particular, there are concerns about Tesla potentially dropping from the S&P 500's top 10 stocks. What’s really going on though? This negative sentiment stems from factors like higher interest rates, political pushback, and evolving regulations that are impacting valuations.
Now despite a gloomy short term outlook, there’s plenty of reason for longterm optimism around EVs. Many experts see a major need to protect portfolios from the risks of climate change in the coming years. That’s why some investors are viewing this temporary shift away from renewables as an investment opportunity, in spite of the selloff.
Now, looking at the bigger picture, traditional ESG stocks like wind and solar have also been impacted by inflation and surging interest rates, despite hopes for a rally supported by initiatives like the US Inflation Reduction Act. And while electric vehicles are expected to be next in line for a downturn, the increasingly urgent need to address climate change will inevitably lead to more investment in green technologies and growth in the sector. Not to mention, with the COP28 Summit taking place over in Dubai this week, there may be some big news about climate policy and green initiatives to look forward to. As always, we’ll keep you up-to-date on all of it!
Finally, let’s wrap up with some great news for American drivers! Gasoline prices have now seen a continuous 60-day decline, marking the longest streak of drops in over a year. This trend not only provides relief at the pump, but is allowing consumers to put their extra cash towards holiday spending. For context, we’re currently averaging $3.25 per gallon in the US, with gas prices dropping over 60 cents from their mid-September peak and staying 30 cents cheaper than this time last year-score!! (We have to celebrate the little victories too, guys!) And in 14 states, the average price has fallen below $3 per gallon.
The decrease in gas prices is not only favorable for drivers but also provides a boost to retail stores during the crucial year-end shopping season, as consumers have a bit more cash in hand. This is underscored by my earlier story that US consumers once again spent a record amount of cash over the last few weeks. $9.8 billion online during Black Friday. Fortunately, this downward trend is expected to continue into 2024, driven by lower prices for crude oil. If it does, it could provide significant relief to individuals and give the American people more money in their pocket. We could definitely all use that!
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