by tyler | Jun 2, 2023 | CNN, investing
Worries of a possible global recession are deepening as heightened inflation and interest rates act as a brake on spending, while geopolitical strife adds to a sense of profound economic uncertainty.
But that’s not the case for everyone: The ultra-wealthy are doing just fine, and Wall Street firms are taking advantage of that.
What’s happening: Economic growth in China and the United States is wobbling. The US economy grew far below expectations in the first quarter of the year and factory activity in China fell in May to its weakest level since the country ended its zero-Covid policy five months ago.
Germany, the largest economy in Europe, has slipped into recession as energy price shocks took their toll on consumer spending.
But the one-percenters are still finding exactly what they need, even in a slowing economy.
JPMorgan Chase said this week that it is building out a new business unit meant to cater to the ultra-wealthy. The group, called 23 Wall, focuses on about 700 families together worth more than $4.5 trillion, Andy Cohen, the team leader, told Bloomberg.
In the past 10 weeks, JPMorgan Global Wealth Management opened 40,000 new accounts. Last year, it added around one new client with assets of $100 million or more per day, Mary Erdoes, head of asset and wealth management at the bank, told investors last week.
It’s not just JPMorgan that sees opportunity in catering to the super rich. Goldman Sachs and Citigroup have grown their private banking services this year.
The moves make sense. Even as the International Monetary Fund lowers its global growth outlook and employers in the United States brace for recession, about 75% of family offices — wealth management firms for ultra-rich families — report that they’re increasing certain investments to take advantage of volatile markets, according to a recent BlackRock survey.
Demand for luxury: In the year through April, US food prices went up by 7.7%, with grocery prices jumping 7.1% and menu prices increasing 8.6%. That caused food insecurity for food-stamp recipients to rise to “unprecedented levels” in May for the second consecutive month, according to a new survey from Propel, an app that allows users to track food stamps.
Meanwhile, brands that cater to the wealthy have been thriving.
Luxury car brand Lamborghini announced that it has sold out of all of its vehicles until 2024.
LVMH
(LVMHF), the parent company of brands like Louis Vuitton, Dom Pérignon, and Dior, reported strong results for the first quarter of the year with sales up 17%. The luxury firm became the first in Europe with a $500 billion market valuation in April and is now among the 10 largest companies in the world.
Huw Roberts, head of analytics at Quant Insight, noted that while LVMH cited softer luxury demand trends in the United States and Europe during its April earnings call, the company — along with rival brands like Richemont and Hermes — have been among the strongest performers year-to-date in Europe, up around 25% compared to the broader index up 9%. Roberts said that makes it one of the most expensive “growth” segments in Europe.
“Will luxury continue to grow mid-to-high teens forever? No, that’s not the logic,” wrote Erwan Rambourg, global head of consumer and retail research at HSBC, in a note. “You will see some moderation at some stage.”
Two-pronged recession: A K-shaped recession is what happens when separate communities experience economic downturns to differing degrees. Some sectors of society may continue to experience growth, while others lag behind.
These changes are usually defined by employment, wealth and geographic differences and are exacerbated by increased rates of inequality.
Something similar could be happening now, said Gregory Daco, chief economist at EY.
“Recent data on household spending and credit growth point to a K-shaped consumer spending pattern in 2023 with low- and median-income families exercising more spending restraint, and families at the higher end of the income spectrum still spending, albeit with more discretion,” he said.
Dollar General
(DG) stock had one of its worst days ever on Thursday.
The discount retailer’s shares fell 20% Thursday after the company slashed its earnings forecast for the year, reports my colleague Allison Morrow.
Dollar General now expects sales to rise between 1% and 2% (down from an earlier forecast of about 3%) and expects earnings to fall 8% year over year.
“Unfortunately, our customers are saying they’re having to rely more on food banks, savings, credit cards,” CEO Jeff Owen said on a call with analysts Thursday.
The company says its “core customer” makes less than $40,000 a year. Owen also said he believes customers were caught off guard by reduced tax refunds and food assistance benefits, “which exacerbated the inflationary pressures they were already experiencing.”
Other retailers like Macy’s
(M) and Target
(CBDY) have also reported consumer pullbacks, but Dollar General customers are unable to shift their spending to less-expensive retailers and tend to pull back completely — a very troubling sign for the economy.
For the first time since 2007, the US Treasury is set to auction $15 billion worth of one-day cash management bills on Friday that will be issued on June 5.
Cash management bills mature in a relatively short time frame, ranging from a few days to a year, according to the Treasury. They’re used to help manage the Treasury’s short-term financing needs.
This comes as the Treasury’s cash balances hover around $37 billion, the lowest level since 2017, reports my colleague Elisabeth Buchwald.
Since the debt ceiling was initially breached in January, the Treasury hasn’t been able to borrow more money to pay its bills.
President Biden is expected to sign the debt limit deal into law on Friday, which will suspend the cap on the nation’s borrowing through January 1, 2025 to avert what would have been a first-ever US default.
by tyler | Jun 2, 2023 | CNN, investing
Global stocks climbed Friday, led by a resurgent Hong Kong market, as investors greeted signs that the US Federal Reserve may hold off raising interest rates this month, the end of the US debt ceiling drama, and talk that China might unveil new measures to boost its faltering economic recovery.
The Hang Seng
(HSNGY)closed 4% higher, notching its biggest one-day gain in three months. Other Asian markets, US stock futures and European indexes also rose. Oil prices climbed more than 1.5%.
US markets are now pricing in only a 26% probability of a Fed rate increase on June 14, down from 64% a week ago, according to the CME FedWatch Tool.
A key comment came Wednesday from Philip Jefferson, a Fed governor. He said in a speech that a pause in the central bank’s campaign of rate hikes at the June meeting wouldn’t mean that hikes were finished but would instead give Fed officials more time to assess the state of the US economy.
Markets received an additional boost Friday after the US Senate passed a bill late Thursday evening to suspend the nation’s debt limit, averting a first-ever US default just days before a June 5 deadline set by the Treasury. The House passed the measure earlier this week, and it can now be sent to President Joe Biden to be signed into law.
“While the issue was expected ultimately to reach a satisfactory conclusion, there was nonetheless relief as the legislation avoids what would have been a disastrous US default,” said Richard Hunter, head of markets at trading platform Interactive Investor.
“Comments from Fed members also lifted sentiment, suggesting that the time for a pause in the rate-hiking cycle might now be appropriate.”
Dow, S&P 500 and Nasdaq futures were all around 0.5% higher at 6.46 a.m. ET.
The benchmark Stoxx Europe 600 index rose 1%, as did London’s FTSE 100
(UKX) index. Meanwhile, the CAC 40
(CAC40) in France was up nearly 1.3% and Germany’s DAX
(DAX) almost 1.2% higher.
Brent crude, the benchmark for global oil prices, gained almost 1.6% to trade at $75.46 a barrel.
In Hong Kong, the two best-performing stocks were Chinese real estate developers Longfor Group
(LNGPF) and Country Garden Services, soaring 17% and 12% respectively. Shares of tech and electric vehicle companies were also among top gainers.
The Hang Seng index flirted with a bear market earlier this week, after weak economic data from China ignited worries that a post-Covid recovery had stalled in the world’s second largest economy.
But market sentiment took a turn Wednesday, after a key gauge of activity in China’s small and medium-sized factories showed unexpected growth last month.
Also on Wednesday, Qingdao, a city in eastern China, unveiled a new package of policies to spur demand for property, including lowering the down payment requirement for mortgages.
Analysts have been expecting the Chinese government to roll out more measures to stimulate the moribund property market.
Citing people familiar with the matter, Bloomberg reported Friday that China was working on such measures. According to the report, regulators are considering reducing the down payment in some neighborhoods of major cities and lowering agent commissions on transactions among other policies.
Elsewhere in Asia, South Korea’s Kospi index ended the day 1.3% up, Japan’s Nikkei 225 was 1.2% higher, and the Shanghai Composite Index gained 0.8%.
by tyler | Jun 2, 2023 | CNN, investing
Investors proposing a class action lawsuit have accused Tesla CEO Elon Musk of insider trading and manipulating the cryptocurrency Dogecoin, costing them billions of dollars.
In a Wednesday night filing in Manhattan federal court, investors said Musk used Twitter posts, paid online influencers, his 2021 appearance on NBC’s “Saturday Night Live” and other “publicity stunts” to trade profitably at their expense through several Dogecoin wallets that he or Tesla controls.
Investors said this included when Musk sold about $124 million of Dogecoin in April after he replaced Twitter’s blue bird logo with Dogecoin’s Shiba Inu dog logo, leading to a 30% jump in Dogecoin’s price.
A “deliberate course of carnival barking, market manipulation and insider trading” enabled Musk to defraud investors, promote himself and his companies, the filing said.
Musk bought Twitter last October. He also runs SpaceX, a rocket and spacecraft manufacturer, as well as Tesla, which makes electric cars.
Alex Spiro, a lawyer for Musk and Tesla, declined to comment on Thursday. The investors’ lawyer did not immediately respond to requests for comment.
Investors have accused Musk, the world’s second-richest person according to Forbes magazine, of deliberately driving up Dogecoin’s price more than 36,000% over two years and then letting it crash.
They included their latest accusations in a proposed third amended complaint, in a lawsuit that began last June.
Musk and Tesla had in March sought a dismissal of the second amended complaint, calling it a “fanciful work of fiction,” and on May 26 said another amendment was unjustified.
In a Wednesday order, U.S. District Judge Alvin Hellerstein said he would “likely” allow the third amended complaint, saying the defendants would not likely be prejudiced.
Hellerstein also granted the investors’ request to dismiss the nonprofit Dogecoin Foundation as a defendant. Its lawyer Seth Levine called the dismissal “the appropriate result.”
by tyler | Jun 1, 2023 | CNN, investing
JPMorgan Chase is pulling the plug on 21 branches acquired during its takeover of failed regional bank First Republic.
In a statement on Thursday, JPMorgan said a quarter of First Republic’s 84 branches will shut by the end of the year.
“These locations have relatively low transaction volumes and are generally within a short drive from another First Republic office,” JPMorgan said in the statement. “Clients should expect to continue to receive the same level of service with seamless access to their money.”
JPMorgan
(JPM) declined to say which branches will be shut.
First Republic catered to wealthy clients, with branches in ritzy locations including Palm Beach, Florida, Beverly Hills, California and Greenwich, Connecticut.
A JPMorgan spokesperson told CNN about 100 employees in the branches that are closing will be offered a six-month transition assignment. Following that, the spokesperson said those employees will be eligible to apply for an open job at the bank, which has about 13,000 open roles. If they don’t find a job with JPMorgan, the bank will help them find a job elsewhere, the spokesperson said.
Last month, JPMorgan agreed to buy most of First Republic’s assets following the San Francisco-based regional bank’s seizure by the government.
JPMorgan is moving to swiftly slim down First Republic, including by cutting workers. Last week, JPMorgan informed about 1,000 First Republic Bank employees they will no longer have jobs.
First Republic’s failure marked the second-biggest banking failure in US history and came just weeks after the implosion of Silicon Valley Bank and Signature Bank.
by tyler | Jun 1, 2023 | CNN, investing
Policymakers at the Federal Reserve signaled last month that they were considering a pause in their 14-month long regimen of hiking interest rates to cool the economy and bring down inflation.
But the US economy is like an engine that won’t quit — it just keeps on pumping out jobs. New data out Wednesday showed that job openings and hiring both rose in April, while unemployment sits near 53-year lows. With just two weeks left until the central bank’s next policy decision, it appears that more rate hikes could be coming after all.
Investors — already contending with fallout from the banking crisis, the lingering effects of debt ceiling turmoil and economic slowdowns in China and Europe — aren’t very happy about that prospect.
What’s happening: The number of available jobs in the United States rose unexpectedly in April after three months of declines.
Job openings climbed to 10.1 million in April, according to data released Wednesday by the Bureau of Labor Statistics. Economists were expecting about 9.4 million, according to consensus estimates on Refinitiv.
There are now 1.77 openings for every job seeker, the BLS data shows. Hiring activity also grew and layoffs dropped in April.
Job growth is healthy and that’s good for the economy. Business and consumer sentiment remain resilient and spending and investment are also proving to be relatively robust. But this could be another case of “good news is bad news” for the Federal Reserve.
Fed Chair Jerome Powell has said that he wants to see more slack in the labor market. If there’s an imbalance between labor supply and demand, he says, wages will rise and add to upward pressure on prices.
More data is expected before the Fed next decides on interest rates on June 14, including the closely-watched government jobs report Friday and the Consumer Price Index for May due June 13.
Fed Governor Philip Jefferson said on Wednesday that a pause at the June meeting wouldn’t mean that hikes are finished but would instead give central bank officials more time to assess the state of the economy.
“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” said Jefferson in a speech. “Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”
Also complicating matters: The Fed’s favorite inflation gauge bounced higher in April. The Personal Consumption Expenditures price index rose 4.4% for the 12 months ended in April, up from a 4.2% increase seen in March, according to data released Friday by the Commerce Department.
“It remains to be seen whether the Fed is prepared to pause or skip a rate hike at a forthcoming meeting,” said Bankrate senior economic analyst Mark Hamrick. “While the Fed is still talking like it is on the inflation righting warpath, the resilience and strength of the job market have been remarkable.”
Markets are currently placing the probability of a quarter percentage point rate hike in June only at about 30% according to CME FedWatch. That’s up from around 0% in mid-May. Prior to Jefferson’s speech, markets were pricing in a 70% chance.
“After last month’s meeting, it seemed certain that the word change signaled that the Fed was on pause,” said Sam Stovall, chief investment strategist at CFRA research.
“However, due to stronger-than-expected economic reports, stickier-than-anticipated inflation readings, and increasingly hawkish Fedspeak, we now see the [Fed] postponing its pause and raising rates by [a quarter percentage point],” he said.
The bottom line: Uncertainty seems to be the name of the game right now. “Markets may wish for a Fed pivot, but we believe that hope is not a strategy,” said David Kotok, chairman and chief investment officer at Cumberland Advisors. “Of course,” he added, “that could change at any time.”
The House of Representatives passed the deal to suspend the nation’s debt ceiling through January 1, 2025 late on Wednesday night. The final tally for the vote was 314 to 117.
The bill now needs to be passed by the Senate before it can be sent to President Joe Biden to be signed into law.
It’s not yet clear when the Senate will vote, but Senate Minority Leader Mitch McConnell told reporters on Wednesday that he hopes the Senate will finish voting on the debt ceiling agreement on Thursday or Friday
“Tonight, the House took a critical step forward to prevent a first-ever default and protect our country’s hard-earned and historic economic recovery,” Biden said in a statement moments after the House voted. “This budget agreement is a bipartisan compromise. Neither side got everything it wanted. That’s the responsibility of governing.”
But while Biden celebrated the news, investors weren’t as excited. Stock futures inched up immediately after the bill passed through the House but quickly dropped down again. They were narrowly higher early on Thursday.
That could be because of lingering concerns about its passage through the Senate, but also because other worries are likely to return center stage.
Economic problems in China have been rattling US markets.
Factory activity in China dropped to new lows for the second month in a row, fueling investor fears that the country’s post-Covid economic boom is ending. American CEOs, including JPMorgan
(JPM) chief Jamie Dimon and Tesla
(TSLA) head Elon Musk, have flocked to China this week to assess the risks to their investments in the country.
Jamie Dimon is arguably the most powerful man in corporate America. He may be eying political power, too.
Normally, Dimon is quick to shoot down speculation that he could run for office. But in an interview with Bloomberg Television released on Wednesday, Dimon didn’t rule it out.
Asked if he’s ever considered a public office position, Dimon said: “I love my country, and maybe one day I’ll serve my country in one capacity or another.”
Dimon, 67, stressed that he’s focused on running JPMorgan, a role that has become even more complex amid the banking crisis and the ongoing debate over the debt ceiling, reports my colleague Matt Egan.
“I love what I do,” Dimon told Bloomberg, adding he’s “quite happy” in his current job. He noted JPMorgan does a “great job helping Americans, for helping countries around the world.”
In 2016, Dimon said he’d “love to be president” but added it’s “too hard and too late” for him to do that.
by tyler | Jun 1, 2023 | CNN, investing
Macy’s, Costco and other big chains say shoppers are pulling back at their stores and changing what they buy. That could be a red flag for the US economy.
Macy’s
(M) on Thursday cut its annual profit and sales forecast after customer demand slowed in March.
“We planned the year assuming that the economic health of the consumer would be challenged, but starting in late March, demand trends weakened further in our discretionary categories,” Macy’s CEO Jeff Gennette said in a statement.
Same-store sales at the Macy’s sank 8.7% last quarter, while the higher-end department store Bloomingdale’s dropped 3.9%.
Macy’s stock dropped around 6% during pre-market trading Thursday.
The company was the latest retailer to note shifts in customer demand.
Costco
(COST) finance chief Richard Galanti said last week that that some customers were switching from pricier steaks and beef for cheaper meats like pork and chicken. This is a trend that has been common in previous recessions, he said.
Macy’s and Costco appeal to middle and higher-income shoppers, and their results show a pullback among that demographic.
These shoppers have bought most of the clothing, electronics, furniture and other goods they want over the past three years during the pandemic. Now, many are now spending discretionary income on travel and other services they were not able to find during the pandemic. Some airlines and hotels are posting record bookings.
That shift is hurting retailers.
“Macy’s significant earnings guidance reduction underscores the challenges facing retailers given a softening consumer spending environment and shifts in budgets toward services,” said David Silverman, a senior director at Fitch Ratings.
Lower-income shoppers also have less money to spend on discretionary purchases and are slowing down.
Dollar General
(DG) said its core lower-income customers were passing up discretionary products like home goods and clothing. The company slashed its outlook on weak customer demand, sending its stock falling 10% during pre-market trading.
“The macroeconomic environment is more challenging than the [company] had previously anticipated,” Dollar General said in a statement. It’s “having a significant impact on customers’ spending levels and behaviors.”
