Consumer Spending Defies Expectations, Boosting Economic Outlook
A trifecta of macro reports has sent Treasury yields soaring, led by a stronger-than-expected retail sales figure. September retail sales rose 0.4% from August, exceeding the 0.3% consensus and accelerating from 0.1% prior. On a year-over-year basis, retail sales climbed 1.7%. The control group, which excludes autos and gas and feeds into GDP, jumped 0.7% month-over-month, the biggest rise in three months and the third-largest monthly gain of 2024.
Fed’s Leeway Increases as Consumers Keep Spending
Wells Fargo economists note that despite choppy retail sales this year, there is an underlying theme of spending favoring categories that feed into GDP calculations. This suggests that U.S. consumers are defying expectations and continuing to spend. The labor market also showed signs of strength, with weekly initial jobless claims falling as expected to 241,000, and the Philly Fed manufacturing index rising more than anticipated to 10.3.
Central Banks Take Action
The European Central Bank cut rates by another 25 basis points to 3.25% as inflation dipped below 2%. Meanwhile, the odds of a December rate cut by the Federal Reserve fell below 80%, and the odds of a cut in March moved to a toss-up.
Taiwan Semiconductor Restores Faith in AI Chip Demand
Taiwan Semiconductor’s third-quarter results and guidance topped estimates, driven by surging demand for AI chips. CEO C.C. Wei believes AI demand is just beginning and expects revenue contribution from server AI processors to more than triple this year, accounting for a mid-teens percentage of total revenue in 2024.
Earnings Roundup
Blackstone turned in better-than-expected Q3 earnings as investment activity picked up, with total assets under management topping $1.11 trillion. Red Robin Gourmet Burgers saw its stock rise as JCP Investment Partnership increased its active stake to 11.3%.
Meta Platforms Initiates Layoffs and Cracks Down on Meal Vouchers
Meta has initiated layoffs across various divisions, targeting teams within WhatsApp, Instagram, and Reality Labs. The company has also fired about two dozen staffers in its Los Angeles office for misusing their $25 meal credits to buy household items.
Wall Street Research Corner
BMO strategist Brian Belski believes the valuation backdrop for small-caps and mid-caps continues to look compelling, with small caps trading at a discount relative to their 20-year average. He notes that peak pessimism is in place, making a rebound even more likely. Among his Outperform-rated stocks are Constellation Energy, Digital Realty Trust, Ross Stores, Snap, and Take-Two Interactive.
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