TRG Fast Facts
By TRG Advisors on October 27, 2023
Weekly data-driven insights on the markets and economy
1. ‘Tis the Season
Earnings season is upon us: Nearly one third of companies in the S&P 500 are set to report earnings this week. Of companies that have reported so far, roughly 81% have beaten expectations.[i] With increasing confidence that the Fed is nearly done with rate hikes, the interest in Treasuries has led to a deepening sell-off in the S&P 500 in recent weeks. Most recently, the S&P 500 is still up over 8% YTD.[ii]
2. Safe and Secure
Amid geopolitical risk and the Fed’s potential to raise rates in its progress to get inflation to its 2% target, Treasuries could soon become a safe haven for investors. Since the 10-year’s climb last week nearing 5%, it continues to hover above 4.9%.[iii]
3. Running Out of Highway
Higher car prices and interest rates are leading to difficulties for consumers owing car payments. 6.1% of subprime auto borrowers are at least 60 days past due on their loans.[iv] This is up from 5.87% in August and is the highest percentage since 1994.[v] While recent data shows U.S. consumers, as a whole, are doing fairly well, the subprime borrower tends to be the first to feel the negative effects of macroeconomic influences.
4. Safety in Numbers
Bitcoin reached 1.5-year highs on Monday, up 10% after speculation on the possibility of a bitcoin ETF prompted short-sellers to quit positions.[vi] Crypto-linked shares like Coinbase Global and MicroStrategy gained more than 7% and 12% respectively.[vii] The prospect of a spot bitcoin ETF is driving broader flows into cryptocurrency, as it would allow a wider set of investors to buy into crypto without directly trading it.
5. Neutral is Positive?
The October S&P Global Flash PMI shows manufacturing at a 6-month high of 50, up from 49.8 in September,[viii] indicating no change in the health of the sector for the month. Manufacturer demand improved for the first time since April, and inflationary pressures softened, allowing cost burdens to increase at the slowest rate for three years. This stabilization of manufacturing provides hope for a soft landing.
6. Cloudy Earnings
Despite beating estimates for profit and sales, Google’s stock has still dropped following the earnings report and Google-parent company Alphabet’s cloud business reported its slowest business in the last 11 quarters. The company’s stock dropped 5.7% after hours. As companies across the technology industry have curbed spending on cloud-related services, Google’s cloud unit saw revenue decrease from 28% to 22.5% in the third quarter. [ix] Investors are looking for Google to deliver gains in artificial intelligence to remain competitive with Microsoft’s Azure and Amazon’s AWS.
7. Mixing Oil and Oil
In the second proposed merger among the biggest U.S. oil players, Chevron has agreed to buy Hess for $53 billion in stock, following Exxon Mobil’s $60 billion bid for Pioneer Natural Resources earlier this month. Exxon, Hess and China’s CNOOC are the only active oil producers in Guyana, which has become a major oil producer in recent years; this deal gives Chevron a 30% stake in this oil block in Guyana, which is expected to triple to more than 1.2 million barrels per day by 2027. This deal would get Chevron into the mix. Once the deal is complete, Chevron said it intends to increase its share repurchases program by $2.5 billion.[x]
8. Golden Hot Cakes
Costco now sells 1 oz bars of 24-karat gold from South Africa’s Rand Refinery for $1,949.99 and from Swiss supplier PAMP Suisse for $1,979.99 – and they’ve been selling like hot cakes. Costco limits them to two per member, but they still typically sell out within a few hours of being loaded on the website. The gold bars are shipped via UPS insured shipping and require a signature upon delivery. With the cost of gold rising more than 15% over the past year and more than 55% over the past five years,[xi] it’s understandable Costco sells out so quickly.
[i] Culp, Stephen, “Wall Street surges to close higher, powered by upbeat earnings, guidance,” Reuters, October 24, 2023, https://www.reuters.com/markets/us/futures-rise-treasury-yields-retreat-earnings-focus-2023-10-24/. Accessed October 24, 2023.
[ii] Barron’s, S&P 500 Index as of October 26, 2023.
[iii] YCharts, 10 Year Treasury Rate as of October 26, 2023, https://ycharts.com/indicators/10_year_treasury_rate
[iv] Pequeño IV, Antonio, “Americans Are Overdue With Their Car Payments At Highest Rate In Nearly 30 Years,” Forbes, October 21, 2023, https://www.forbes.com/sites/antoniopequenoiv/2023/10/21/americans-are-overdue-with-their-car-payments-at-highest-rate-in-nearly-30-years/?sh=1be7037e33d0. Accessed October 24, 2023.
[v] Hyatt, Diccon, “More Subprime Borrowers Are Falling Behind On Car Loans As Payments Surge,” Investopedia, October 24, 2023, https://www.investopedia.com/more-subprime-borrowers-are-falling-behind-on-car-loans-as-payments-surge-8369243. Accessed October 24, 2023.
[vi] Lang, Hannah and Kanjyik Ghosh, “Bitcoin soars to 1-1/2-year high on ETF bets,” Reuters, October 23, 2023, https://www.reuters.com/technology/bitcoin-rises-395-31187-2023-10-23/. Accessed October 24, 2023.
[vii] Wilson, Tom and Tom Westbrook, “Bitcoin soars to near 18-month high as ETF speculation mounts,” Reuters, October 24, 2023, https://www.reuters.com/technology/bitcoin-leaps-2023-high-etf-bets-2023-10-24/. Accessed October 24, 2023.
[viii] “S&P Global Flash US Composite PMI®,” S&P Global, October 24, 2023, https://www.pmi.spglobal.com/Public/Home/PressRelease/800861276eb949fc9646061f8eb2ffb4. Accessed October 24, 2023.
[ix] Cherney, Max A. and Akash Sriram, “Google-parent Alphabet’s cloud division misses revenue estimates, as Microsoft’s cloud booms,” Reuters, October 24, 2023, https://www.reuters.com/technology/google-parent-alphabet-reports-quarterly-revenue-above-estimates-2023-10-24/. Accessed October 24, 2023.
[x] Valle, Sabrina and Mrinalika Roy, “Chevron to buy Hess Corp for $53 billion in all-stock deal,” Reuters, October 23, 2023, https://www.reuters.com/markets/deals/chevron-buy-hess-corp-53-bln-stock-2023-10-23/. Accessed October 24, 2023.
[xi] Cox, Jeff, “Costco is selling gold bars and they are selling out within a few hours,” CNBC, September 27, 2023, https://www.cnbc.com/2023/09/27/costco-is-selling-gold-bars-and-they-are-selling-out-within-a-few-hours.html. Accessed October 24, 2023.