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Saturday 3 February 2024

Morning Brief: Declining inflation means better pay

Saturday, Feb 03

5 key stories we read this week

💪 The January jobs report: The stronger-than-expected jobs report showed yet another sign of a healthy economy. It's something that makes investors nervous, as it may mean delaying rate cuts. But it's also something that Fed Chair Jay Powell noted is ultimately a good thing. So long as inflation keeps cooling.

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📈 Meta surprises to the upside: It's been an interesting week for the Magnificent Seven. And for most of these companies, interesting in a bad way. But for Meta, the stock jumped 22% on Friday after solid earnings and announcements of stock buybacks and a dividend.

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📺 Job cuts in streaming and media: Taking a page from last year's playbook from Silicon Valley, the big streamers are taking a hard look at their staffing. Google, Paramount, Disney, and others are cutting jobs in 2024 as profitability remains, once again, streaming's key focus. That's also why Disney is doing a password crackdown of its own.

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🚘 Car insurance is 20% more expensive: Inflation is cooling and mostly that means prices are growing more slowly, rather than actually being cut, though we've seen some of that. One place where things are still out of control is car insurance, which saw a 20% jump in December over the year before. It's the biggest jump since 1995. The reasons why are complicated but boil down to some of the supply chain issues that are still yet to be untangled in the auto industry.

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💰 The ghosts of last year's banking collapse: We're almost a year out from the Silicon Valley Bank drama, but the troubles of New York Community Bancorp, which saw shares crash 41% this week, were a stark reminder that all is not entirely well — even if the Fed noted that 2023's problems have been largely contained.

4 conversations we're still thinking about

🚙 GM CFO Paul Jacobson explains why the company is confident it will hit its EV profitability goal.

💊 Pfizer CEO Albert Bourla talks about the company's guidance and how it will fill the hole from its declining COVID business.

💉 Novo Nordisk CFO Karsten Munk Knudsen talks about boosting US Wegovy supply and production.

🏦 Robert Kaplan, Federal Reserve Bank of Dallas former president and CEO, on the Fed decision and outlook.

Chart of the Week: Declining inflation is increasing how much we all make

This week’s Chart of the Week features an excerpt from our latest Chartbook, a mammoth Yahoo Finance project in which dozens of economists and strategists send us a key chart and say why it’s important.

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We’ve been featuring them in editions of our Morning Brief newsletter all week.

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The almost three dozen charts and explanations tell the story of a strong market and economy carrying momentum into 2024, despite stumbles seen very early in the year.

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Most of all, however, these charts illustrate the nuance often neglected on both bearish and bullish sides of conversations about markets — which too often boil down to AI hype and rate-cut obsession.

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These charts are one of the best ways to get a handle on the factors exerting both upward and downward pressure on stocks, wages, prices, and more. And like most things in life, they don’t always line up perfectly.

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Inflation is cooling. Stocks appear to be overvalued by historical levels. Most stocks aren’t that hot. A productivity boom could be a paradigm shift for everything.

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And, as our Chart of the Week shows, consumers are still spending, supported by a rise in inflation-adjusted take-home pay.

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Neil Dutta, head of economic research at Renaissance Macro, noted that this “popular bearish talking point” of a US consumer on its last legs is simply not borne out in the data.

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“[Consumers] have drawn down all their excess savings, and, as a result, they no longer have a cushion of savings from which to spend,” Dutta wrote, summarizing the skeptical case against US consumers.

“I don't buy it. The excess saving story is one that has officially outlived its usefulness.”

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“Consumption is being supported by ongoing gains in real incomes,” Dutta added. “With consumer price inflation slowing, and the labor markets solid, real incomes are rising. Since May, real incomes net of [excluding] transfers, a key recession determinant, are up roughly 3% at an annual rate.”

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And though these figures come from a different data set, Friday’s jobs report showed wage gains continued to impress, rising 0.6% over the prior month in January and 4.5% over last year. And this while inflation continues to moderate.

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No wonder consumer sentiment has been so good — and, this week, looking even better.

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— Ethan Wolff-Mann

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Today's newsletter was edited by Ethan Wolff-Mann.