Wentz Weekly Insights
Stocks Higher, But Gains Remain Extremely Narrow
Recent Economic Data
- The US trade deficit expanded slightly in September compared to August. In September, the trade deficit was $61.5 billion, wider than the $58.7 billion deficit in August. The wider deficit was due to exports rising $5.7 billion, or 2.2%, to $261.1 billion while imports rose a larger $8.6 billion, or 2.7%, to $322.7 billion. The larger deficit will create a slight downward revision to third quarter GDP (higher exports increases GDP while higher imports lowers GDP). A different way to look at the data is the total volume of trade, an indicator of overall economic activity globally, and overall trade volume increased a very strong $14.3 billion in the month, or 2.5%. However, the volume of trade year-to-date is $102.1 billion lower than last year’s period, all due to lower imports which is a negative sign for domestic demand.
- The number of unemployment claims filed the week ended November 4 was 217,000, a decline of 3,000 from the week prior, with the four-week average up slightly to 212,250. Continuing claims were 1.834 million, up 22,000 from the prior week for the highest since April. There has been a slight uptick in unemployment claims over the past several weeks, but that can be attributed to the auto strikes in Michigan as the state saw a significant increase over the timeframe.
- According to the University of Michigan’s most recent consumer sentiment survey, consumers’ feelings on the economy and inflation deteriorated further in November. The consumer sentiment index was 60.4 in the latest reading, down from 63.8 last month for the fourth consecutive decline and the lowest since May. The current conditions index fell to 65.7, about 6 points below expectations, while the expectations index fell about 5 points to 56.9, both the weakest levels since May. The one-year inflation expectation increased to the highest level since April at 4.4%, up from 4.2% last month. It was just September that one-year inflation expectation was 3.2%. The longer-term inflation expectation (5-10 years) was 3.2% for the highest level since March 2011.
- WeWork, the provider of coworking spaces, announced that it has filed for Chapter 11 bankruptcy protection. It said it has entered into a restructuring support agreement with about 92% of its secured note holders. The company made headlines before and during the pandemic on its failed efforts in its initial attempts to go public due to its disclosures and corporate governance, and its valuation at one point of at least $47 billion.
- Nvidia is reportedly getting ready to announce three new chips that will be eligible to export to China, weeks after the US restricted chipmakers from selling high-end AI chips to Chinese companies. Reports say Nvidia has held about a 90% market share of China’s AI chip market, estimated to be around $7 billion.
- After activist pressure and part of a strategic review of the company, Disney is exploring alternatives with its linear TV assets. Latest reports from the WSJ say the company is weighing the potential sale of some TV networks and adding some into the A&E Network, which is a joint venture Disney has with Hearst. Disney has identified ABC, FX, and the Disney Channel as the channels that are most valuable to the company, while channels like Freeform and National Geographic are considered “less critical.”
- The CEO of OpenAI, the company behind the popular artificial intelligence chatbot ChatGPT in partnership with Microsoft, said the company is planning to secure additional financing from Microsoft, according to the Financial Times. About a month ago reports said the company was looking to sell existing shares that would value it between $80 and $90 billion. Reports say Microsoft had already invested around $10 billion in the company. The CEO said the partnership is working well but artificial training intelligence expenses are huge.
- The Senior Loan Officer Opinion Survey on Bank Lending Practices noted that over the past three months banks reported tighter standards and weaker demand for commercial and industrial loans to firms of all sizes. Regarding households, banks reported tightened lending standards for all categories of real estate loans (with the exception of government mortgage, which was unchanged), a significant number of banks said they tightened lending standards for credit card and other consumer loans, and a moderate share of banks tightened for auto loans. A special question of the survey said banks were less likely to approve credit card and auto loans by those with a lower credit score (600s range) and about as likely to approve the same loans for those above a 720 score. Another question asked the reason for the changes and the most frequent response was less favorable and more uncertain economic outlook, reduced tolerance for risk, deterioration in credit quality of loans and collateral values, and concerns on funding costs.
- South Korea said it was banning short selling until June 2024 with the Financial Services Commission saying the reason is “aimed at fundamentally easing ‘the tilted playing field’ between institutional and retail investors.” It claimed that because of uncertain market conditions, major foreign investment banks have engaged in unfair practices and trades.
- Saudi Arabia and Russia said they will continue their previous commitment of oil production cuts in the latest monthly decision. Saudis have cut production by 1 million barrels/day, going into effect in July and extended until the end of the year, while Russia’s cuts were 300k bbl/day.
- Central bank news:
- The Reserve Bank of Australia came out with its policy decision in which the street is calling a “dovish rate hike”. It raised rates 25 bps to 4.35% after four consecutive meetings of no change. Commentary was vague but said whether further tightening is needed will depend on the data and assessment of risk.
- Fed Governor Waller said the 4.9% GDP growth in the third quarter was a “blowout” and is watching the stronger economic data closely, and also called October’s move higher in the 10-year Treasury yield an “earthquake.”
- Dallas Fed President Lori Logan said inflation is still too high, but the question for her is whether financial conditions are “sufficiently restrictive” to get inflation back to 2%. She said inflation is trending to 3% instead of 2% but expects to continue to see tight financial conditions.
- Richmond Fed President Tom Barkin said the Fed is not done in bringing inflation to target, adding an economic slowdown is likely required to achieve this. With financial conditions tighter and the level of interest rates close to restrictive he said the Fed has time to “reconcile competing narratives” to test different views on the trajectory of inflation. He added whether more needs to be done by the Fed to generate a further slowdown remains to be seen.
- In an International Monetary Fund panel titled “Monetary Policy Challenges in a Global Economy” Fed Chairman Powell spoke on inflation and monetary policy. Powell talked about how inflation has given us a few “head fakes” already, where it appears it was coming down quickly only to later stall or even move higher. He added “we are not confident” it has made it to a point where policy is on path to bring inflation to its target, adding the Fed will not hesitate to tighten policy further. Powell said the Fed will move carefully, and that will allow it to avoid being misled by a few good months of data. Near the end of his speech, he said the current policy rate is probably at a significantly restrictive rate.
Did You Know…?
Consumer credit According to the New York Fed’s quarterly consumer credit report, the level of household debt increased $786 billion from Q3 2022, or 4.8%, to a new record of $17.29 trillion. This is now $3.1 trillion, or 22%, above pre-pandemic levels. Credit card balances are increasing more than any other type of debt. In the quarter, credit card debt increased $48 billion, or 4.7%, to a record $1.08 trillion. Delinquency rates increased 0.4% in the quarter to 3.0%, and increased for all debt except student loans. Credit cards saw the largest increase, rising 0.8% in the quarter, and show the highest delinquency rates at 8% in Q3.
Medicare Open Enrollment
- During this period, individuals are able to make changes to their current Medicare coverage. Individuals on Medicare should receive an Annual Notice of Change and/or Evidence of Coverage for Medicare Advantage or Part D plan. This is a good time to review coverage, as medical needs, benefits, and premiums may have changed over the year. During this time here are some things to consider:
- Will your primary doctor still accept you Medicare Advantage Plan?
- Have your medical needs changed? Different plans offer different benefits and different costs
- Are there comparable, lower cost plans available? Don’t forget to consider out-of-pocket costs when comparing options
- Are you medications still on your plan’s list of covered medications?
- You can compare plans online with the “Plan Finder” tool at medicare.gov
- You can input medications and it will show estimated costs, including copayments and coinsurance.