Weekly Research Briefing: Planes, Trains and Automobiles

December 12, 2023 | 5 Min Read

A short note this week as I was traveling for both work and family. In my many observations from the road, I saw no signs of a recession or major slowdown from my 6 days of travel. The western parking garage of Denver International Airport was 100% full which I have only seen once before during a Spring Break week years ago. Planes are all full. Hotels had wait lists. Restaurants were reservation only.

Small town retail shops having their best holiday ever or at least since COVID. Still many shuttered square feet in the shopping malls and strip malls which is likely helping other retailers who have attractive stores and merchandise. Always an amazing line at Lululemon that stretches through the store. Good wages, low gas prices, high savings interest rates and new highs in the stock market are only going to make Santa's reindeer sore this month.

The news flow out of the economy and markets was jolly this week. A slower JOLTS figure, solid non-farm payrolls and good unemployment rates helped by the returning auto workers. Improved consumer confidence surveys from the University of Michigan showing an upturn in optimism and decline in inflation outlook. The markets also had notes from many corporations giving us a glance at their Q4 progress. Bottom line: more companies were seeing a resumption of strength rather than a slowdown. All this good news led to another good week for bonds, stocks and credit.

This week could be equally exciting as we get to see the monthly CPI/PPI numbers. And if last week's Mannheim auto prices are any indication, we could be heading for another 'under' in the actual versus expected results. If the CPI arrives at 0.0% while average hourly earnings just grew at 0.4%, there will be plenty to smile about for anyone that pulls a paycheck in December. Wednesday will also bring us the FOMC announcement. The investing world assumes another stay on rates. But we all want to know when they will start talking about the next move to cut rates.

Corporate news flow will drop dramatically into yearend as employees evacuate the finance departments and trading floors. That said, one private equity real estate investor, Arkhouse, feels that now is the time to bid for all of Macy's equity for a 30% premium. And in the same weekend, Cigna and Humana decide that the investing world is not in favor of a mega healthcare insurance merger at this time. So never a dull moment, but holiday treats and drinks will be more on minds than the markets at the end of this week.

Nothing wrong in the Friday jobs numbers...

NFP solid. Wage growth good. Hours worked better. UE Rate ends any recessionary talk for the foreseeable future.

BofA Global

And Ben reminds us that the auto workers have been a swing factor in the recent results...

Two future rate-cutting scenarios for the Federal Reserve to now consider...

Declining inflation could allow the Fed to consider whether and when to cut rates under two scenarios.

First, the Fed would cut simply because the economy is slowing and unemployment is rising faster than expected. If the unemployment rate starts to rise in a way consistent with past recessions, “we’re back to our normal playbook,” Chicago Fed President Austan Goolsbee said in an interview last month.

A second, more tantalizing prospect for investors is that the Fed would cut even though the economy is doing fine because monthly inflation readings have returned closer to the low levels seen before the pandemic. Holding rates steady as inflation falls would lead inflation-adjusted, or “real,” rates to rise, which the Fed doesn’t want. So officials could cut nominal rates to maintain real rates at a steady level.

Fed governor Christopher Waller fueled optimism about that possibility when he said recently that the central bank could theoretically begin reducing rates by the spring if inflation behaves especially well.

“If we see this [lower] inflation continuing for several more months—I don’t know how long that might be, three months, four months, five months?—we might feel confident that inflation is really down,” said Waller, whose comment drew special attention from investors because he has been a leading advocate for tighter policy since 2021.

The case for cuts under that scenario “has nothing to do with trying to save the economy or recession,” he said.


See Janet Yellen throw shade...

In comments on the US economic outlook, Yellen took at swipe at economists who predicted only a recession would tame inflation and criticized her for continually saying she saw a path to a so-called soft landing.

“Economists who’ve said it’s going to require very high unemployment to get this done are eating their words,” she said. “It doesn’t seem at all like it’s requiring higher unemployment.”

Former Treasury Secretary Lawrence Summers was the most prominent among many economists who dismissed the possibility the US could escape high inflation without a serious uptick in joblessness. In July 2022 he said unemployment would have to rise beyond 5% for inflation to reach the Federal Reserve’s 2% target.


Speaking of deflation, see gasoline prices free fall...

@lisaabramowicz1: Falling oil prices are feeding into a Goldilocks narrative, since they stem from more US supply, not weaker growth. US gas prices are the lowest in about a year even amid record demand. Saudi is losing market share to the US & Iran as it cuts: Paul Sankey

Plenty of positive tidbits from the Corps in the news last week showing how strong the economic outlook is...

@TheTranscript_: $AXP CEO on spending on their platform...
"In our holiday season, U.S. consumer retail was very strong from that Thanksgiving all the way to Cyber Monday. So we're very encouraged by that"

@Trade_The_News: $DAL CEO: Christmas travel shaping up as very, very strong; Delta's consumers are doing very well, continuing to prioritize travel - conf comments (Delta Air Lines Inc)

@HammerstoneMar3: $MCD - McDonald's aims to add nearly 9,000 restaurants, 100 million loyalty members by 2027 @CNBC

@TheTranscript_: Toll Brothers with a double beat. CEO: "We have continued to see solid demand through our fourth quarter...As we approach the start of the spring selling season in January, we are encouraged by the recent 75 basis point drop in mortgage rates"
Separately, Catie O'Brien hosted our 14th Annual Aircraft Leasing Conference yesterday (Dec-4) in New York City. Across the seven panels we hosted, the overall tone was positive, with panelists indicating that demand for aircraft remains higher than supply; and widebody lease rates are up 20% on extensions – highlighting just how strong the lease market is. (Goldman Sachs)

And U.S. railroad volumes are turning higher...

@wabuffo: Weekly US rail traffic continues its recent strength

  • overall +4.9% vs same week last year.
  • intermodal + 8.2% (!!)

With the major U.S. indexes at highs, it is time to see what type of year-end rally Santa has in store...

@bluechipdaily: $SPX $NDX $INDU all closed at 23-24 month weekly closing highs.

And equally strong is the German equity index showing that Europe will not be left behind...

@bespokeinvest: Germany's DAX is at record highs and up 19% YTD, yet two-thirds of the index's YTD gain has occurred since the start of November.

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