For those of you who would prefer to listen:
The Federal Reserve took interest rates to a 22-year high this week, reaching 5.5%. The Market seems to be declaring a Fed victory over the historic inflation. The Consumer Price Index is now down to 3%. It hit over 9% last Summer. Importantly, the Fed no longer forecasts a recession ahead. That’s new. What’s also new is the Economy accelerated in Q2. It grew 2.4%, faster than anticipated. Americans are out and about, and they keep spending. The Fed even said that Taylor Swift has been an economic engine for America. You better believe it. I’m not making that up. More on T Swift below.
Yields have jumped. The 2-Year Treasury hit 5% again. The 10-Year cleared 4%. Neither held. But the curve remains widely inverted. The rate of inflation has slowed. It hasn’t gone away. Commodity prices have been back on the climb. West Texas Intermediate is back to $80. It’s up 20% in a month. Grain prices rallied following Russia’s decision to pull out of the Black Sea Grain Initiative. The price of food is going back up. These higher commodity prices feed concerns about inflation being sticky. NYC is raising subway fares ahead of Labor Day. It’s happening despite traffic only back to just 2/3 of the pre-Covid levels. Prices are still going higher. Fed Chair Powell made it clear that they aren’t necessarily done hiking.
Here come the Titans. 160 of the 500 S&P companies reported earnings this week. That’s 32% of the components, but 40% of the total value of the Stock Market index. Microsoft and Alphabet were among them. This marks the busiest week of the season. Apple and Amazon are next week. These companies are Tech Titans, which accounted for the vast majority of the S&P gains through June. The Top 7 holdings represent nearly 30% of the index. They also produced all of US corporate earnings and then some in Q1. The Tech Titans grew earnings by 21% compared to 2022. The rest of the index actually reported a loss of 10%. Corporate America is presently reporting results from Q2.
The Tech Titans will need strong results to justify premium valuations. These companies trade at an overall trailing price-to-earnings ratio of about 40 times, versus 15 times for the S&P 500 excluding those companies. That’s pretty pricey compared to history. But these companies are like nothing Corporate America has ever possessed. Premiums are warranted. That said, frothiness tends to get burned off eventually. Expectations have gotten quite high.
Alphabet delivered. The company, more recognized as Google, reported a double beat on the back of strong advertising from Google Search. That’s an important takeaway, as many were concerned that ad spending was slipping as Corporate America braced for recession. Alphabet’s AI mojo is back. YouTube continues to attract attention as it maintains a younger audience that advertisers covet. Importantly, nearly 80% of advertisers already use at least one AI-powered Search ads product. Innovation is priority #1 at Alphabet, going all-in to regain its leadership in AI. Also of note, superstar CFO Ruth Porat is taking a new role at the company. She is now Chief Investment Officer. Porat is a dynamic leader in Silicon Valley. The Market likes all of it.
Microsoft reported a solid quarter too. It was expected. Traders sold the news. The company saw slower revenue growth in its cloud business. But AI is expected to help drive a reacceleration in growth next year. There was no change in the secular growth theme for AI. Microsoft is an undisputed leader there. The stock was ripe for that sell-the-news event. It got it.
Americans keep spending. Visa reported that payment volume in the US was up 6% from last year. Visa sees a lot of important data. The company does not see any change in consumer behavior. Visa did notice declines at the pump though. Gas prices were down. That was then. As noted earlier, gas prices are back up.
Consumers still love the real thing. Coke reported another double beat. Revenue and earnings came ahead of the Street. Coke raised prices by 10% in the quarter. Higher commodity prices squeeze profits. It didn’t matter. Sales volume continued. Thirst for their cold beverages remains high. The Coca-Cola Company raised its full-year forecast. It now expects organic revenue growth for the full year 2023 to be between 8% and 9%. Concerts, theme parks, ballparks and movie theaters are active nationwide. It’s thirsty activity. Coke keeps delivering.
Taylor Swift has taken the World by storm. The Federal Reserve Bank of Philadelphia just announced that Taylor Swift’s tour helped boost travel and tourism in the region. She was in town for 3 nights. Philadelphia had its best month for hotels and hospitality since Covid. Bars, restaurants, rental cars and Uber benefitted too. It’s a theme being felt across the country. Fans are reportedly traveling far and wide, spending big bucks to attend her concerts. Chicago set a record for hotel bookings around her 3-night tour at sold-out Soldier Field. Swiftticket sales for the 2 Denver shows brought in $38 Million alone. It’s estimated the events could bring in $140 Million in revenue to Colorado. The Taylor Swift tour could help add $5 Billion to the Worldwide Economy. She’s a major global brand. Taylor Swift is one brilliant and dynamic talent and will be bringing her star power brand to the Bay Area this weekend.
Barbie sure made a comeback. The legendary doll went Hollywood. The film brought in over $200 Million at the American box office in its first 5 days. That’s the best debut for a film in 2023 and the best ever for a female-directed film. Barbie is on pace for $500 Million at the global box office in its first week. When you combine the traffic for Oppenheimer, this was the best week for Hollywood since Covid. Escaping the heat. Spending gobs of money. That’s been the theme from coast-to-coast.
America’s economic engine is humming. It’s being driven by some spectacularly dynamic women. I covered some of them above. It definitely doesn’t stop there. I’m such a fan and promoter of this theme. I’m a father of 3 dynamic young ladies and the husband of a crazy-smart and talented attorney. You fellow girl-dads know what I mean. I’m also the President of a woman-founded firm with a team that is well represented by bright and dedicated women. I cannot emphasize enough how proud I am of all of it.
I’ve often said that the best thing that ever happened to this company was the arrival of one Meredith Millet. Of course, she’s Meredith Rosen now. I said it again this week. Meredith continues to push herself to be the best version of herself possible. Advisor Hub named her an Advisor to Watch for the second consecutive year. They’re telling the industry what we’ve known for years. Meredith is already a shining star.
Teamed with Nancy Tredwell, Debbie Mitchell, Maria Ageev, Yezmin Gomez, Ayse Isik and Barbara Collins, this Bedell Frazier firm is fueled by some seriously talented and dynamic women. I am so fortunate to be a part of this team.
There’s more: An inspirational story about a group of young, dynamic ladies. The setting was in Southern California. It was the Junior Olympics for USA Water Polo. The games were last week. My daughters Sammy and Nikki, and their talented and battle-tested 16 and Under teammates, finished #6 in the nation. Every year they get better and better. Many of them were in the pioneer program at age 10. That year, they didn’t win a game. 6 years later, they are amongst the best. It’s just so awesome to see what a group of individuals can achieve when they come together with a purpose.
A nail-biter loss in a shootout in their 3rd game of the day prevented them from making it to the medal round. These ladies gave it their all. They left everything they had in the water. Sure, there were tears. But those tears quickly turned to satisfaction, knowing that they took on the best of the best and every single one of these ladies played a significant role. In fact, their team hung with the national champion team from Santa Barbara closer than anyone else. This Lamorinda team made waves and left their mark. They’re the #6 team in the nation and #1 in Northern California for 16-year-olds.
More important than what they accomplished in the pool is the lessons they take with them for the rest of their lives. Competition: It brings out the best. Success is never guaranteed. But when you come together as a group with a shared mission and commitment to the cause and each other, powerful things happen. Teamwork. Being a part of something bigger than yourself. Trial and error. Learning from mistakes. Always improving. These are qualities and characteristics that lead to success. These ladies are learning it all at a young age, and it will serve them well for the rest of their lives.
Ladies and gentlemen, this is a snapshot of what lies ahead. These are our future leaders: Young dynamic women. There’s every reason in the World to feel great about America’s future. Bedell Frazier is in the Business of Life. We are invested in our next generation; We’re all-in on that.
Have a nice weekend. My team will be back, dark and early on Monday. But I won’t. I will be out on a family trip for the next 2 weeks. It’s the first extended trip for Shelley and me since our honeymoon. It’s been a minute. I’m going to try to stay off the grid for a bit and re-charge. We are all in good hands with this Bedell Frazier team.
Mike
