Friday, February 23, 2024
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Wall Street Lunch: Consumers Shine During Holidays

Images By Tang Ming Tung
Listen below or on the go on Apple Podcasts and Spotify
Retail sales rose more than anticipated through the holiday season. (0:15) Shorter Treasury yields spike on more Fed second-guessing. (1:26) Is JetBlue better off without Spirit? (3:29)
This is an abridged transcript of the podcast.
Our top story so far
U.S. consumers continue to show resilience through the holidays, with the latest retail sales figure coming in ahead of forecasts.
The strength will get the attention of the Fed, whose members have been pushing back against the market’s confidence that interest rate cuts will arrive in the first quarter.
December retail sales rose 0.6% on the month. Economists were looking for a 0.4% gain. Core retail sales rose 0.4% as well, double the consensus estimate. Sales excluding autos and gas rose 0.6%, well ahead of the forecast of 0.2.
“For anyone thinking that the consumer was losing momentum at the end of last year, think again,” economists at Wells Fargo said.
They note that “control group sales, which are the best read for personal spending in the GDP accounts, rose 0.8%, and these retailers saw sales revised higher in November as well. Once adjusting the estimates for inflation, these data suggest a modest upside to Q4 real personal spending.”
“Overall, it appears that the staying power that has helped prop up spending over the past year remains. It may be shifting away from excess liquidity to a reliance on borrowing and real income growth, but it’s intact as consumer resilience helped stave off an economic contraction.”
The odds of a quarter-point rate cut coming in March fell back down below 60%, according to fed funds futures. Odds are about 50/50 on five or six rate cuts by the end of the year.
ING analysts note: “The jobs market is tight, inflation is above target, consumer spending is holding up, and recent Fed commentary suggests they are in no hurry to loosen policy. As such, we continue to favor May as the start point for interest rate cuts rather than March, as the market currently favor.”
The retail sales numbers prompted another move higher for shorter Treasury yields. The 2-year yield (US2Y) rose more than 10 basis points to 4.35%. It’s basically back to where it was before the declines seen right after the recent inflation figures. The 10-year yield (US10) also rose, topping 4.1%.
Stocks took a leg down after retail sales as well, with growth struggling the most. The Nasdaq (COMP.IND) is down more than 1%, and the S&P (SP500) is down more than 0.5%.
Among S&P sectors, the three megacap homes—Consumer Discretionary (XLY), Information Technology (XLK), and Communication Services (XLC)—are down more than 1%.
Among active stocks
Verizon (VZ) disclosed that it would take a $5.8 billion impairment charge in the fourth quarter related to “secular declines” in its Business Group.
“The impairment test determined that the fair value of the Business reporting unit was less than its carrying value,” Verizon said in a filing.
Charles Schwab (SCHW) topped Wall Street expectations in Q4 as it continues to navigate an elevated interest rate environment. Cash sorting activity, in which clients move cash to higher-yield investments, may have eased in Q4 as net new assets rose. Total net new assets of $66.3 billion during the quarter rose from $48.2 billion in Q3 and dropped from $128.4 billion in Q4 2022.
Zscaler (ZS) was initiated at KeyBanc Capital Markets with a Sector Weight rating. Analysts Eric Heath and Billy Mandl say it’s simply too expensive. They are positive on the market for Secure Access Service Edge, or SASE, cloud models, but say competition is increasing and shares are fairly valued.
In other news of note
Wall Street reacted to the dramatic decision by a Massachusetts federal judge to block the merger between Spirit Airlines (SAVE) and JetBlue (JBLU).
Susquehanna sees little likelihood of JetBlue reworking the merger deal, which puts Spirit’s fundamental challenges back in focus. Looking down the road, analyst Christopher Stathoulopoulos said if Frontier Group (ULCC) were to reappear as a potential suitor, it would be after the JBLU-SAVE merger deal is formally terminated and would most likely be an all-stock transaction, with a premium significantly less than what Alaska Air Group recently offered for Hawaiian Holdings.
Bank of America’s Andrew Didora says Spirit has a “difficult path ahead to return to its historical level of growth and profitability, which could create risk for the $1.1B in debt due in September 2025.”
And Cowen analyst Helane Becker said the judge’s ruling is a positive for JetBlue Airways due to the loss of business recently seen at Spirit since the merger was announced. Other analysts have also come out with positive views on the implications for JBLU in the near term if it fully walks away from a merger strategy.
The deal agreement is set to expire on January 28, although it is set to be automatically extended for six months until July 24.
And in the Wall Street Research Corner
Money managers are firmly in the soft-landing camp when it comes to the world economy. That’s according to the latest BofA Global Fund Manager Survey.
In the January survey, 79% of respondents say they expect the global economy to experience either a “soft” or “no landing” in 2024, a nine-month high and up from 72% in December. Only 17% expect a “hard landing,” a 9-month low.
Looking at the most crowded trades, 52% of investors said “long Magnificent Seven”—that’s Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. 24% said “short China equities” and 7% said “long Japan equities.”
When asked about the biggest tail risk, 25% said it would be the worsening of geopolitics—compared to 18% saying that in December.



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