Wall Street Lunch: Consumer Trend In Focus

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September personal spending tops forecasts, but incomes lagged. (0:15) Exxon Mobil (XOM) boosts its dividend. (3:14) Certain Apple Watch models to be prohibited from being imported into the U.S. (4:09)

This is an abridged transcript of the podcast.

Our top story so far

Hey, big spender!

Personal income and outlays data for September showed no signs of a more thrifty consumer, while the Fed’s favorite measure of inflation showed the rate of price increases is still slowing.

On the downside, though, consumers’ income didn’t keep up with their increase in expenditures. Personal spending rose +0.7% last month, higher than the +0.5% rise expected. Income rose +0.3%, compared with the consensus of +0.4%.

Schwab fixed income strategist Kathy Jones says: “Consumers may say they are pessimistic, but they keep spending,” noting the personal savings rate is down to 3.4%.

Wells Fargo economists weighed in with a historical reference: “Amelia Earhart said never to interrupt someone doing something you said couldn’t be done. We’ll try to bite our tongues, but real income has fallen for four straight months. Increasing your spending when your income is shrinking is not sustainable.”

But when does the turn come? That could depend greatly on the still-tight labor market.

“While real disposable income has wobbled, households continue to enjoy considerable wage gains stemming from the tight labor market,” Wells Fargo says.

“Wages and salaries rose 0.4% in September, and nominal personal income growth continues to run near its longer-run average monthly pace. Until households feel an income pinch or perhaps grow increasingly worried about their job prospects, we expect households will continue to spend today at the expense of having more saved for tomorrow.”

On the inflation front, the core PCE price index, closely watched by the Fed, rose 0.3% on the month, right in line with the consensus. That brought the annual rate down to 3.7%.

The rise of 0.3% is “not a great sign for inflation, but not too surprising given strength in consumer spending,” Jones says.

She adds that they’ve been tracking the 3-month annualized rate of change, which “ticked up” to 2.5% but remains below 3%.

The 6-month annualized rate is at 2.8%.

In today’s trading

It’s another choppy day for the markets, and the major averages are mixed. The broader market looks like it’s heading for a second consecutive down week.

The S&P (SP500) is up slightly, and the Dow (DJI) is down slightly. The Nasdaq (COMP.IND) is the best performer, up a little less than +1%, trimming some of its weekly losses after a tough road for tech.

Treasury yields are settling down after zig-zagging for the week. The 10-year (US10Y) is steady around 4.85%.

Among the morning’s big earnings reports

Chevron (CVX) weighed in with Q3 adjusted earnings that missed Wall Street estimates, and revenues fell 19% year over year, primarily due to lower upstream realizations and lower margins on refined product sales.

AbbVie (ABBV) raised its profit outlook for the full year 2023. The company now expects adjusted diluted EPS of $11.19–$1.123, compared to $10.86–$1.106 previously. Analysts had expected it to earn $11.05.

Exxon Mobil (XOM) missed Q3 adjusted earnings expectations but raised its quarterly dividend to $0.95 per share. Free cash flow more than doubled from a year earlier to $11.7 billion, far above the $9.36 billion analyst consensus estimate.

Exxon said it delivered the best-ever Q3 global refinery throughput at 4.2 million barrels per day.

Along with Exxon, this week’s dividend roundup includes increased payouts from Visa (V) and Marathon Petroleum (MPC), as well as declarations from companies like General Motors (GM) and Wells Fargo (NYSE:WFC).

Looking towards next week, Morgan Stanley (MS) and Costco (COST) are among the companies that will see the ex-dividend dates for their upcoming dividend payments.

In other news of note

Health care equipment company Masimo (MASI) rose after it won a fight with Apple (AAPL) at the U.S. International Trade Commission related to the Apple Watch.

The ITC granted a limited exclusion order and a cease-and-desist order, according to the ITC decision on its website. Apple will now be prohibited from importing certain Apple Watch models in the U.S. after the ITC judgment.

The import ban is expected to take effect in 60 days unless it’s overturned by the Biden administration. Apple plans to appeal the decision and said the ruling wouldn’t have an immediate impact on smartwatch sales, according to a WSJ report.

And in the Wall Street Research Corner

DataTrek makes the case that lofty valuations don’t just apply to the Magnificent 7.

“US Big Tech stocks are often criticized for their lofty valuations, but, properly considered, the largest non-Big Tech names in the S&P 500 sport almost equally aggressive expectations for future growth,” they say.

“Large American businesses… engender investor confidence in future earnings growth, and Big Tech is merely the best in class of that cohort.”

They point to Eli Lilly (LLY), which its analysis shows as “more expensive than any Big Tech name except for TSLA.”

Visa (V), Mastercard (MA), UnitedHealth (UNH), and Procter & Gamble (PG) all have higher valuations, based on DataTrek analysis, than Meta (META) or Alphabet (GOOG) (GOOGL).

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