Daily Commentary

MarketMinder’s View: We found this piece mixed overall (and since it mentions a few specific retailers, we remind readers MarketMinder doesn’t make individual security recommendations). We agree with the high-level argument that booming Black Friday weekend sales don’t automatically correspond to longer stretches of higher consumer spending, but the reasons cited for why miss the bigger picture, in our view. The article cites three factors for the Black Friday spending boost: rising preference for online shopping, consumers’ desire for discounts and colder temperatures boosting sales because they allegedly put shoppers in a holiday mood. While these alleged reasons are interesting—though the last one seems like a bit of a stretch to us—this all overemphasizes Black Friday’s economic impact. Consider, the Black Friday weekend represents just a few days of the year, and it isn’t representative of the entire holiday spending season—let alone Q4 or the year. Zooming out, the lion’s share of US consumer spending is on services—not goods. So even if retail spending slowed in Q4, we don’t think that would necessarily derail consumer spending more generally. In our view, Black Friday data don’t tell consumers anything about the future—on a micro- or macro-economic scale. We understand why it receives as many eyeballs as it does, but for investors, we suggest thinking broader when tracking consumer spending. For more on this, see last month’s commentary, “The Obligatory, Annual Black Friday Primer.”

MarketMinder’s View: “Prices for long-lasting items, known as durable goods, have fallen on a year-over-year basis for five straight months. In October, they were down 2.6% from their peak in September 2022, according to data released Thursday by the Commerce Department.” As this article points out, economy-wide deflation—which is rare—is typically a bad sign, often associated with downturns and recessions. But on a smaller scale, it is normal to see prices fall in certain pockets of the economy—and to us, it represents a return to prepandemic trends as supply chain disruptions have untangled. In this case, prices for durable goods, or items that last three years or more, have fallen for five consecutive months, contributing to cooler headline inflation along the way. Prices for things like new and used cars, household appliances and recreational goods have come down as supply and demand have come back into balance. “For instance, a shortage of semiconductors held down production of new vehicles, driving up their price by around 13% over the previous year as of the first quarter of 2022. Auto manufacturers that year recorded windfall profits. Vehicle production is now roughly back to where it was before the pandemic and prices have been flat since March, according to the Labor Department.” This isn’t new news for stocks, as these backward-looking data confirm what they have already long since moved on from. But it can help provide some much-needed relief for those in the market for a new car or refrigerator as well as some incremental sentiment improvement.

MarketMinder’s View: While OPEC+’s production target cuts have grabbed plenty of headlines this year, one development continues to fly under the radar: prolific US oil production. “U.S. crude and condensate production increased by 224,000 barrels per day (b/d) to 13.24 million b/d in September from August, according to the U.S. Energy Information Administration. Crude and condensate production had increased by 342,000 b/d over the previous three months (annualised growth of 11%) and was 750,000 b/d higher than a year earlier (an increase of 7%).” As the article notes, US output is up thanks to increased efficiency—and prices have made it worthwhile for American producers to keep pumping. Rather than being beholden to a cartel’s quotas, US producers have responded to market forces, setting record highs in output—a sizable contribution to global supply. In our view, this is a reminder of OPEC+’s limitations as a global oil influencer. Recently, the cartel has tried adding new member countries (e.g., Brazil) to “bring them formally or informally into the coordination system … For a production-control arrangement to work, it must control a sufficient share of global production, with free riders playing only a moderate role.” But quota compliance among OPEC+’s members has been mixed at best—simply, it isn’t as powerful as headlines make it out to be. For investors, we think this is worth keeping in mind. When pundits hype production target cuts, remember that booming US production can help satisfy global demand.