What to know today

  • How many cuts did you say?
  • Lululemon and Nike just have to do it better.
  • Why $AAPL isn’t cooked.
markets

It’s PCE Price Index Week

That’s the Fed’s preferred inflation gauge.

This week’s big piece of the “what will the Fed do and when will it do it” conundrum won’t come until Friday at 8:30 a.m. ET, when the Bureau of Economic Analysis releases Personal Consumption Expenditures Price Index data for February.

But we might want to pay attention to what Federal Reserve Bank of Atlanta President Raphael Bostic has to say this morning.

Bostic will join Gary Painter, the real estate program director at the Carl H. Lindner College of Business, for a moderated conversation at the University of Cincinnati Real Estate Center's March Roundtable.

On Friday, Bostic told reporters that he projects just one rate cut in 2024 and that it may happen later in the year than he previously expected. The Atlanta Fed president had forecast one cut this summer and one more to follow before year’s end.

“We will have to see how the data come in over the next several weeks,” Bostic said, noting “troubling things” under the headlines, including the number of items in the consumer basket rising at an elevated rate.

The percentage change in the PCE Price Indexes in January.

It’s a short week, with that PCE release happening on Good Friday, when the stock market and the bond market will be closed. In fact the bond market will close early on Thursday, at 2:00 p.m. ET.

The PCE for January was up 0.3 percent from December. Food prices were up 0.5 percent, and energy prices were down 1.4 percent. Excluding food and energy, the PCE rose 0.4 percent.

The PCE was up 2.4 percent year over year in January, with prices for services up 3.9 percent and prices for goods down 0.5 percent. Food prices were up 1.4 percent, and energy prices were down 4.9 percent.

Excluding food and energy, the PCE was down 2.8 percent from a year ago in January.

Fed Chair Jerome Powell is also speaking on Good Friday, at 11:30 a.m. ET.

In between, we’ll get home sales and home price and consumer confidence and jobless claims data as well as the second read on fourth-quarter gross domestic product.

But this is a consumption-driven economy. And, as Bostic suggested on Friday and will probably reiterate today, it’s all about that core PCE reading.

Welcome to the first day of the last week of the first quarter.

deep dive

LULU and NKE and the Consumer

Icons are faced with a healthy adversity.

Lululemon $LULU and Nike $NKE got rocked last week.

Shares of both athleisure industry headliners and bellwethers of the consumer-driven economy sold off hard following earnings announcements.

LULU’s and NKE’s results do say some things about the consumer. But it’s not that the consumer is weakening. It’s that the consumer has and is exercising choice in a competitive landscape.

February retail sales data were softer than expected but still expanded by 0.6 percent at the headline level. Consumers have been really strong for years. Discretionary spending could very well taper a bit this year.

But the American consumer remains relatively strong.

The cumulative change in household assets versus liabilities since January 2020.

At first, the market took kindly to NKE’s solid revenue and earnings beats. But slower sales and margin guidance took a bite.

NKE was more positive on the macro situation than LULU, which noted signs of a weaker consumer. But LULU has its own competitors nipping at its market share too.

That LULU and NKE are compelled to change strategy to compete with upstarts like Alo and Vuori and On and Hoka One One is good and healthy. This is creative destruction.

They’ve been able to command premium prices for premium products for a long time. That power is in doubt, reflected in price-target cuts by 17 major brokerages for LULU and 12 for NKE.

They’ve been re-rated. Now we’ll see if they can still make products that consumers want.

deep dive |
March 25, 2024

LULU and NKE and the Consumer

$AAPL

Yes, the AAPL Selloff Is Overdone

This is going to be a very long story.

Last Thursday, Apple $AAPL sold off on about two times the daily trading volume compared to Wednesday after the US Department of Justice announced a new antitrust investigation into the iPhone maker.

AAPL’s selloff has been one of the major stories of the year so far, with Barron’s running an “it’s overdone” article as recently as March 12.

But this is not just a 2024 story. Morningstar, after AAPL slid 9 percent last September, was already questioning whether the then-nascent selloff represented a buying opportunity. 

If you read only one more thing (after this) about AAPL and the DoJ, Steven Sinofsky’s breakdown at his Hardcore Software substack is a good choice.

Here’s the operative passage:

This is the very first step in what will last at least 5 years and perhaps 10, though a settlement or withdrawal is possible at any time. The antitrust legal process is a lot like those early Apollo program drills in The Right Stuff. There is silence and nothing for long stretches of time and then suddenly there are red lights, sirens, and steam flying out of pipes everywhere—moments of sheer terror. This goes on for years. Patience is required. You can’t even predict who is ahead at any given time. 

So, yes, what happened last week, last Thursday in particular, was overdone.

But we need to understand why AAPL has been underperforming the Nasdaq 100 Index since the second half of 2023 and what it means going forward.

AAPL started to underperform the Nasdaq 100 Index last summer.

The real question is not the DoJ. As Steven Sinofsky says, invoking the great American jurist Oliver Wendell Holmes, “There’s a lot of table-pounding going on.”

That’s to say nothing of the lurid-headline writing happening too. Note that neither the DoJ nor AAPL executives are saying anything about the filing. It’s a lot of noise, little signal.

The real question is whether people are still upgrading their iPhones. That initial break well below the NDX line reflects concern about forward-looking iPhone 15 demand. It’s the difference between expectations for high-single-digits and mid-single-digit growth.

Still, we’re talking about an ecosystem nearly 20 years in development and a corresponding economic moat that gives it a lot of ability to protect its profits and its share of the global mobile device market.

And AAPL’s services and wearables segments have solid growth prospects as well.

Warren Buffett, the guy who coined the “economic moat” concept, happens to be, through his Berkshire Hathaway $BRK, one of AAPL’s two biggest shareholders, along with The Vanguard Group.

Buffett did sell 10 million AAPL shares during the fourth quarter of 2023, about 1 percent of its stake, according to a 13-F filing with the Securities and Exchange Commission. Buffett was buying energy stocks like Occidental Petroleum $OXY.

But AAPL still accounts for about half of the Oracle of Omaha’s equity portfolio. 

And, as Andrew Bary of Barron’s reported in February, BRK’s paper profit on AAPL was about $135 billion at that time.

Bary noted then that one of BRK’s portfolio managers said during its annual meeting last May, explaining the success of the position, that AAPL “just happens to be a better business than any we own and we put a fair amount of money in it.”

We’ll see how Buffett and BRK are managing their AAPL stake when they file their next 13-F on May 15.

This isn’t the first time, though, that AAPL has faced serious questions about the durability of its core business and its ability to sustain its game-changing pace of product innovation.

The fact is that drawdowns – big, huge ones – are a fact of life for trillion-dollar-companies, as small as that sample size is.

And it would take something huge to destabilize the iPhone ecosystem. It’s a lot harder to switch your communications and productivity hardware and software than it is to change your sneakers and your yoga pants.

This thing with the DoJ probably isn’t that.

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