What to know today

  • The PCE release is coming soon. 
  • The force is not with CRM.
  • Residential REITs get right.

These Are Signs of a Gentle Cooling

Rate-cut uncertainty will linger.

We’ll see the inflation data the Federal Reserve favors over all others this morning at 8:30 a.m. ET. It’s a big moment for teetering financial markets.

The FactSet consensus forecast for the headline Personal Consumption Expenditures Price Index is a 2.7 percent year-over-year increase, consistent with March, and a 0.30 percent month-over-month increase, down from 0.32 percent.

The critical core PCE – which removes food and energy prices from the equation because of their volatility – is expected to print at a 2.8 percent annual rate, in line with March, and a 0.30 percent monthly rate, down from 0.32 percent.

Is inflation sticky? Is it slowing? Today’s price action will give us a snap read, though we do have some indication of slowing from other sources.

Data released by the US Bureau of Economic Analysis on Thursday show first-quarter growth was 1.3 percent, down from an initial estimate of 1.6 percent.

The Bureau of Economic analysis said GDP growth was 1.3 percent in the first quarter, down from an initial estimate of 1.6 percent.

Personal spending grew by 2.0 percent, down from an initial estimate of 2.5 percent.

The PCE Price Index rose at a 3.3 percent annualized rate during the first quarter, down slightly from the BEA’s initial forecast. Core PCE rose 3.6 percent versus a 3.7 percent initial estimate. 

Perhaps the most positive point is that disposable personal income growth was 1.9 percent versus an initial estimate of 1.1 percent. That’s fuel for future consumer spending, which accounts for as much as 70 percent of GDP.

What the world – well, investors, traders, and speculators, at least – wants now is that April PCE data.

deep dive

Is This an SOS for SaaS?

Salesforce’s forecast is terrible.

It’s been a rough couple of days for Salesforce $CRM.

The customer-relationship-management pioneer turned software-as-a-service empire-builder missed a consensus forecast for quarterly revenue for the first time since 2006, and management guided to the slowest sales growth in the company’s history.

CRM sold off hard in after-hours trading on Wednesday and then plunged 19.74 percent on Thursday. That’s the worst intraday selloff for the stock in 20 years.

Management attributed the soft results and the weak guidance to client fears that interest rates will stay higher for longer.

There’s a more specific concern that CRM is not keeping up with competitors who are more adeptly integrating AI into their services.

Salesforce $CRM was down double-digits in the after-market on Wednesday, May 29, and fell more than 20 percent on Thursday, May 30.

Co-founder and CEO Marc Benioff is talking about AI as a catalyst on CRM’s path to profitability. But more significant are management’s recent actions, including the $27.7 billion acquisition of Slack in 2021. 

CRM has heeded activist calls in prioritizing profits and establishing a capital return program featuring both buybacks and dividends.

It’s a strategic shift that sounds good right now but won’t start to pay off until next year or the year after.

Consider, too, this bit of irony, courtesy of Spencer Kimball of CNBC.com: Since August 24, 2020, when CRM replaced it in the Dow Jones Industrial Average, Exxon Mobil $XOM is up nearly 170 percent.

CRM has gained about 4 percent since then.

deep dive |
May 31, 2024

Is This an SOS for SaaS?


REITs Are on Sale

As ever, focus on quality.

The REIT sector – that’s “real estate investment trust” for the unfamiliar – got hammered in this rising-rate environment.

Higher interest rates have raised borrowing costs and squeezed profits for REITs, and they’ve made it harder for tenants to service their debt.

Commercial REITs are still settling into a post-pandemic world where the work-from-home trend is still strong.

Residential REITs have faced forecasts that a flood of new residential housing supply will depress rents and occupancy

First-quarter operating and financial results don’t support the doom and gloom.

And the S&P Residential REIT Index is up nearly 10 percent since mid-April, outperforming both a broader REIT basket as well as the S&P 500 – despite the latter’s Nvidia $NVDA exposure.

And, now that the rising-rate environment might turn? It’s a subject that’s come up in a couple of different StockPick Interviews recently.

Boston Properties $BXP.

Last week, Infrastructure Capital Advisors CEO Jay Hatfield said people have become too negative about the office sector “because they don't draw distinctions between companies that hold A and A-plus properties.”

Hatfield identified Boston Properties $BXP as a beneficiary of a new interest rate regime – and as a backdoor AI play: “AI is creating new office demand. AI is an in-office type business in terms of startups.”

BXP is “likely to outperform over the next year and a half,” according to Hatfield.

This week, Peapack Private managing principal and senior investment strategist David Dietze underscored the quality of the commercial REIT’s portfolio, noting its class A properties in Boston, Washington DC, New York, LA, and San Francisco.

“Now, things have been tough in that area,” Dietze concedes. “But they have never slashed or cut that dividend.”

Dietze also likes BXP because its portfolio includes “extensive” exposure to the life sciences space.

“That's distinct from just places where you do office work,” Dietze explains. “You're doing experiments and things like that. And that cannot be done so successfully on a remote basis.”

BXP is currently yielding more than 6 percent, which means you’ll be amply compensated while you wait for the capital payoff.

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