Wall St futures steady as Dec rate cut bets increase; PCE data awaited
The retail sales report was disappointing and below economists’ consensus estimate of a 0.3% increase, so this may help coax the Fed to cut key interest rates on December 10th. Specifically, the Commerce Department reported on Tuesday that retail sales rose 0.2% in September, down from 0.6% in August. In the past 12 months, retail sales rose 4.3%. Interestingly, vehicle sales declined 0.3% in September, despite the fact that the $7,500 tax credit boosted the sales of electric vehicles. Spending at bars and restaurants rose 0.7% in September, which is a sign that consumers have some disposable income.
Earlier, Bloomberg reported that retail sales have been amazingly resilient and estimated to rise 0.4% in September. Walmart (WMT) has already provided positive guidance, and I also expect Costco (COST) to report strong same-store sales growth soon. The talk of a “K-shaped” economic recovery where the boomers are spending money, while younger consumers are struggling, is undoubtedly true. The key for the Fed and the Trump Administration is for the “velocity of money” to rise, since the faster money changes hands, the more prosperity spreads.
The Conference Board on Tuesday announced that its consumer confidence index plunged to 88.7 in November, down from a revised 95.5 in October. This is the largest drop in consumer confidence in the past seven months (since April). The labor market is now a big concern for many consumers, since the expectations component plunged 8.6 points to only 63.2 in September. Also notable is that the present situation component fell 4.3 points to 126.9 in September. Ouch! I think it is obvious that the Fed must cut key interest rates on December 10th.
The Labor Department reported on Tuesday that the Producer Price Index (PPI) rose 0.3% in September, which was in line with economists’ consensus expectation. Excluding food, energy, and trade services, the core PPI rose 0.1%, which was below economists’ consensus expectation of a 0.3% increase. Wholesale good prices rose 0.9% in September due predominantly to a 3.5% increase in energy prices, while wholesale service costs rose only 0.1%. Wholesale food prices rose 1.1% in September. In the past 12 months, the PPI and core PPI have risen 2.7% and 2.9%, respectively.
Finally, the news that Meta (META) is in talks to spend billions on buying Google’s AI (Willow) chips caused Nvidia to decline on Tuesday on fears that Nvidia’s AI monopoly may be ending. This is an interesting report, but so far, there is no reaction from the analyst community, which is forecasting 66.4% annual sales growth and 70.9% forecasted earnings growth for Nvidia. Furthermore, the analyst community revised their consensus earnings estimate up 7% in the past seven days for Nvidia.
By contrast, the analyst community is forecasting 15.2% annual sales growth and 22% forecasted earnings growth for Google (GOOG). The analyst community has not changed their earnings estimate for Google in the past seven days, so there is no evidence that Google’s AI (Willow) chip is contributing to its bottom line. There are all kinds of low-grade AI chips out there, which I have discussed on Navellier Market Buzz with Paul Dlugosch from Natural Intelligence, but there is no evidence yet that Google’s chip can do regenerative AI and do the “machine learning” Nvidia’s Blackwell chip dominates.