Barron's Weekend Summary: This fall, the most significant event for most Americans will not be the election
Cover:
-This fall, the most significant event for most Americans will not be the election as much as the first reduction in US interest rates in over four years. An expected rate cut by the Federal Reserve in mid-September will signal the start of the next phase of the monetary-policy cycle, with important consequences for the economy, financial markets, and consumers. If the Fed eases insufficiently in this cycle, the economy could tip into a recession, and if it cuts rates too quickly, it could reignite inflation and cause a speculative frenzy in the markets. However, if Fed Chair Jerome Powell and his colleagues execute a fabled soft landing, the central bank could execute a fabled soft landing that would keep the economy growing at a just-right rate without the threat of recession or pronounced inflation.
Interview:
-Jeff Currie, a seasoned commodity analyst, has been predicting the future of oil, coal, copper, and gold prices for decades. He spent 27 years at Goldman Sachs, eventually becoming the head of global commodities research. Currie's predictions about China's rise in the early 2000s and the U.S. shale boom in the 2010s have significantly influenced the investment conversation around commodities. This year, he was appointed as the chief strategy officer for energy pathways at Carlyle, analyzing commodity markets and investment ideas for the private-equity firm's infrastructure and energy teams. Currie recently spoke with Barron's about the latest moves in the markets and his belief that commodities have entered a new "supercycle" that will lift copper, gold, and oil prices.
Tech Trader:
-Tech executives initially believed that a new generation of AI-powered phones and PCs could boost demand for struggling consumer categories. However, recent evidence shows that the AI consumer shift is slow. Google's Pixel smartphones, featuring AI features like text-to-image generation and photo tweaking, have not been compelling enough to persuade people to buy a new $1,000 device. Apple also revealed incremental features for its Apple Intelligence rollout, such as text summarization and emoji creation. The outlook for computers may be worse than for phones, as despite initial excitement over AI PCs, the near-term optimism for PC demand is fading.
The Trader:
-Weight-loss drugs like Novo Nordisk's Ozempic and Wegovy and Eli Lilly's Mounjaro and Zepbound are causing concern among big food stocks and healthcare companies like Medtronic. Shares of Medtronic, which makes stents, pacemakers, and insulin pumps, are down slightly this year, despite the Health Care Select Sector SPDR index being up over 10%. Investors are concerned that weight-loss drugs may reduce demand for Medtronic's diabetes and cardiovascular products, as well as equipment for bariatric weight loss surgical procedures for obese patients. However, Medtronic has stated that the GLP-1 drugs won't hurt it over the long haul, with Chairman and CEO Geoff Martha stating that there was "zero impact" from weight-loss drugs on its insulin delivery business. He also acknowledged a "modest impact" from declines in bariatric surgery but added that this may be temporary and more people will become eligible for surgery as patients seek more permanent weight loss treatment.
-The Wall Street panic of Aug. 5 has faded, with the S&P 500 index up 3.7% this week, the Nasdaq Composite rising 5.1%, and the Dow Jones Industrial Average advancing 2.7%. Investors are now aware that the Federal Reserve is set to cut interest rates on Sept. 18, addressing the slowing economy. Traders will receive more information about the central bank's intentions during Fed Chair Jerome Powell's speech at the Kansas City Fed's annual Economic Policy Symposium event on Aug. 23. However, the market's mood has turned on a dime, and a growing sense of complacency has washed over Wall Street. The Cboe Volatility Index (VIX) has returned to more normal levels in the mid-19s after spiking above 65 during the panic.
Features:
-Indian companies have seen record inflows this year, with Goldman Sachs increasing its forecast for India's GDP in 2024. However, the country's economic gains are overshadowed by the violent crimes Indian women continue to face, which have put the nation's systems under a harsh spotlight. On Saturday, all hospital services, except emergency care, will shut down across the country, except for emergency care, as thousands protest the brutal gang rape and killing of a 31-year-old doctor in Kolkata. The medical strike is expected to be the largest in over a decade, closing most hospital departments. India celebrated its 77th anniversary of independence from British rule on Thursday. The optimistic portrayal of India's growing economic might has overlooked the reality of sexual violence, with women regularly reporting assaults, acid attacks, and female feticide.
-Vice President, and 2024 Democratic party presidential candidate Kamala Harris, has been pushed closer to the political center since President Joe Biden dropped out of the presidential race. In a speech in North Carolina, Harris emphasized the importance of creating opportunities for the middle class to advance their economic stability, security, and dignity. She emphasized the need for an opportunity economy and a vision of interventionist government that would expand upon the base built by Biden. Harris also called for government intervention at a micro level on issues popular with her base, such as enforcing limits on unfair profit-making in grocery stores, rolling back medical debt, and eliminating federally backed student debt. She also proposed cutting taxes on lower-income families with children and focusing on the housing market. Harris shares a willingness to wield government power in support of key constituencies, even if it involves significant economic risks
Europe:
-The World Health Organization declared a global health emergency and reported the first case of a new, more dangerous Mpox strain outside of Africa in Sweden. The Centers for Disease Control and Prevention recommends two vaccines to prevent Mpox, one manufactured by Bavarian Nordic and one by U.S. pharmaceutical company Emergent Biosolutions. Mpox vaccine makers Bavarian Nordic and Emergent Biosolutions surged after the news, but not all vaccine makers had a good run. US-listed Siga Technologies released disappointing trial data for a drug to treat Mpox, TPOXX, which failed to meet the primary goal of its study. Siga stock fell almost 20% Thursday and jumped 15.28% early Friday. Meanwhile, Bavarian Nordic's shares jumped 18.5% to 285 Danish crowns ($42) in Europe, adding to Thursday's gains. Bavarian Nordic's vaccine is the only one approved for Mpox in the U.S. and Europe, giving it a significant advantage over competitors and a potential upside to investors in terms of increased vaccine sales.
Emerging Markets:
- Emerging markets have been lagging behind U.S. stocks for years, but the prospect of rate cuts from the Federal Reserve has raised hopes that could change. However, investors and strategists are reassessing their assumptions due to market turmoil. Signs of the U.S. economy slowing down have raised concerns that the Fed may be too slow to change policy, raising the risk of a hard landing before rate cuts take hold. The Bank of Japan has raised interest rates for the first time in over a decade, leading to the unwinding of the popular carry trade. The Fed is expected to deliver a rate cut in September, but questions about how quickly it will lower borrowing costs and whether the US economy will miss out on the soft landing for which policymakers are aiming have raised questions about the benefits for emerging markets.
Commodities:
-Oil prices rose over 3% on Monday due to Israel's anticipation of a potential Iranian attack following the assassination of Hamas leader Ismail Haniyeh in Tehran. The Middle East, which holds over half of the world's oil reserves, has been a source of concern for markets, leading to higher crude prices. Brent crude futures settled up 3.3% to $82.30 per barrel, while West Texas Intermediate futures rose 4.2% to $80.06. The rise in crude prices has been supported by stronger-than-expected U.S. jobs data, which eased fears of a recession and boosted hopes for an interest-rate cut. Oil markets are also concerned about potential disruptions to supply chains if hostilities escalate. The assassination of Haniyeh, which Iran blames on Israel, has already heightened tensions and prompted concerns of a regional conflagration.
Streetwise:
-Starbucks’s new CEO, Brian Niccol has been praised for his efforts in leading Chipotle through a pandemic shutdown and turning it into an app-centric eatery. This strategy uses predictive analytics to shift workers between counter service and online pickups, reducing customer complaints and worker stress. However, Starbucks faces abandonment issues, with a high percentage of app users quitting after seeing wait times. This could be due to drink complexity or staffing issues. Starbucks' nominal U.S. wages have declined year over year, suggesting understaffing and potentially impacting consumer satisfaction.
Activist investors, such as Elliott Investment Management and Starboard Value, have suggested that the company's problems have straightforward fixes. Starbucks responded to media reports of long wait times earlier this year by describing tools that can predict transaction volume for each 15-minute increment. Staffing for each store is driven by a sophisticated set of data, including historical trends, current trends, planned promotions, and types of available product offerings. In conclusion, Starbucks is already doing big, fancy things to fix its problems, but the question of how low the fruit is remains.