by Franklin J. Parker, CFA
The Summary
Last week we got a slew of data, and it wasn’t very good. Both the UK and Japan entered recessions in the last few months of 2023 (it does make one wonder about the health of this expansion, globally). We also saw inflation data, which posted hotter than expected — investors took that opportunity to take some profits. Earnings season is also almost done, and we’ve seen a mere 3% growth in profits over this time last year.
The big concern for me in last week’s data was retail sales, which posted lower than expected (and December’s figures were revised downward). Consumers have kept the US economy afloat, and if there is strain developing there I worry that it will spill into the larger economy. Additionally, over-leveraged commercial real estate is now an international problem. It is always hard to tell, but souring commercial real estate could well be a catalyst that saps investor confidence.
Overall, I am still cautious (admittedly, I am getting tired of saying that!). Higher share prices have not been driven by underlying economic fundamentals, and that makes me believe prices at this level are fragile. Prices can stay fragile for a while, but when they break they can break quickly.
Chart of the Week
After declining to historic lows, credit card delinquency rates have risen to above pre-pandemic levels, one of the signs that the US consumer is struggling to keep up. We are still well below the levels reached during the Great Financial Crisis (2008 – 2012), however, when delinquency rates reached 7%. Nonetheless, 3% delinquencies is approaching a high for the last decade.
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