Another winning week for US stocks shouldn’t disguise the stickier than hoped for inflation that investors are seeing. US stocks retreated from record highs as headline inflation slowed on an annualised basis in September, but was still faster than expectations, providing the Federal Reserve with less impetus to cut interest rates at a fast pace.
The consumer price index was 0.2% in September, unchanged from August but above the 0.1% expected. That took the annual pace through August to 2.4%, down from 2.5% in August, but above expectations of 2.3%, although it’s worth bearing in mind that the year-on-year number is the lowest since February 2021, so hardly hot’ as some commentators would have us believe.
Arguably, more important than inflation now are jobs, where the three-month annualised core rate rose to 3.1% from 2.1%. Jobless claims rose to a larger-than-expected 258,000, and that last numbers are probably more worrying for the market than inflation concerns right now.
Attention will now turn to third quarter earnings, kicking off later today with the likes of JPMorgan Chase (JPM:NYSE), Wells Fargo (WFC:NYSE) and Bank of New York Mellon (BK:NYSE), with Goldman Sachs (GS:NYSE), Citigroup (C:NYSE) and Bank of America (BAC:NYSE) reporting next week.
Talking of Bank of America, it’s interesting that Warren Buffett continues to trim Berkshire Hathaway’s (BRK.B:NYSE) stake in the bank. SEC filings showing 9.5 million shares valued at $382.4 million were sold this week, reducing Berkshire’s stake in the US banking giant to below 10%.
ASML (ASML:NASDAQ) and Lam Research (LRCX:NASDAQ) earnings will also offer a glimpse of the current mood in chip markets, while Netflix (NFLX:NASDAQ) also reports.
ALPHABET
That the US Department of Justice said it was considering asking a federal judge to force tech giant Alphabet (GOOG:NASDAQ) to break up a perceived Google search and ads monopolies was largely shrugged off by investors over the past week.
No wonder really, the new news has the ring of more sabre rattling by US regulators who seem far more likely to find ‘remedies’ than ripping the tech giant apart. We’ll see, time will tell and it’s going to be a very long road to travel before any decisions are made, think years not months.
It’s a topic Shares discussed in detail just a few weeks ago (read here) and what we have now is a broad DoJ remedies framework focused on four key areas - search distribution, data use, AI, and advertising monetisation.
JPMorgan analysts noted that the framework was ‘mostly as expected’ but warned that it could carry headline risks, such as structural changes in Google’s core businesses, such as Chrome, Play, and Android, which could negatively impact the company.
PEPSICO
A positive response to PepsiCo’s (PEP:NASDAQ) third quarter results (8 Oct) saw the shares pop on the day but perhaps said more about Wall Street’s downbeat expectations than any upbeat pronouncements from the sodas-to-snacks powerhouse.
PepsiCo, whose brands includes the namesake fizzy pop as well as Doritos, Mountain Dew and Quaker, cut its full year 2024 organic revenue growth guidance following a second successive quarter of weaker-than-expected sales amid flagging US demand, with cash-strapped and increasingly health-conscious consumers spending less on salty and savoury snacks and baulking at price increases.
However, PepsiCo did highlight a sequential improvement in its struggling North American Frito-Lay snacks division and maintained guidance for full year earnings per share growth of ‘at least’ 8%, supported by the ‘strong cost controls’ called out by CEO Ramon Laguarta.
PFIZER
Pfizer (PFE:NYSE) received a shot in the arm on Monday (7 Oct) after activist investor Starboard Value revealed a $1 billion stake in the struggling pharmaceutical giant, sending the shares up 4%.
The shares need some help given they are down by around 11% over the last 12-months and trade around half their pandemic-era highs.
Former Pfizer chair and CEO Ian Read and finance chief Frank D’Amelio pitched a turnaround plan to four current directors including chief executive Albert Bourla before Starboard’s stake became public knowledge.
In an unusual turn of events, the former executives then suddenly withdrew their support for Starboard and backed current management.
Starboard’s letter to management (10 Oct) revealed some troubling corporate governance.
It said: ‘we understand that people within Pfizer and/or their representatives have contacted Mr. Read and Mr. D'Amelio and purportedly threatened to commence costly litigation against them, claw back prior compensation, and cancel unvested performance stock units, unless they publicly release a statement supporting the current Chief Executive Officer, Albert Bourla.’
The activist is due to meet Bourla on 16 October.
