The misery piled high for investors over the past week after the US Fed left financial markets in no doubt that it anticipates higher rates for even longer despite resisting a September raise.
US policymakers left one more hike on the table with the dot plot for 2023 steady at 5.6%. Rates are already plenty restrictive, and it would require a change in the outlook for inflation’s stickiness before November to push into another hike.
The big change was for 2024, with real rates seen much higher - core CPI unchanged at 2.5% but median Fed funds rate revised up to 5.1% from 4.6%.
So, Fed keeping rates more restrictive for longer and forecasting just 50bps in cuts next year. The revision higher in the 2024 dots is unambiguously a hawkish signal that it will keep rates higher for longer, with the emphasis now very much on the longer bit.
It took the shine off a big week for IPOs, with online grocery app Instacart (CART:NASDAQ) and digital marketing business Klaviyo (KVYO:NYSE) pulling the trigger on multi-billion dollar listings, following on from ARM (ARM:NASDAQ) last week.
WALT DISNEY
Media and entertainment giant Walt Disney (DIS:NYSE) surprised investors this week after unveiling a new 10-year $60 billion investment in its parks, experiences and products division.
The acceleration in spending represents a near doubling of capital expenditure and was not well received by investors with the shares falling around 3% on the news. The parks business is the profit engine of the company which has helped cushion losses in the Disney plus streaming business which is expected to turn a profit in 2024.
Analyst Doug Creutz at TD Cowen estimated the planned investment could drive a mid-to-high single digit percentage increase in annual operating profit over the next decade.
Disney parks attract over 100 visitors a year, but research conducted by the company estimates there is an untapped addressable market of more than 700 million people with high Disney affinity. In the last quarter the parks unit generated $22.3 billion of revenue representing around 37% of the total and an operating profit of $2.4 billion.
FEDEX
Global delivery giant FedEx (FDX:NYSE) firmed 2.2% over the week to $262, extending year-to-date share price gains to 50%, after the courier posted forecast-beating first quarter earnings (20 September), raised its full year profit outlook and said it expects to repurchase a further $1.5 billion of shares this year.
The parcel delivery powerhouse’s adjusted earnings surged 32% higher to $4.55 per share for the quarter to August thanks to cost-cutting and a boost from rival UPS’ (UPS:NYSE) negotiations with the Teamsters union, not to mention the bankruptcy of another competitor Yellow Corp.
Memphis-based FedEx raised its earnings per share outlook for full year 2024 to a $17 to $18.50 per share range, up from previous guidance of $16.50 to $18.50, to reflect market share gains and the group’s leaner structure.
‘We started fiscal 2024 with strong momentum as our global transformation actions take hold and drive improved results,’ enthused CEO Raj Subramaniam. ‘FedEx is well-positioned to continue to deliver improved profitability while becoming an even more flexible, efficient and data-driven organisation.’
ARK INVEST
The investing landscape in Europe could soon look somewhat different if this week’s deal between popular US investor Cathie Wood and Martin Gilbert, the former head of Aberdeen Standard Investments, bears fruit.
Wood, whose Ark Invest group runs around $25 billion in assets including the headline-grabbing ‘active’ technology ETF ARK Innovation (ARKK:NYSEARCA), has acquired thematic index specialist Rize ETF, which has a rather more modest $450 million in assets.
These assets, however, are in 11 funds designed around specific themes such as cyber security, digital payments, sustainable food and environmental impact, and this is where Wood sees the potential for growth.
‘We have been asked for years, in fact almost since we began the firm, when we were coming to Europe, and with this acquisition ARK Invest Europe will roll out in the next few months’, said Wood in a video on her firm’s website.
Thematic ETFs are enormously popular in the US, but in Europe they are a relatively new concept and Wood is betting on her ‘star quality’ and the appeal of the $8 billion Innovation ETF – which has still delivered over 10% compound annual returns to investors since 2014 despite the wobble in tech stocks last year – to lure customers to her European products, alongside veteran investor Gilbert who will offer River & Mercantile ETFs on the same platform.
