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Proprietary Data Insights Retail Top Stock Searches This Week
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Where Higher Rates Help In yesterday’s newsletter, we explained how higher interest rates would ideally cut back demand. But where are we most likely to see that impact? Big-ticket items we don’t pay cash for such as homes, automotive, and even appliances. It will take much longer to feed through to the rest of the economy simply because consumers don’t carry as much debt as they used to. If you aren’t borrowing money, then higher rates don’t really impact you. However, as we’ve seen with the markets, higher rates could push stock prices down. There is a psychological component to our spending habits when the value of our retirement or other portfolios declines. We expect the Fed to continue to raise rates until it tames inflation, which should coincide with unclogged supply chains. The thing is, that could mean rates much higher than you might expect. Remember, in the early ‘80s, the Fed jacked rates up to +15%. They didn’t stay there for long, but it did happen. It’s not likely we’ll need that, but it’s not out of the realm of possibilities. |
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Earnings |
Supply Chains Cut into Forecasts |
Key Takeaways
Even Elon Musk couldn’t escape the pains of supply chains. Tesla (TSLA) became the latest company to adjust operations to match a longer supply chain recovery. Shortages Roll on In the company’s conference call, Tesla said it would not introduce a Cybertruck this year nor a $25,000 vehicle. Lingering chip shortages hampered the release of new models. However, the company managed to keep up with total vehicle deliveries. Instead, Musk wants Tesla to focus on its automated driving technology and other non-capital intensive work. This came after General Electric (GE) reported a quarterly decline on Tuesday amidst persistent global supply chain disruptions. 3M (MMM) highlighted inflationary pressures on margins driven by higher raw materials prices and logistics challenges, using price hikes as a means to offset them. In short, anyone who makes any product is struggling to manage operations. The difficulty stems from uneven factory output from raw and intermediate material suppliers like China, coupled with continuing port congestion and labor shortages driven by Omicron. The Fix Remains Elusive Import volume typically dries up from January through March as China hits the lunar new year in early February. This year, we may only make a dent in the current queue. At the Port of L.A., over 110 ships still await unloading. Manufacturers pushing to build new plants here in the states aren’t expected to bring capacity online until at least 2023 at the earliest. Given the labor shortages, that seems optimistic. In the interim, companies plan to hold higher stock levels to smooth out operations. That ties up cash but can alleviate outages. The Bottom Line: We expect more companies to report dismal forecasts driven by inflation and supply chain disruptions. Companies like Apple (AAPL), Amazon (AMZN), and Caterpillar (CAT) rely on robust supply chains to keep costs down. It’s unlikely they’ll be able to manage what Elon Musk and Tesla could not. |
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