Short Memory
"The memory situation... is also going to be everlasting for a couple of quarters."
Summary: Micron reported earnings last week and put the spotlight on memory prices. Memory prices have risen so much that consumer electronics companies are having to raise prices to protect margins. Inflation hasn’t gone away.
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Macro
There are no signs of recessions
“I would say the macro environment, despite all the potential challenges that we have going on globally around us, has been stable. No signs of recession. In fact, if you look at our index, the last several reports have actually shown an increase in index under 50. We continue to see good growth.” - Paychex (PAYX 0.00%↑) CEO John Gibson
Consumer spending is resilient
“Consumer spending remains pretty resilient. Overall, the mood with consumers is still a little cautious. But as we’ve said a couple of times before, the weaker consumer sentiment hasn’t necessarily translated into reduced spending.” - Micron (MU 0.00%↑) CEO Ricardo Cardenas
“Our core customer is a homeowner with an average household income north of $100,000. They have gainful employment. They receive wage increases. They have record equity in their home. They have money in the bank. Overall, we describe it as a consumer with a really strong personal balance sheet, and this consumer is resilient.” - Lowes (LOW 0.00%↑) CEO Marvin Ellison
Business investment has been robust
“Households and businesses have been paying more for fuel and other goods that have significant energy inputs. Nevertheless, consumer spending has held up, and business investment has remained robust, largely fueled by AI-related investments.” - New York Fed President John C. Williams
But inflation remains high
“On the price stability side of our dual mandate, inflation is unquestionably elevated and well above the FOMC’s longer-run goal of 2 percent. The rise in inflation primarily reflects three drivers: the effects of increased tariffs on imported goods, higher energy and commodity prices owing to the conflict in the Middle East, and robust demand for certain categories of technology goods related to the AI investment boom.” - New York Fed President John C. Williams
“I’ll start with the raw material question, Jeff. So as we monitor 4,000 different raw material categories, what we are still seeing versus Q1 is that almost 90% of our raw materials are higher than they were in Q1. So we’re not seeing...a turn in raw material pricing.” - H.B. Fuller (FUL 0.00%↑) CEO Celeste Mastin
Inflation is putting pressure on the consumer
“I would say the second thing that’s different today is that the consumer pressure is even higher. So -- because we’ve just seen inflation upon inflation layered into the consumer. And in this particular moment in the second quarter, we definitely saw quite a spike, I think, particularly from sort of a non-food standpoint from inflationary pressure on the consumer.” - McCormick (MKC 0.00%↑) CEO Brendan Foley
Consumer confidence is low
“Although buyers continue to demonstrate the desire for homeownership and the ability to qualify, consumer confidence remains low, driven by a variety of factors from elevated mortgage interest rates and affordability pressures to rising inflation and geopolitical uncertainties.” - KB Home (KBH 0.00%↑) CEO Rob McGibney
There may be some slowing happening
“Macro demand worsened as our fiscal third quarter progressed, particularly from late March onwards, reflecting a more cautious consumer than we had anticipated heading into the spring selling season.” - Winnebago Industries (WGO 0.00%↑) CEO Michael Happe
Middle East ceasefire remains fragile
“And so there’s a lot of moving parts. You hear the President say one thing, you hear the Vice President say another thing, you hear the Iranians say a third thing. And so this MOU really is an agreement to try to reach an agreement, and it’s pretty thorny, and I think it’s going to take time to work out.” - Phillips 66 (PSX 0.00%↑) CEO Mark Lashier
It could take a while to reopen the Strait of Hormuz
“...we’re all hopeful that the Strait is open, stays open, that it gets resolved in a permanent structural way. But I think it’s going to be pretty tenuous. There are ships coming out now. I think that there’s somewhere between 90 million and 100 million barrels trapped in the Strait. That will work its way out over time. Then the question is, who will be brave enough to send ships back in? Will it be able to get insurance? How does that all play out?” - Phillips 66 (PSX 0.00%↑) CEO Mark Lashier
Are markets underpricing risk?
“I do think the probability of something bad happening is higher than I think is probably embedded in the market. I think probability of inflation not going away is probably higher than is embedded in the market.” - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
