The Transcript Commentary
Themes from our newsletter
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-Scott
Signs of Stability
Earnings season continued last week. From those reports, we saw signs of additional slowing, but also saw signs of stability. The top quote in this week’s newsletter came from American Express’ CFO who said that they are seeing a “slower growth economic environment” but that “overall spend growth was stable” and that “the US consumer has been pretty consistent and we think it's going to be pretty consistent throughout the year.”
"...while spend growth in certain categories was slightly higher or lower versus the prior quarter, overall spend growth was stable and we continue to see strong growth in the number of transactions from our card members, which grew 9% this quarter...So we feel that, look, the US consumer has been pretty consistent and we think it's going to be pretty consistent throughout the year." - American Express (AXP 0.00%↑) CFO Christophe Le Caillec
There were additional signs of stability. Regional banks reported strong credit quality, Manpower made positive comments on labor markets, and Wall Street executives were bullish about a recovery in M&A activity.
Signs of Weakness
But there were signs of weakness too. Lower-income consumers are clearly under pressure and spending less in discretionary categories. Perhaps the most ominous data points were from luxury goods companies. Burberry reported global comps were -21% y/y, including -23% in the Americas. Declines in luxury markets were particularly severe in China. Swatch highlighted a “huge reduction in demand for luxury goods in China” and Richemont saw a 27% decline in sales in China, Hong Kong, and Macau. This suggests that China’s economic decline remains severe and may be spreading to sectors beyond real estate.
"...we are operating against a backdrop of slowing luxury demand with all key regions impacted by macroeconomic uncertainty and contributing to the sector slowdown. In this context, our Q1 full year 2025 comparable store sales fell 21%, and that compares with 18% this time last year." - Burberry (BURBY) Chair Gerry Murph
In addition to slower growth, confidence appears to be weak among both consumers and companies. This was highlighted by regional bank Comerica, whose CEO said that “customer sentiment appeared slightly less optimistic than last quarter.”
Uncertainty Abounds
Several companies noted that an uncertain political environment may be weighing on economic confidence. We didn’t directly cover the US Presidential election in the Transcript last week, but this has clearly been one of the most volatile election cycles in history. The presidential cycle may likely create an overhang for markets until November. Markets frequently pause as we get closer to election day.
"...there is a high level of geopolitical instability. Elections across the globe could have significant implications for forward policy. And inflation is proven to be stickier than many had anticipated" - The Goldman Sachs Group (GS 0.00%↑) CEO David Solomon
"...we find that many customers simply lack urgency, still prioritizing cost containment in light of an uncertain economic and political environment, both of which will be clearer soon." - Prologis (PLD 0.00%↑) SVP Timothy Arndt
Taken together, the environment seems consistent with one in which the Fed would want to move away from its restrictive policy stance. Members of the Fed have signaled that we’re getting closer to interest rate cuts but FOMC member Christopher Waller said last week that he thought it would only be appropriate to cut “in a way that lessens how restrictive policy is” not to a stimulative level. This may prove to be overly hawkish for the current environment.
AI’s Impact
Aside from the macro headlines, there was one other quote in our newsletter that I thought was worth mentioning this week. Manpower said that its proprietary surveys show 43% of workers “feel neutral or negative about AI's impact on their jobs and futures.” While it’s not clear what portion of that is neutral vs. negative, this struck me as a large number relative to potential unemployment. An AI-driven unemployment crisis is unlikely in the near term, but may still be something that people are thinking about in the back of their heads and creating a source of some anxiety.
"...while the promise of AI is yet to be realized, it is front of mind for businesses across every industry." - ManpowerGroup (MAN 0.00%↑) CFO Jonas Prising
This Week in Earnings
137 S&P 500 companies are reporting this week, including technology companies Google and Tesla. We’ll be listening in on the earnings calls for updates on the status of AI investments and economic trends.
