No Question About It
A slowdown is definitely starting to materialize.
Succinct Summary: Several of the US’ largest financial institutions participated in Goldman Sachs’ Financial Services Conference last week. The commentary suggests that a slowdown is definitely starting to materialize. Depending on your disposition, this may be a good or bad thing. It’s a good thing because it means that the Fed is achieving its objective of slowing the economy. But it’s a bad thing because it may also portend a recession. Many are concerned that the Fed may overcorrect.
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Macro
There is a slowdown in spending happening
"There is a slowdown happening. There's no question about it. When you watch CNBC and Bloomberg and read the newspapers, it can be a little bit confusing because the slowdown across industries. When we look at our own consumer spend information and we talk to the companies that we bank, there are some that are doing quite well, and there are some that are struggling more -- Net-net-net, the growth is shrinking that we've seen in card, albeit there's still growth. Debit card spend is about flat with transactions being down a little bit, offset by inflation” - Wells Fargo (WFC 0.00%↑) CEO Charles Scharf
I mean the work we've used continue to be true, slow normalization. They're continuing to normalize, continue to normalize somewhat slowly. Obviously, normalization is deterioration on an absolute basis, but it's not accelerating, and we're not back at the pandemic levels. But that normalization is that ranking exactly how you would expect. Sort of higher risk, lower income, consumers normalizing faster” - JPMorgan Chase (JPM 0.00%↑ ) Co-CEO of Consumer & Community Banking Marianne Lake
"We are seeing sales growth moderate. So, card sales were up 14% in September. That slowed to 11% in October and then now 9% for November, but still pretty robust. In terms of the holiday spending, a bit early to get a -- we saw retail sales for that Thanksgiving week and Black Friday, up 3%. And again, hard to know whether that's timing. We'll see how the rest of the season plays out." - Discover Financial Services (DFS 0.00%↑) CEO Roger Hochschild
Activity is consistent with a 2% growth economy
"So that's the Fed's impact, the rate rise and stuff are starting to slow it down. That is more consistent with sort of a 2% growth economy if you go back and look at history. So we're sort of there. If you look at Thanksgiving, to Cyber Monday, again, a record amount spent, but up about 3%. But last year, that was up 19%. And over '19, it's up almost 25%, 30%. So the consumers are still spending more money this right now than they did last year at this time, and they're spending more money this quarter than they did last quarter, but the rate of growth is slowing." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
Is that good or bad?
“That depends, glass half full, half empty. Half full is consumers are still in the game, half empty is they're starting to slow it down. Half full again would be the Feds had an impact they want, so they should be starting to think about whether they need to go, how much they need to go." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
The good news is that inflation is easing up
"Recall, we've seen some minor improvements in a few areas. Hopefully, continuing the comment I made last quarter's earnings call, a little light at the end of the tunnel, but it's still little. Recall last quarter in fourth quarter, we estimated that year-over-year price inflation was about 8%. In the first quarter, we estimate the equivalent year-over-year inflation number in the range of 6% to 7%." - Costco Wholesale (COST 0.00%↑) CFO Richard Galanti
“We are seeing signs that inflation will moderate through '23 and '24, but remaining meaningfully above target, but still show we think clear and committing signs of moderation” - JPMorgan Chase (JPM 0.00%↑ ) Co-CEO of Consumer & Community Banking Marianne Lake
But companies are preparing for a hurricane
“It’s a hurricane. Right now, it’s kind of sunny, things are doing fine, and everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way. We just don’t know if it’s a minor one or Superstorm Sandy or Andrew or something like that. You better brace yourself. What I said about a hurricane, I said those storm clouds could mitigate. It could be a hurricane. We simply don't know. As a risk manager, I prepare for both, but I'm not guessing which one's going to happen." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
“In a very conservative revenue and e-commerce outlook, my view is plan for dire times on that and have the right cost structure to deliver with confidence, a 15% increase in EPS and if the economy is better or the e-commerce environment is better. That will benefit us tremendously going forward” - Paypal (PYPL 0.00%↑) CEO Dan Schulman
“You have to assume that we have some bumpy times ahead, You have to be a little more cautious with your financial resources, with your sizing and footprint of the organization -- Our economists expect the global economy to grow by 1.9% in 2023. They believe Europe is already in the midst of a recession, a mild recession. China's economic prospects are uncertain as they start to potentially unwind their zero COVID policy, and they expect the US to narrowly avert a recession in 2023. I'm actually slightly more cautious. When I talk to clients, they sound extremely cautious." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
The consumer is becoming more budget-conscious
"Let's start with customers. Pretty much as we said at the end of the third quarter, they're still stressed. I mean we serve everybody. Americans come to Walmart. We've got some customers who are more budget conscious that have been under inflation pressure now for months" - Walmart (WMT 0.00%↑) CEO Doug McMillon
Labor markets remain tight
"...the job market remains surprisingly tight, and the competition for our talent, particularly top talent is as strong as ever." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
"Now we talk a lot to hoteliers and to property partners, and what they're telling us is they are passing on their cost increases. Their energy bills, particularly in places like Europe are going through the roof. They downsized their labor force in COVID. They can't get the same people back at the same rates. In some cases, they can't get the same people back at all, and they're paying a lot more for their staff." - Booking (BKNG 0.00%↑) CFO David Goulden
Central banks aren’t riding to the rescue
"Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. They are deliberately causing recessions by overtightening policy to try to rein in inflation. That makes recession foretold. We see central banks eventually backing off from rate hikes as the economic damage becomes reality. We expect inflation to cool but stay persistently higher than central bank targets of 2%." - BlackRock (BLK 0.00%↑)
There is a high likelihood of an overcorrection
"We think there's a high likelihood of overcorrection to basically get inflation under control, which generally suggests that the pain in equities is not really priced in. And I think importantly, just given some of the inflationary pressures that are in the marketplace today -- suggest that rates will be higher for longer, meaning that it's unlikely if we're in a recession that we're going to see a lot of rate cuts anytime in the near future." - BlackRock (BLK 0.00%↑) CFO Gary Shedlin
It’s a whole new ball game
"I mean, the Fed pumped so much money into the economy. They created inflation. They held interest rates at such low levels, they made it easy for people to buy homes. Now we're on the other side of that. Quantitative easing, interest rates are up. We've got inflation. Who's seen this game before? Anybody on this phone, not unless you were in the market in 1975 to 1982. This is a whole new ball game that no one's even seen -- Does Powell and his team know what to do? Are they just tinkering around? They haven't seen this before? And is someone going to make some calls here and we go into a ditch? It's not going to be a sub-prime thing, but it could be something else." - RH (RH 0.00%↑) CEO Gary Friedman
Can’t wait for 2023
“We're like most companies, happy to get '22 behind. We've -- for prior -- and whereas in '23 are to reaccelerate revenue growth -- So we're coming out of the year, putting a lot of that behind us and with a real solid plan to reaccelerate revenue growth” - Netflix (NFLX 0.00%↑) Co-CEO Ted Sarandos
International
The strong dollar is negatively impacting emerging markets
"...if you have the strongest economy, you're probably going to have the strongest currency and I'm not worried about what it does to multi-nationals I'd be much more worried, I'd be much more worried about what it does to developing countries -- That is one of the risks. The higher dollar rates and higher dollar effect on the emerging markets around the world and we should be very careful about that and I think America needs to do a better job on development finance and diplomacy." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
Travel demand is still strong in Europe
"A lot of questions around Europe. Europe was up high single digits versus 2019. And obviously, the consumer in Europe in October is in a different position than the consumer was in, let's call it, in January and February in Europe and yet, we're seeing strong and increasing demand from those customers." - Booking (BKNG 0.00%↑) CFO David Goulden
Financials
Banks are looking at ways to trim headcount
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Jamie Dimon is not a fan of crypto
"Crypto is a sideshow and you guys spend too much time on it -- crypto tokens are like pet rocks and people are hyping this stuff up. That doesn't mean blockchain is not real. That doesn't mean smart contracts are not real or web 3.0. But cryptocurrency doesn't do anything. I don't understand why people allow these things -- Why we allow this stuff to take place, and I think the regulator should stop beating up on banks and focus on things like crypto." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
Blackstone suspended redemptions on its REIT because of liquidity pressures in Asia
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Delinquencies look normal
"If you look at 5- and 30-day delinquencies, we're not seeing that move a lot yet -- The reality is you've just not seen the deterioration yet. Has it moved up some? Yes, but it's still not near where it was in '19. And '19 was a pretty good credit year." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan
“Delinquencies outside of subprime are below, even subprime are still below in 2019” - Equifax (EFX 0.00%↑) CFO Mark W. Begor
Private Equity markets are stalled
"But our experience, both at the company and my personal experience is it takes 6 to 12 months for private valuations to reset the public. We're very much in that window right now. There is no leverage loan market available to private equity. So there's just not a lot. We don't have a private equity bid. Private equity sellers aren't really selling at the market -- at the moment." - Roper Technologies (ROP 0.00%↑) CEO Laurence Hunn
Venture-backed companies are slowing cash burn
"We gave an update yesterday on trends that we're seeing for the balance sheet in Q4. But embedded within those trends, as we've been talking about, is clients effectively look at a much more uncertain fundraising environment for 2023, they've been working to slow their cash burn. And we are starting to see that in the results. And through the end of November, are seeing much more on-balance sheet deposit stability without bringing as much off-balance sheet to on-balance sheet funds on. So we're starting to see some of those impacts ready even with a declining fundraising environment in the quarter." - SVB Financial Group (SIVB 0.00%↑) CFO Daniel Beck
Consumer
Big-ticket discretionary spending is under pressure
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Home furnishing retailers are running lots of promotions
"...widespread discounting continues across our industry. And while it's been almost two years since we've deployed a promotional e-mail, we've been receiving two sale e-mails per day for many home furnishings retailers." - RH (RH 0.00%↑) CEO Gary Friedman
E-commerce growth has flatlined
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Advertising markets are still challenged
"We love the ad business. It's an extraordinary business. It's a way to obviously create significant incremental monetization around your investments. But that said, the current market is challenging. And we're in it every day, and we see it, and that challenge is both on the linear side and on the digital side, again, no surprise as probably what you heard yesterday, I didn't actually look at Jeff's remarks." - Paramount Global (PARA 0.00%↑) CEO Robert Bakish
“I think we've seen material or real weakening of that across the month of November. And like anything, it's -- like it's been, since May, different trends across different sectors. But you saw real softness and pullbacks across CPG, some pharma, a few other sort of discretional ad budgets where both on the premium side -- well, let's start with the premium side. They're not -- they're just pulling back on campaigns or not executing. So you have a slowdown there” - IAC/InterActiveCorp (IAC 0.00%↑) CFO Christopher P. Halpin Executive
Inventories are getting better for some retailers
"Recall that our total inventory in both -- at the end of Q3 and at the end of Q4 on a year-over-year basis were up 26% year-over-year. I'm happy to report that good progress was made during the first quarter of this fiscal year. Our increase as of Q1 end dropped to a 10% year-over-year increase, largely driven by an estimated 6% to 7% inflation and about just under 2% year-over-year unit growth. So inventories, while we still have some pockets of a little over inventory, overall, we feel pretty good about it." - Costco Wholesale (COST 0.00%↑) CFO Richard Galanti
Netflix has not figured out sports yet
"Look, today, renting big sports, we've not seen a profit path to renting big sports today. Not to say there never will be, I'd say, in today's -- the economic models that are built around that are built around the economics of Pay Television and different on streaming -- It's very popular. I definitely agree. I just -- we've not figured it out. We are not anti-sports for just pro profit." - Netflix (NFLX 0.00%↑) Co-CEO Ted Sarandos
Technology
IT budgets are under pressure
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ChatGPT is the hottest thing in tech
"ChatGPT launched on Wednesday. Today it crossed 1 million users!..🙏 to my colleagues for making it feel like I get to walk into the modern bell labs every day -- Microsoft, and particularly Azure, don’t get nearly enough credit for the stuff OpenAI launches. they do an amazing amount of work to make it happen; we are deeply grateful for the partnership. they have built by far the best AI infra out there" - OpenAI CEO Sam Altman
"With ChatGPT, what he's talking about is it's not just the buying of the advertising that's going to be automated, now it appears the creation of the advertisement itself without having to license music, pay for actors, get a set in facility, you're now starting to see the actual ad get created from artificial intelligence. When you match media buying with the ad creation and that's going to be pretty powerful and something we're very excited about." - Viant Technology (DSP 0.00%↑) Co-Founder, Chairman & CEO Tim Vanderhook
Microsoft Teams 10x’d its monthly active users in the pandemic
"So let's start first with Teams. Going into the pandemic, we're about 20 million monthly active users. Our most recent public statement on Teams has been over 270 million monthly active users of Teams -- About 6 months ago, we finally saw the number of minutes spent in chat in Teams surpass the number of minutes that people spend in Outlook. I need you to pause there for a moment because we've been trying to unseat Outlook in e-mail as kind of the primary communication medium for decades -- We very, very frequently have customers proactively come to me and say, "Hey, I'm using Zoom. I'm using Slack, but there's no reason for me to double-pay as I think about rationalizing the IT budget. What can you do for me?" And that's music to our ears." - Microsoft (MSFT 0.00%↑) Corporate VP - Microsoft 365 Jared Spataro
Organizations are moving towards a DevSecOps framework
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Industrials and Transport
The semiconductor industry is seeing a pretty severe downturn
"The industry downturn is continuing and continues to be pretty severe -- Our goal is that we quickly get to a point where the demand growth is ahead of supply growth so that the significant amount of -- inventory starts to normalize..The sooner [inventories] start to normalize the better it will be because the current trajectory is for these inventories to continue to increase. Changing the trajectory of these inventories is a hugely important focus item for us. In order to address that, we are significantly reducing our capital investment in the short term” - Micron (MU 0.00%↑) EVPP & Chief Business Officer Sumit Sadana
"Our estimation is that inventory digestion that's been going on with our customers, probably doesn't finish at the end of this year, it continues into next year. That, coupled with macro headwinds in basically every geography out there. Didn't give us a ton of confidence that there would be some reason for us to be better than seasonal." - Intel (INTC 0.00%↑) CFO David Zinsner
"On the industrial side, it's a -- call it a mixed bag. The industrial side, that's closer to the consumer or more tied to consumer demand like power tools, for example. We see that softening. We saw it softening, and we took action to get ahead of it. But the underlying strength in industrial factory automation, and renewable energy, they are also tied with the automotive mega trend. We see strength remaining there and growth through this year and next. And then the consumer and compute, I think we see what a lot of our peers that are more exposed to those markets where we see softness, and that softness seems to be maintained." - ON Semiconductor (ON 0.00%↑) CEO Hassane El-Khoury
Demand for travel is still strong
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People want to work remotely
"On the job side, something fascinating right now that I look a lot at is pre-pandemic, about 1% of all jobs posted on LinkedIn were remote. As of today, that number is about 14%. So we've seen a huge jump in the number of jobs that are remote, but that's not the fascinating part. What's fascinating is north of 50% of all job applications on a daily basis on LinkedIn go to that 14% of remote jobs. So there's huge demand still, at least on the labor side for remote work.” - Microsft (MSFT 0.00%↑) Linkedin CEO Ryan Roslansky
But they are also moving back to cities
“And then actually, something we were just looking at this morning walking over is, we're kind of tracking where people are -- people who are moving -- physically moving locations for jobs. And I don't know. I mean, I don't know if you would have called it -- I probably would have called it a few years ago. But right now, the 3 biggest markets people are moving to -- physically moving to New York, San Francisco and Seattle. There's like this move back to the cities. And this -- I mean, there's real movement right now" - Microsoft (MSFT 0.00%↑) Linkedin CEO Ryan Roslansky
Real Estate
The housing market is in a recession
"...the housing market is in a recession. I mean if somebody doesn't think that, I'd love to just zoom and put our numbers up for you. But the luxury housing market has trailed down since last September, right, it is down 8%, down 16%, down 17%, down 16%, down 12% in January, down 13% in February, down 15% in March, down 18% in April, down 18% again in May, down 21% in June, down 24% in July, down 28% in August. And the new numbers will come out for the next quarter, and we'll never know how far it's gone down. But the odds are it could be down 35%, it could be down 40%. So, when we start seeing trends like that, I don't know how it comes all apart." - RH (RH 0.00%↑) CEO Gary Friedman
The numbers look pretty bad
"Housing prices are going to go up 20%, go down 20% or they're going to go up 1%. That sounds like everybody is on the same page. So it's just a lot of uncertainty right now. But one thing I'm certain of the housing market is collapsing at a level I haven't seen since 2008. I haven't seen this kind of drop since 2008. So go look at how far housing dropped in 2008 and 2009 because these numbers look just like that." - RH (RH 0.00%↑) CEO Gary Friedman
"Many homebuyers are on the sidelines, waiting for clarity on the direction of mortgage rates and the overall economy. Our net signed contracts were down 60% in units and 56% in dollars in the fourth quarter, with no discernible change nearly halfway through our first quarter." - Toll Brothers (TOL 0.00%↑) CEO Douglas Yearley