THE WELL-TH NOTES

By Hightower St. Louis on September 13, 2023

Weekly data-driven insights on the markets and economy

Second Week of September 2023

Tech-No

The S&P 500 fell -1.26% last week, dragged down by Apple and Nvidia, which both fell about -6% and comprise a large portion of the index.[i] Apple’s stock fell in response to the Chinese government banning government officials from using iPhones.[ii] More broadly, S&P 500 tech stocks fell -2.34% during the week, reducing their year-to-date (ytd) return to a still-frothy 41.60%. The S&P 500 is up 17.45% ytd.ⁱ

Yield Day

Nineteen investment grade companies (i.e., companies with high credit ratings) sold 47 bond tranches last Tuesday, the most in one day since at least 2012.[iii] The week after Labor Day is usually busy, but companies may be seeking to raise money before interest rates rise any further. The yield on the 10-year Treasury bond (4.26%) has increased 0.30% since the end of July and nearly 1% since its low in April.[iv]

Sticking Point

One reason investors may be coming to terms with higher-for-longer interest rates is sticky service prices. The services component of the Fed’s preferred inflation gauge, the core PCE Index, rose to 5.2% year-over-year (y/y) in July[v] and 4.5% y/y when housing is removed (i.e., “supercore inflation”).[vi]

Renewed Energy

After underperforming earlier this year, energy stocks have gained 5.62% and 13.22% over the past one and three months, respectively, outperforming the broader S&P 500 index over the past one and three months by 6.4% and 9.0%, respectively. Amid OPEC production cuts, oil prices have risen by more than 30% from their low this year in March and are expected to remain elevated this year.[vii]

Rent Descent

Falling -1.2% y/y in August, annual rent growth nationwide turned negative for the first time since the pandemic. This slowdown compares starkly to peak rent growth of 18% y/y in 2021. Increased supply is driving the fall. Apartment List’s Vacancy Index has increased for 22 consecutive months, and a record of nearly 1 million apartments were under construction at the beginning of 2023.[viii]

Buy Now, Maybe Pay Later

In August, 38% of surveyed Americans said they plan to apply for a buy-now-pay-later (BNPL) loan during the next six months. However, only 57% of those who plan to apply were “very confident” that they could pay back the loan without missing a payment ― down from 66% in June. In an earlier survey this year, 40% of BNPL loan users said that they had made a late payment.[ix]

Grabbing Inattention

Researchers found that companies can increase their revenue for certain services by as much as three times through auto-renewal subscriptions that take advantage of consumers’ inattention when their subscriptions renew.[x] Another study found that, on average, consumers estimate that they spend $86 a month on subscriptions when really, on average, they spend $219.[xi]

Price Point

One measure demonstrates that companies may have raised prices more than they needed to as inflation rose (i.e., “greedflation”): As of the first quarter 2023, after-tax profits as a percentage of sales (margins) for wholesalers averaged 2.7%, down from a peak of 4.3% in 2022 but above the pre-pandemic level of 1.4%. For retailers, margins peaked at 7.4% in 2021, well beyond the 3.7% pre-pandemic level.[xii]

The Grin-Door

Grindr, a large social media app for the LGBTQ community, reportedly lost about half (80 out of 178) of its employees after asking them to come into the office at least two days a week starting in 2024.[xiii] In related news, in the financial services industry ― 66% of those who work remotely at least part time say they will likely leave if mandated to return to the office five days a week.[xiv]

Premeditated Meditation

Police cars rushed to a yoga studio in central England last week after a passerby mistook the class’s late-evening meditative pose as the site of a mass murder. Quite the contrary: In a recent study of older adults, practicing yoga reduced stress and depression and improved sleep, with the proportion of individuals experiencing good sleep increasing to 85% from 63% after practicing Hatha yoga.[xv]

[i] FactSet, total returns as of September 8, 2023.

[ii] Oi, Mariko and Chris Vallance, “Apple Shares Slide After China Government iPhone Ban Reports,” BBC News, September 8, 2023, https://www.bbc.com/news/business-66748092. Accessed September 11, 2023.

[iii] Pitcher, Jack, “Companies Pay More to Borrow in Record Bond Rush,” The Wall Street Journal, September 8, 2023.

[iv] Board of Governors of the Federal Reserve System (US), Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis [DGS10], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DGS10. Accessed September 11, 2023.

[v] U.S. Bureau of Economic Analysis, Personal consumption expenditures: Services (chain-type price index) [DSERRG3M086SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DSERRG3M086SBEA, September 10, 2023. Accessed September 11, 2023.

[vi] Sløk, Torsten, “Inflation Is Still a Problem,” Apollo, The Daily Spark, September 2, 2023, https://apolloacademy.com/inflation-is-still-a-problem/. Accessed September 11, 2023.

[vii] U.S. Energy Information Administration, Cushing, OK Crude Oil Future Contract 1 (Dollars per Barrel), as of September 8, 2023, https://www.eia.gov/dnav/pet/hist/RCLC1D.htm. Accessed September 11, 2023; and “Short-term Energy Outlook,” September 12, 2023, https://www.eia.gov/outlooks/steo/. Accessed September 12, 2023.

[viii] Apartment List Research Team, “Apartment List National Rent Report,” August 30, 2023, https://www.apartmentlist.com/research/national-rent-data. Accessed September 10, 2023.

[ix] Schultz, Matt, “Buy Now, Pay Later Tracker: August 2023,” LendingTree, August 15, 2023, https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/. Accessed September 10, 2023.

[x] Einav, Liran, Benjamin Klopack and Neale Mahoney, “Selling Subscriptions,” NBER Working Paper No. 31547, August 2023, https://www.nber.org/papers/w31547. Accessed September 11, 2023.

[xi] C&R Research, “Subscription Service Statistics and Costs,” May 18, 2022, https://www.crresearch.com/blog/subscription-service-statistics-and-costs/. Accessed September 11, 2023.

[xii] O’Trakoun, John, “Elevated Margins in the PPI,” Federal Reserve Bank of Richmond, Macro Minute, September 5, 2023, https://www.richmondfed.org/research/national_economy/macro_minute/2023/mm_09_05_23. Accessed September 12, 2023.

[xiii] Ansari, Talal, “Grindr Loses Nearly Half Its Workforce After Implementing Return-to-Office Policy, Union Says,” The Wall Street Journal, September 8, 2023.

[xiv] Danielecki, Patty, Samia Hazuria, Alison Rogish and Neda Shemluck, “Cultivating Employee Engagement in Financial Services,” Deloitte, https://www2.deloitte.com/us/en/insights/industry/financial-services/improve-employee-engagement.html. Accessed September 11, 2023.

[xv] Baklouti, Souad, et al, “The effect of web-based Hatha yoga on psychological distress and sleep quality in older adults: A randomized controlled trial,” National Library of Medicine, December 13, 2022, https://pubmed.ncbi.nlm.nih.gov/36521407. Accessed September 12, 2023.