Market Rebound Uncertain Amid Weak Consumer Spending
US Consumer Spending Slows
$Disney (DIS.US)$ reported better-than-expected earnings and revenue for the June quarter on Wednesday, with its streaming service turning a profit for the first time. The company also raised its full-year profit guidance. Despite positive results, shares fell over 4% due to ongoing concerns about its theme park business.
Revenue from U.S. and Canadian parks dropped 6% year-over-year to $1.35 billion, while international park revenue saw sluggish growth. CFO Hugh Johnston attributed the 3% decline in operating profit to "softening consumer demand" in the theme park segment.
$Airbnb (ABNB.US)$ and $Hilton Worldwide (HLT.US)$ also highlighted the impact of slowing consumer demand in their latest earnings reports. Airbnb warned of a deceleration in US travel demand even during the peak season and issued a third-quarter revenue forecast that missed estimates, sending its shares down 13.4%.
Hilton CEO Chris Nassetta said Wednesday that consumers have exhausted their pandemic savings and are now borrowing more. "They have less available, less disposable income and (less) capacity to do anything including travel," Nassetta said.
Data released by the Federal Reserve on Wednesday showed that total consumer credit rose by $8.9 billion in June, falling short of the $10 billion forecast. According to VantageScore, delinquency rates for auto loans and credit cards in June were above pre-pandemic levels.
Rising Probability of Economic Recession
Consumer spending plays a crucial role in the US economy, accounting for nearly 70% of the national GDP. The recent profit warnings issued by consumer companies across various sectors, from food to leisure and luxury goods, have raised concerns about the slowdown of the US economy. This is one of the factors contributing to the recent significant pullback in the US stock market.
Jamie Dimon, CEO of JPMorgan Chase, mentioned on Wednesday that he sees the possibility of a "soft landing" for the US economy at around 35%-40%, indicating that the US is currently not in a recession but it may be approaching one.
Currently, JPMorgan Chase believes that there is a 35% chance of a US economic recession by the end of the year, which is 10% higher than their forecast in early July. The JPMorgan Chase economist team led by Bruce Kasman believes that the weakening of demand in the US labor market has exceeded expectations, and early signs of labor force attrition have emerged. The probability of an economic recession in the US by the second half of next year is estimated at 45%.
However, Goldman Sachs CEO David Solomon believes that "The economy will chug along and we probably won't see a recession."
Goldman Sachs raised the probability of a US economic recession next year from 15% to 25% on Monday. Nevertheless, they state that even if the unemployment rate rises, the risk of an economic recession is limited.
Market Correction May Persist
US stocks tumbled on Friday after nonfarm payrolls unexpectedly surged to 4.3%, the highest since October 2021, triggering the Sahm Rule and heightening fears of a recession.
On Monday, the $S&P 500 Index (.SPX.US)$ and $Dow Jones Industrial Average (.DJI.US)$ posted their largest single-day declines since 2022, driven by recession concerns and the unwinding of yen carry trades. Tuesday saw a modest rebound for major indices, ending a three-day losing streak. However, by Wednesday, the three major indices were back in the red.
The S&P 500 has now retreated about 10% from its July 16 peak. Meanwhile, the $Russell 2000 Index (.RUT.US)$ has nearly erased all gains from July's rotation.
B. Riley's Chief Investment Strategist Paul Dietrich has been warning of an imminent recession and stock market crash for months, particularly as enthusiasm for artificial intelligence wanes.
Tech CEOs have initiated significant stock sales this year, he noted. Jeff Bezos has offloaded more than $13.5 billion in Amazon shares, Mark Zuckerberg has sold over $1 billion, and Jensen Huang has disposed of nearly $500 million. He believes these sales might indicate that they consider market valuations to be inflated, with the movement of this "smart money" suggesting potential further downside for tech stocks.
Dietrich also cited various indicators suggesting an impending recession. Historically, the stock market drops 36% during a recession, even if the downturn is mild. While he did not specify when a recession might hit, Dietrich said the economy could begin to mildly contract by year-end.
JPMorgan's Chief Economist Bruce Kasman and his team noted in a report that the weakening demand in the U.S. labor market exceeded expectations, with early signs of labor attrition already visible. They estimate a 45% chance of a U.S. recession in the second half of 2025.
JPMorgan analyst Thomas Salopek, in a report published Monday, identified three indicators showing market declines: widening credit spreads, a steepening U.S. Treasury yield curve, and defensive sectors leading gains.
Reviewing historical market bottoms, Salopek observed that the current market hasn't shown complete bottom characteristics. For example, the S&P 500 has not fallen below its 20-day moving average, market breadth is not at extreme lows, and the put/call ratio hasn't spiked to absolute highs. He suggested that the coming correction might deepen further.
Goldman Sachs CEO David Solomon struck a more optimistic tone in an interview, stating, "I do think that we’re getting a correction here after a very strong run in the markets, and that might be healthy. I think we’re going to see more volatility in the short term here. This was a pretty big, pretty meaningful correction."
Source: Bloomberg, Markets Insider, Investing, CNBC
by moomoo News Olivia
by moomoo News Olivia
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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102185397 : Signs of recession do not mean employment is low, and two key factors are trade deficits and diminished trade with major economies like China. So internal consumption is the only thing sustaining the economy and credit card debts are not in the trillions together with government spending. These two need to go down otherwise if any of these fell through, instability sets in and you will see ripple effects across industries that will ultimately leads to recession.
74541387 : We in America do not accurately count unemployment. Once unemployment runs out, we don't count them anymore. There are multiple millions not being counted, tent cities everywhere, and street people in every city I visit. Our country is in much deeper trouble than we reporting.