By Barbara Kollmeyer
Welcome to intervention Wednesday.
The Bank of England has halted, at least for now, soaring gilt yields via some temporary bond buying . Stock futures pared some losses, but are still in the red, with the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.27% in the grips of its longest losing streak since February 2000.
With the bad news seemingly nonstop, one might be hoping for a little good news down the pipeline. Our call of the day from Jefferies says to expect a “second wind” from consumers, which can’t hurt related stocks.
“Although U.S. average hourly earnings (5.2% y-y) are flatlining, real wage growth isstill negative. Our base case is that this will improve as CPI (gasoline) runs its courseand the consumer will experience a ‘second wind’. Consumer confidence is alreadybouncing from a record low,” said a team led by Jefferies’ global equity strategist Sean Darby in a note on Wednesday.
“With capex intentions rolling over, metal and oil prices relapsing and inventoriesrising, a significant portion of U.S. GDP is now moving into recession territory,” added Darby. “Paradoxically, the consumer might be getting an idiomatic ‘second wind’ or extra spurt of energy.”
Rising costs of living have disproportionately hit consumer sentiment, with global surveys at record levels. But as those household costs start to reverse, “there still may be some capacity for marginal spending, particularly drawing into the all-important Christmas season,” said Darby.
Another reason markets could see a consumer “surprise” relates to Jefferies nonconsensus theme from earlier this year, when they suggested that though wage rises excite investors in the short run, “the true multiplier for consumption comes from increased labor’s share of income or profits over the long run.”
That was steadily declining for the past 30 years until 2018.
“What has happened is the share of income has actually moved up fromthe lows and the postpandemic recovery has returned the income share back to itsoriginal trend. The move in income is probably being understated since profits wereexceptionally high last year and wages are sticky on the downside,” said Darby.
Meanwhile, 2023 earnings per share revisions for the S&P 500 Consumer Discretionary Index are starting to improve. They remain bullish on that sector.
In short, they still favor the consumer, but caution that hotel and leisure stocks in the S&P 500 could be a “double-edged sword.” Darby notes that the hotels, restaurant and leisure segment is especially sensitive to changes in wealth effects and share of income growing. It’s also one sector the Fed would like to see cool off, he adds.
And: Housing market stocks give up gains as another jump in bond yields takes shine off strong data
The markets
Stocks /zigman2/quotes/210598065/realtime DJIA -0.47% /zigman2/quotes/210599714/realtime SPX -0.27% /zigman2/quotes/210598365/realtime COMP +0.14% are mixed as Apple struggles and the yield on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.03% remains above 4% the highest since 2008. The dollar /zigman2/quotes/210598269/delayed DXY -0.05% has softened up, but the pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0492% remains under pressureU.K. gilt yields /zigman2/quotes/211347177/realtime BX:TMBMKGB-10Y -1.03% tumbling on that Bank of England move. Oil prices are higher /zigman2/quotes/211629951/delayed CL.1 -1.02% and bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.22% is trading at just over $18,000.
Read: Why a rising 10-year Treasury yield is rattling financial markets
The buzz
Biogen /zigman2/quotes/201531540/composite BIIB -0.32% stock is soaring 40% after the pharmaceutical group and partner Eisai /zigman2/quotes/203064480/delayed JP:4523 -0.20% said their experimental Alzheimer’s drug slowed the disease’s progression in a large, late-stage study. Eisai shares didn’t trade in Japan due to overwhelming buy orders. Biogen got at least one analyst upgrade .
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