Behind Powell’s comments and digital shopping reigns supreme
Key points inside this issue:
- The stock market received a reprieve yesterday, but risks remain
- We are issuing a Buy on and adding the United Parcel Service (UPS) January 2019 115.00 (UPS190118C00115000) calls that closed last night at 3.15 to the Select List. As we do this we will set our stop loss at 2.25.
Coming into this week with a clean slate following the pre-Thanksgiving stop out of our Consumer Staples Select Sector SPDR ETF (XLP) January 2019 58.00 (XLP190118C00058000) calls at 0.35. Yesterday, the stock market put in its best one-day performance in months following the report that Fed Chairman Powell said aid interest rates are close to neutral, a change in tone from remarks the central bank chief made nearly two months ago. To be clear, “neutral” means neither speed up nor slowing down growth. This comment was warmly received by investors as they perceived it as removing one of their concerns – the number of interest rate hikes to be had over the coming 13 months, which as of last week totaled five.
Here’s the thing, over the last few months we’ve seen a number of data points suggesting a slowdown in both the global economy as well as the domestic one. Whether it’s the sharp drop in oil prices that suggest weak demand for crude, which is also helping mitigate some related inflation concerns, the continued weakness in the housing market due in part to higher interest rate or other economic indicators (Industrial Production, Durable Orders or the ISM manufacturing), the speed of the US economy is slowing. Moreover, consensus expectations point to that continuing over the coming quarters with sequential declines in GDP expected between now and the end of 2019.
What this more than likely means is the Fed is digesting this data and resetting its interest rate expectations. Great that they may not move as high in the coming 13 months, but the probable reason is the speed of the economy could not handle that degree – 5 additional rate hikes. Let’s remember that monetary policy is not a fixed formula, but is one that has to remain flexible to react to global economic and geopolitical events, and we have to focus on the reason behind that shift in monetary policy. Later today, we’ll receive the Fed’s meeting minutes from its November monetary policy meeting, which should offer further insight into this shifting view inside the central bank.
While Powell’s comments may have offered some relief to investors, we have to remember that in addition to a slowing economy several other risks remain. These include the upcoming US-China trade conversations at this week’s G20 summit, Brexit and Italy-eurozone issues. Just this morning, Italian Deputy Prime Minister Matteo Salvini said the populist government is not considering cutting next year’s budget deficit target to below 2.2%. In my view, once we clear the G20 meeting we’ll have a much better sense as to the playing field that will close out 2018 and be with us when we enter 2019. Despite the stock market ripping higher yesterday, caution and prudence remain the mantra in the very near term as we wait for these other shoes to drop and investors to recognize the reason behind the Fed’s shifting view on the speed of monetary policy.
Circling back to UPS calls following Thanksgiving-Cyber Monday shopping
On this week’s Cocktail Investing Podcast, Tematica’s Lenore Hawkins and I sift through all the data that was had coming out of the official kickoff to the 2018 holiday shopping season that span Thanksgiving to Cyber Monday, and in some cases “extended Tuesday.” The short version is consumers did open their wallets over those several days, but in keeping with our Digital Lifestyle investing theme, we saw a pronounced shift to online and mobile shopping this year, while brick & mortar traffic continued to suffer.
According to ShopperTrak, shopper visits were down 1% for the two-day period compared to last year, with a 1.7% decline in traffic on Black Friday and a versus 2017. Another firm, RetailNext, found traffic to U.S. stores fell between 5% and 9% during Thanksgiving and Black Friday compared with the same days last year. For the Thanksgiving to Sunday 2018 period, RetailNext’s traffic tally fell 6.6% year over year.
Where were shoppers? Sitting at home or elsewhere as they shopped on their computers, tablets and increasingly their mobile devices. According to the National Retail Federation, 41.4 million people shopped only online from Thanksgiving Day to Cyber Monday. That’s 6.4 million more than the 34.7 million who shopped exclusively in stores.
Thanksgiving 2018 was also the first day in 2018 to see $1 billion in sales from smartphones, according to Adobe, with shoppers spending 8 percent more online on Thursday compared with a year ago. Per Adobe, Black Friday online sales hit $6.22 billion, an increase of 23.7% from 2017, of which roughly 33% were made on smartphones, up from 29% in 2017.
The most popular day to shop online was Cyber Monday, cited by 67.4 million shoppers, followed by Black Friday with 65.2 million shoppers. That day alone mobile transactions surged more than 55%, helping make the day the single largest online shopping day of all time in the United States at $7.9 billion, up 19% year over year. It also smashed the smartphone shopping record set on Thanksgiving as sales coming from smartphones hit $2 billion.
As I have long said, as consumers increasingly shift to digital shopping, a key tenant of our Digital Lifestyle investing theme, these goods will need to reach the intended recipient no matter who or where they are. That makes United Parcel Service (UPS) a prime beneficiary as more consumers and retailers embrace digital commerce. Given the data that has emerged over the last week, it is safe to say the speed of digital commerce adoption is accelerating. For that reason, we are adding back a UPS call option play for the holiday season, which candidly is at far better pricing levels following the market pain of the last few weeks. Between now and Christmas, I expect to see many a UPS truck traveling up and down the streets, and I strongly suspect you will see them as well.
- We are issuing a Buy on and adding the United Parcel Service (UPS) January 2019 115.00 (UPS190118C00115000) calls that closed last night at 3.15 to the Select List. As we do this we will set our stop loss at 2.25.
