Looking at the indexes this week reminded me of an electrocardiogram (EKG). The heartbeat of the markets was steady and consistent through the close on Tuesday but fluctuated wildly on Wednesday, as if in atrial fibrillation, before shooting higher on Thursday and regaining its steady beat. That shot of adrenalin was Jerome Powell and the Federal Reserve (Fed) finally cutting interest rates after a nine-month hiatus. We’re grateful for the long-anticipated boost and are hopeful that the momentum can carry the markets higher.
If there were a theme for the week, it would be the Fed’s rate decision on Wednesday. While it came as no surprise, it was long overdue. The Federal Reserve voted to cut interest rates by 0.25% in its first rate cut since last year. Recent data showed the economy added only 22,000 jobs last month, indicating the economy could be slowing faster than anticipated. While the cut was welcomed, it was Powell’s speech that ignited markets. The Fed now believes two more rate cuts are warranted before the end of the year. The takeaway is that the Fed has shifted its focus toward the anemic job market rather than inflation, even as inflation continues to remain above the 2% goal.
This leads us to retail spending which came in hotter than expected for August. Spending at US retailers grew by 0.60% last month, more than double economists’ expectations of 0.20%. Sales were up across all categories, with only some retailers, like department stores and furniture stores, reporting drops. Online shopping had the biggest increase at 2% with restaurants and bars increasing by 0.70%. Yet, consumers are increasingly falling behind on car loans and credit card payments while hiring is slowing at an alarming rate. So, who, pray tell, is doing all this spending? Well, it turns out the wealthiest 10% of Americans make up nearly half of total consumer spending. According to Federal Reserve data, people in the top 10% income bracket made up 49.2% of spending, which is up from 48.5% in Q1 and growing. Some economists attribute this growth in spending to the wealth effect from higher portfolio values and home prices.
Along the same lines, credit card companies are trying to capitalize on this phenomenon. American Express announced this week it’s platinum credit card will now carry an annual fee of $895. This represents a nearly 30% jump from the card’s previous yearly price of $695. The president of AmEx’s US Consumer Services said, “We are not trying to attract every millennial and Gen Z. We found a way to hit the heartstrings of the subset of truly premium millennial and Gen Z’s.” Let that sink in. I guess if you don’t hold a platinum American Express card, you just might not be “premium” enough.
In closing, I turn to Publishers Clearing House (PCH). I have strong memories of the advertisements showcasing winners on their doorsteps holding supersized checks looking happier than imaginable. For nearly 60 years, winners had been promised a lifetime award until this week when the company filed for bankruptcy. While the exact number of winners is unknown, their $5,000 per month checks have stopped. ARB Interactive, a mobile gaming company bought PCH’s remaining assets and says that under the terms of the sales agreement it does not have to honor the lifetime payments. I guess the moral of the story is that nothing is forever. Now you know.