Daily Brief - The Spending Paradox

TLDR: At first glance, January's consumer spending data shows we're inching closer to the Federal Reserve's 2% inflation target, yet the devil, as always, is in the details.

A 1.1% dip in goods spending, notably durable items like trucks, against a 0.4% uptick in services, suggests a consumer base pivoting towards necessity over luxury, or perhaps, value over volume.

Personal income's uptick at the year's outset throws another curveball, signaling not a wholesale spending cutback but a more nuanced reallocation of resources. With disposable income on the rise and a slight uptick in the savings rate, the narrative shifts from blanket austerity to selective spending.

This financial resilience, buttressed by a robust labor market and slowing inflation, offers a buffer against economic headwinds, albeit with a cautious eye cast towards the future.

For the Federal Reserve, these mixed signals from the consumer front present a complex calculus.

On one hand, the restraint in goods spending coupled with continued income growth and a willingness to invest in services could suggest easing inflationary pressures. On the other, the persistence of core inflation above target levels, especially in service sectors, suggests a more entrenched inflationary stance, potentially delaying any monetary policy easing the market might anticipate.

Market Movers: When rates get cut:

Here are the historically best and worst performing sectors when interest rates have previously been cut:

The top 3 performing sectors:

1. Materials, with an average return of 1.33%
2. Information Technology, with an average return of 1.252%
3. Industrials, with an average return of 0.51%

The bottom 3 performing sectors:

1. Financials, with an average return of -2.7929%
2. Real Estate, with an average return of -1.53%
3. Utilities, with an average return of -0.675%

Asset Spotlight: A contrary force

In the last 15 occasions where sentiment indicators for oil changed, Toggle's study showed a trend where the median price of the asset increased in the subsequent 6 months.

Furthermore, net futures positioning on the commodity has increased, indicating a larger number of traders are anticipating a rise in oil prices.

Earnings Update: Target reports tomorrow

For Target's earnings release tomorrow, expectations are set for an increase in both top and bottom lines. The revenue is expected to reach $31.879 billion, marking a 1.5% increase from the previous year. Earnings per share are anticipated to be $2.38, showing a 25.9% year-over-year increase.

Despite facing challenges such as declining comparable sales and shifts in consumer behavior, Target's strategic initiatives and cost-control measures are expected to contribute to margin expansion and overall performance improvement.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.