SFM Observer - October 2023

Issued: November 3, 2023

The Dow closed the month of October at 33,052 for a loss of -455 points or -1.4%.  The American consumer is hard to stop.  Spending in August was 5.8% higher than a year ago.  Headwinds include 4% inflation, the prime rate at 8.5%, pandemic savings are greatly diminished, and student loans are now payable.  However, there are some signs of slowing especially for the bottom half of the economic ladder.  Personal bankruptcies are trending higher and credit card delinquencies have risen. The Federal government also continues to spend.  The deficit spending this fiscal year is $1.7 trillion.  That is a huge amount of additional debt for a single year.  This trajectory is not sustainable for the long term.

Some interesting events from the month just past:

•               Netflix plans on raising the price of its monthly ad free streaming service now that the Hollywood strike is over.  They have not released an amount but it is likely to occur in the next few months.  Netflix is the only streamer that hasn’t raised prices in the last year.

•               After almost two years of court challenges and delays, Microsoft was finally able to buy Activision Blizzard for $75 billion.  Activision is the videogame company that created Call of Duty and Candy Crush, two very popular games.

•               Existing house sales are slowing rapidly as mortgage rates approach 8%.  The price of homes have not fallen (and are actually still rising in the Northeast) as more and more buyers are being priced out of the market by expanding monthly payments.  Rate rising from 3% to 8% in a relatively short timeframe is unprecedented in recent history.

•               The Fed is taking a pause on raising interest rates.  At their most recent meeting, they decided to leave rates alone and see how the economy does.  There is a lag affect to higher interest rates and the impact takes months to show up in the economic statistics.

•               Good supplies of natural gas are indicating that homeowners who heat with gas are likely to spend less on heat than last year.  Unfortunately, oil heat customers are not in the same boat.  Heating oil prices remain high, in part due to the wars in Ukraine and the Israel.

Thank you for reading this issue of the SFM OBSERVER.

Until next month,

Glenn Sweeney CFA