🎙️ Project of the Century

Thanks to this very newsletter, college students are flocking to business and marketing majors in droves 💼

Kidding aside, business remains the most popular major. More students are also pursuing health professions, engineering, psychology, and computer science.

💭 Meanwhile, education, liberal arts, and English/literature are trending in the wrong direction. As you’ll see below, it’s crystal clear that students are chasing careers with steadier, higher-paying job prospects.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Why consumer stocks continue to slide

• Automakers have high hopes for EVs, but buyers aren’t cooperating

• The “project of the century” gets a reality check

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

🛍️ Why Consumer Stocks Continue to Slide

Some of the country’s most recognizable brands are having a rough year, from Target to Dollar General to Kraft Heinz. That seemingly flies in the face of evidence that the economy is humming along.

Many companies in the retail space, which fall in the consumer sectors of the S&P 500, are making new 52-week lows this month. Target blamed a rise in crime for eating into its profits. Other companies have said consumers are curbing their spending on physical goods.

• The S&P 500 has fallen 5.7% from its 2023 peak on July 31. But the S&P Retail ETF (ticker: XRT) has declined 12% over the span.
  

• In 2023, the S&P 500 is up about 13%, while the retail benchmark is flat — the widest such spread in six years.

The drivers: High gas prices probably aren’t going to help consumer companies. While high-end brands attract high-earning consumers generally unfazed by inflation, most brands appeal to everyone else. And just about everyone has been feeling the effects of high gasoline prices, high housing costs, tighter credit conditions, and sticky inflation.

• U.S. consumer confidence has fallen for two months, a signal that Americans feel less comfortable about their finances.
  

• As one chief investment officer noted, “If food prices are high, if gas prices are high, I can buy less of the discretionary stuff that I want rather than need.”
  

• There are a few outliers like Costco Wholesale, whose shares are up about 24% this year and reported increases in earnings and sales last month.

Financially constrained: Dollar General is just one of the companies that said customers are buying fewer discretionary items, leaving them with extra unsold inventory. Its stock has been cut in half this year alone.

• Its CEO spoke for millions when he said: “Our core customers continue to tell us they feel financially constrained. Her savings are gone, and so certainly she is still living with the inflationary pressures.”

Why it matters:

Yes, this is another markets story about inflation and its effects. It has trickled down throughout the economy, well over a year since it peaked in the summer of 2022.

• Because inflation is weighing on consumers, retail stores are starting to suffer. That’s why investors are less optimistic on the sector, pulling money from consumer-goods sector funds in 10 of the past 12 weeks, according to The Wall Street Journal.
  

• Investors can earn more on their cash now than some consumer stocks with attractive dividends, like Dollar General (2.1%) and Target (3.9%), further driving them away.

Read more

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🚗 Automakers Have High Hopes For EVs, Not Buyers

It turns out that people aren’t buying electric vehicles as much as automakers would like.

Look, EV sales are up 51% this year, so it's not all bad news. But the rate has slowed from a year earlier, and some brands like Ford and Toyota are racking up unsold inventory.

• What isn’t helping: high-interest rates, and thus costlier auto loans, plus higher sticker prices. Other consumers are reluctant to switch because of high sticker prices and so-called “range anxiety,” the feeling that your vehicle has limited range and needs to be recharged.

• The first wave of drivers who wanted an EV likely already own one (or more), which brings automakers to a new frontier: more hesitant buyers.

Ford’s CFO noted that “the curve isn’t accelerating as quickly as I think a lot of people expected. We’re seeing it flatten a bit.”

• Recall that in 2022, many automakers were surprised by how many people actually wanted an EV. There were soaring prices. There were long waiting lists. There were supply chain issues nationwide.

Car companies are investing billions into building factories and battery plants to support the expected demand increase for EVs in the coming decades. But for now, more buyers are trying hybrids, which combine gasoline engines with battery power to reduce fuel consumption.

Toyota’s head of sales said hybrids remain a “smoking-hot market…we are trying to make as many hybrids and plug-in hybrids as possible.”

Why it matters:

About 9% of new cars are EVs this year, a sliver of the overall market. Part of the issue is that there are still many more accessible gas stations than EV chargers.

• Ford and Tesla are both grappling with slowing sales this year worldwide, even after implementing steep price cuts.

EVs ain’t cheap: The average price for a battery-powered vehicle was $50,683 last month, down from $65,000 last year. It’s progress, sure, but still too high for consumers already dealing with high inflation elsewhere. Plus, most are used to paying under $40,000 for a new vehicle.

It depends on who you ask: Kia said the current drawdown is merely “short-term market fluctuations,” and Volkswagen said the EV market isn’t hot but demand remains fairly strong.

• Yet one auto industry executive said “there was a bit of exuberant thinking that the market would adopt EVs at the same rate early adopters were…Customers are not knocking down the door to buy them.”

We’ll likely see falling prices and other promotions, like lease deals, in the year ahead. The evidence is clear that we’re still quite early in the EV adoption curve. Until the charging network improves and prices keep falling, most cars on the road will remain gas-powered.

Read more

MORE HEADLINES

🎵 Taylor Swift’s Eras Tour movie sets box office record for concert movie

💊 Rite Aid files for bankruptcy amid slowing sales, opioid litigation

💰 More than half of adults feel ‘behind’ on retirement savings

⚡ Bitcoin rises Monday on optimism of new ETF

🏏 Cricket’s return to the 2028 Olympics in Los Angeles sparks excitement worldwide

🛡️ How Israel’s Iron Dome missile defense system works

🤦 “Project of the Century” Gets a Reality Check

Whether you’ve heard of China’s Belt and Road Initiative (BRI) is a good indicator of whether you’re a certifiable econ/geopolitics “nerd” or not (it’s okay; we’re nerds, too!)

For those not familiar: It’s a huge undertaking, hence why China’s top leader, Xi Jinping, called it the “project of the century” in 2017.

• The hope was to fund a web of infrastructure projects globally, particularly in developing countries, to showcase and boost the country’s growing financial & economic influence and strengthen relationships with nations often overlooked by the U.S. and its allies.
  

• Many participating economies are scattered across Latin America, Africa, Eastern Europe, the Middle East, and Southeast Asia.

How’s the BRI holding up? A decade after its launch, one Chinese official told Bloomberg that the Belt and Road Initiative is largely “dead,” suffering twin blows from Covid and China’s ongoing economic struggles.

As a result, Chinese banks have less capital to lend, and pressure to recoup funds from past loans has intensified.

• China’s activity in BRI countries is down 40% from its 2018 peak, while accusations that Beijing is an irresponsible, borderline predatory lender in some cases have cooled enthusiasm for further engagement in the program.
  

• A fallout in U.S.-Chinese relations, too, is pushing countries like Italy to exit the BRI altogether.

Why it matters:

This week, Xi Jinping will host a collection of leaders from BRI-participating countries, including Russia’s Vladimir Putin.

• As one public policy expert said, “It’s a clear message that China is trying to have its own allies while challenging the U.S.-led world order.”

Tighten your belt: Debt crises during the pandemic put the BRI under the spotlight. In late 2020, Zambia was the first African country to default on BRI loans, while economic crises in places like Ethiopia, Sri Lanka, and Pakistan caused countries to borrow far less through the BRI.

• Chinese efforts to extend influence over developing countries have spurred the U.S. and European governments to respond with funding pledges for billions of dollars of their own projects in some of the same places.
  

• But these have been “slow to get off the ground,” according to Bloomberg.

Read more

QUICK POLL

Yesterday, we asked: Q3 earnings season will, in total, have what effect on the U.S. stock market?

— You all were evenly split over whether earnings would be good (40%) for stock indexes or make little difference (40%)

— Only 20% were bearish on earnings and their impact on the market

See you next time!

That's it for today on We Study Markets!

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