December Retail Sales, Mortgage Demand, and 10 Years at Microsoft

Editor’s Note: Happy Friday, friends!

For some reason, January weeks seem longer than weeks the rest of the year. I’m sure it all boils down to a lack of Vitamin Sunshine.

Anyway, let’s get to it!


Never Underestimate the American Shopper

This week, the U.S. Census Bureau reported — despite all of the economic headwinds — people are still spending money like drunken sailors.

According to the Census Bureau, retail sales rose by 0.6% in December. That’s higher than the 0.4% increase economists had been looking for.

“Retail sales beat expectations yet again in December. Consumers were willing to spend during the holidays and will remain inclined to do so as long as real income gains more than offset the drag from elevated interest rates and tight lending standards,” Nationwide economist Oren Klachkin wrote in a note.

“We think this narrative will persist in early 2024 but then lose steam as the job market deteriorates.”

Department stores saw the biggest sales gains (3%), while clothing and accessories stores saw sales rise by 1.5%. Non-store sales — which include both old-fashioned catalogs as well as new-fangled e-commerce — also enjoyed 1.5% gains.

Thanks to the dip in gas prices, sales at the pump dropped by 1.3%. And spending at health and personal-care stores fell by 1.4%. I’m sure that trend will reverse in January as people take up new self-care regimes to compensate for bad holiday habits.

Looking at 2023 as a whole, retail sales — except auto and gas sales — increased by 4.9%. And sales at bars and restaurants rose by 11.3% for the full year.

All of this is more evidence that the Federal Reserve may be close to achieving its “soft landing” — in which it brings inflation down to the central bank’s target of 2% year-over-year growth without tanking the economy.

However, that means the odds of the Fed cutting rates anytime soon are shrinking.

According to the CME Group’s FedWatch tool, the Fed futures market is now pricing in only a roughly 56% chance that the Fed will lower rates by 25 basis points at the March meeting. Last week, the chances were priced in at 64.7%.


Mortgage Demand Is Slowly Coming Back

More fuel for the Fed fire: Mortgage demand is growing again.

According to the Mortgage Bankers Association (MBA), total mortgage application volume unexpectedly increased by a seasonally adjusted 10.4% last week.

We can thank a dip in mortgage rates for this increase. The average interest rate on the typical 30-year fixed-rate mortgage fell from 6.81% to 6.75% — the lowest rate reported in three weeks.

“Mortgage rates declined across all loan types as Treasury yields moved lower last week on incoming inflation data, which helped to support a rise in mortgage applications, MBA Vice President Joel Kan said.

Applications for refinance loans also rose last week — by 11%. That’s a 10% improvement on a year-over-year basis.

According to the National Association of Home Builders (NAHB), dropping mortgage rates has helped sentiment grow by 7 points, to 44, in January. Now, any reading below 50 is considered “negative.” But in the last two months, the NAHB index has risen by 10 points.

“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” NAHB Chair Alicia Huey said.

“Single-family starts are expected to grow in 2024, adding much-needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply.”


Microsoft: Nadella’s First 10 Years

Ten years ago in February, Satya Nadella took over the position of CEO at Microsoft (NSDQ: MSFT).

Back then, the company was floundering. Microsoft had missed out on the cell phone crazy that sent Apple (NSDQ: AAPL) to the head of the class. And its Windows 8 was a big flop.

But upon assuming the top spot, Nadella doubled down on Microsoft’s “Intelligent Cloud” unit

And the rest is history.

Last year, this segment accounted for nearly $90 billion of the company’s revenue.

And at the same time, Microsoft’s share price has rapidly surged.

Take a look:

Infographic: Microsoft's Share Price Surged 10-Fold Under Satya Nadella | Statista You will find more infographics at Statista


 

What’s Up With the Apple Watch?

Meanwhile, the Apple Watch saga continues…

Last year, biotech firm Masimo (NSDQ: MASI) claimed that the Cupertino Giant violated its intellectual property rights with the Blood Oxygen feature on Apple Watch Series 9 and Ultra 2 models.

That led to a ban on the import of certain Apple Watch models. Apple received a temporary reprieve… until a federal appeals court reinstated the ban.

However, yesterday, Apple announced that it is now selling the smartwatch models without the contested feature.

“Pending the appeal, Apple is taking steps to comply with the ruling while ensuring customers have access to Apple Watch with limited disruption,” an Apple spokesperson said on Thursday.

“These steps include introducing a version of Apple Watch Series 9 and Apple Watch Ultra 2 in the United States without the ‘Blood Oxygen’ feature. There is no impact to Apple Watch units previously purchased that include the ‘Blood Oxygen’ feature.”

This mess is one of the reasons why Apple shares have been underperforming so far in 2024.


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