The Macro Outlook:
Conditions still aren’t right for a rate increase
“The Committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. At our meeting that ended today, the Committee concluded that these conditions have not yet been achieved.” —FOMC Press Conference (Central Bank)
There are still residual effects of the financial crisis Seven years later
“it seems likely that some cyclical weakness in the labor market remains..the residual effects of the financial crisis, which are likely to continue to constrain spending and credit availability for some time.” —FOMC Press Conference (Central Bank)
Most FOMC members anticipate that rates will be raised this year
“clearly, most participants are anticipating that a rate increase this year will be appropriate. Now, that assumes, as you can see that they’re expecting a pickup in growth in the second half of this year and further improvement in labor market conditions.” —FOMC Press Conference (Central Bank)
That’s not an ironclad guarantee, but it should happen
“Obviously, we have to–you know, there can be surprises that might not happen. It’s not an ironclad guarantee, but we anticipate that that’s something that will be appropriate later this year.” —FOMC Press Conference (Central Bank)
We’re all watching the same data. Monetary policy is being set day to day
“We will be responding to incoming data, we’ve tried to make that clear. And I think it’s clear that the market is also responding to incoming data and you can see that in daily-market reactions to surprises in the economic data” —FOMC Press Conference (Central Bank)
No one really knows how the market will react when the Fed does raise rates
“I think our experience suggest that it’s hard to have great confidence in predicting what the market reaction will be to Fed decisions, and there have been surprises in the past.” —FOMC Press Conference (Central Bank)
We’re putting too much emphasis on the first increase though
“I want to emphasize sometimes too much attention is placed on the timing of the first increase in the federal funds rate. And what should matter to market participants is the entire trajectory, the entire expected trajectory of policy” —FOMC Press Conference (Central Bank)
The Fed will still be accommodative even after it raises rates
“Let me emphasize that the importance of the initial increase should not be overstated: The stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate” —FOMC Press Conference (Central Bank)
Is the Fed being too patient though?
Labor markets sound pretty strong
“As investments spending around the world continues…we continue to see pretty robust activity in North American search.” —Korn Ferry (Executive Search)
Inflation is more mixed
“Some commodities are up, some are down. We are seeing deflation in milk, produce and seafood…just the volatility of inflation that’s out there, while we’ve seen some categories with deflation, we know that pharmacy inflation is actually as high as it’s been over the last several years in the first quarter.” —Kroger (NYSE:KR) (Grocery)
But even Yellen agrees that the Fed may have raised rates too slowly in ’04-’06
“I think with the benefit of hindsight, it might have been better to raise rates more rapidly or more during the 2004 to 2006 cycle. You know, I’m not certain of that judgment but I think there’s a case to be made.” —FOMC Press Conference (Central Bank)
International:
Currency headwinds were greater than expected for Oracle
“The currency headwinds ended up being higher than consensus estimates would reflect, with 8% to software and cloud revenue as well as the total company revenue, 9% for hardware revenue and $0.09 for earnings per share. Currencies continue to move significantly and remain unpredictable.” —Oracle (Enterprise Technology)
Financials:
Financial services firms are hiring again on both the buy and sell sides
“You saw that we had a great quarter in terms of net workstation additions. I think that’s the strongest Q3 we’ve had in probably four years, and that was well distributed between the buy side and the sell side.” —Factset (Financial Data Terminals)
“The financial services growth I mean you are right, we saw definitely an uptick there and it would be really spread across asset management. Even capital market to some extent I mean not like it was but even banking. So we saw kind of steady improvement there.” —Korn Ferry (Executive Search)
Consumer:
This video from Restoration Hardware is one of the most fascinating things I saw this week
Click Here to Watch. This guy is either crazy or a genius, but definitely would make a great Bond Villain —Restoration Hardware (Home Furnishing)
Physical locations are still very important. You can’t shrink to greatness.
“retail stores are really, really important…people want to see things and people want to interact in a three dimensional nature…it’s not about the Internet, the Internet is a channel. It’s going to change things. It’s going to shift things. But retailers that are penetrating to shrink to greatness, I think they are missing the whole point.” —Restoration Hardware (Home Furnishing)
Retailers who can create great physical experiences will win
“I think the physical experiences in the world are going to be even more important than the online experiences because we are social creatures. And I think the retailers that have the very best physical experiences in the world tied with the very best virtual and digital experiences in the world are the ones that didn’t win, not one or the others. It’s physical and digital. That’s the world.” —Restoration Hardware (Home Furnishing)
Pier One is attempting to shrink to greatness
“The careful reduction of our real estate footprints will allow us to drive growth to our omni-channel model, reduce store occupancy and payroll costs and improve efficiency. Additionally, other stores we are closing have contributions below the company average, overall profitability of the fleet will increase. We anticipate there will be additional opportunities beyond our initial 100-store assessment as we move through the process.” —Pier One (Home Goods)
Gap is just plain shrinking
“I hate closing stores, I hate the idea of closing stores, because I hate the idea of denying our customer the opportunity to shop in their favorite Gap store. I hate the idea of conceding market share. We will do everything we can do to claw back every dollar that we can. But let’s be realistic, some of that — some of those dollars and some of that wallet is going to go to the competition.” —Gap (Apparel)
E-Commerce is leading to the decline of the casual shopper
“the challenge for many of us in brick-and-mortar retailing today, is the decline of the casual shopper…when customers come to the store…they really have a pretty clear reason why they are there and so yes we’re missing those people who are just coming in for a browse and making an impulse purchase whilst they’re there. That’s the new world that we live in.” —Pier One (Retail)
Although E-Commerce is booming, people forget that the cost of shipping hasn’t really changed
“I think what a lot of people lose in this conversation is the fundamental input cost on pickup and delivery and that while technology today has certainly made user interface much more streamlined and easy as in the case of some of the applications we’re all accustomed to today, the fundamental input costs have not changed.” —FedEx (NYSE:FDX) (Shipping)
Specialty grocers are gaining share more slowly, but they aren’t losing share
“I’m not sure I 100% agree with your thesis when you look at some of the specialty retailers…I wouldn’t subscribe to the theory that there’s necessarily a sudden shift in market share away from them, it may be a slower growth in market share gain, but I wouldn’t say it’s a shift away from them…if I we’re sitting in their chairs, I wouldn’t necessarily be embarrassed by some of the recent results they’ve had.” —Kroger (Grocery)
Millenial parents want education that fosters well rounded kids
“We found that while education remains a core need, many parents are also searching for solutions that expand their child’s world, and help them develop in a more holistic and well-rounded way. Millennial parents are concerned about their child’s educational, emotional, and creative development. Based on our research, we believe demand is growing for fun experiences that engage, inspire, and enrich a child’s intellectual curiosity.” —Leap Frog (Education Technology)
The average age of the US vehicle fleet remains old
“Current expectations are that the average age of vehicles will continue to increase to approximately 12 years, just by 2016.” —Motorcar Parts of America (Auto replacement parts)
Healthcare:
The tailwind of Medicaid expansion is now turning into a headwind for Healthcare providers’ comps
“We are now cycling last year’s strong Medicaid expansion benefit. So our expectation is that script comp growth comparison will become more difficult for the next several months.” —Rite Aid (Pharmacy)
Materials, Industrials, Energy:
Energy companies may be ready to boost capital spending in 2H since oil prices have stabilized
“I think we’re encouraged with the stabilization of crude oil prices and in the ruble we’re going to see some acceleration of that backlog going forward. So I think as we look at it we kind of believe that we are through the worst of it and that will come out the other side of the trough especially in Q1 and Q2, look for a strong second half of the year. So, we don’t see any reason to modify the backlog and again we’ve not seen any recent cancellations.” —Capstone Turbines (Electric Turbines)
The Avian Flu is causing inflation in egg prices
“Along with the rest of industry we are closely monitoring the impact of the current avian flu outbreak on egg costs. While commodity inflation ex-eggs is expected to be moderate at less than 1.5%, we are currently projecting overall fiscal 2016 commodity inflation of approximately 5% to incorporate the impact of higher forecasted liquid and shell egg prices due to the recent avian flu outbreak.” —Bob Evans (Meat-packer)
Miscellaneous Nuggets of Wisdom:
Depreciation is real
“We need to buy the modernized fleet, 12, 15 airplanes a year and we continue to do that and you can count on us continuing to do that because they are aluminum, they oxidize, they wear out ” —FedEx (Shipping)
Focus all your energy on the most important things
“The hardest thing that we have to do is actually make sure that we’re trying not to improve on all things at once, but what are the things that are most important to the customer and put all our resources against that.” —Kroger (Grocery).