Raphael Stevens

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    Fed minutes point to ‘likely’ rate cut coming in September

    “The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” the summary stated.
    Markets are fully pricing in a September cut, which would be the first since the emergency easing in the early days of the Covid crisis.

    Federal Reserve officials at their July meeting moved closer to a long-awaited interest rate reduction, but stopped short while indicating that a September cut had grown increasingly probable, minutes released Wednesday showed.
    “The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting,” the summary said.

    Markets are fully pricing in a September cut, which would be the first since the emergency easing in the early days of the Covid crisis.
    While all voters on the rate-setting Federal Open Market Committee voted to hold benchmark rates steady, there was an inclination among an unspecified number of officials to start easing at the July meeting rather than waiting until September.
    The document stated that “several [meeting participants] observed that the recent progress on inflation and increases in the unemployment rate had provided a plausible case for reducing the target range 25 basis points at this meeting or that they could have supported such a decision.”
    One basis point is 0.01 percentage point, so a 25 basis point reduction would be equivalent to a quarter percentage point.
    In the parlance the Fed uses in its minutes, which do not mention names nor specify how many policymakers felt a certain way, “several” is a relatively small number.

    However, the summary made clear that officials were confident about the direction of inflation and are ready to start easing policy if the data continues to cooperate.
    The sentiment was twofold: Inflation markers had shown price pressures easing considerably, while some members noted concerns over the labor market as well as the struggles that households, particularly those at the lower end of the income spectrum, were having in the current environment.
    “With regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent,” the minutes stated. “Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months.”
    On the labor market, “many” officials noted that “reported payroll gains might be overstated.”
    Earlier Wednesday, the Bureau of Labor Statistics reported, in a preliminary revision of the nonfarm payroll numbers from April 2023 through March 2024, that gains may have been overstated by more than 800,000.
    “A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased,” the minutes said. “Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration.”
    In its post-meeting statement, the committee noted that job gains had moderated and that inflation also had “eased.” However, it chose to hold the line on its benchmark funds rate, which is currently targeted in a 5.25%-5.50% range, its highest in 23 years.
    Markets rose the day of the Fed meeting but cratered in following sessions on worries that the central bank was moving too slowly in easing monetary policy.
    The day after the meeting, the Labor Department reported an unexpected spike in unemployment claims, while a separate indicator showed the manufacturing sector contracted more than expected. Things got worse when the nonfarm payrolls report for July showed job creation of just 114,000 and another tick up in the unemployment rate to 4.3%.
    Calls grew for the Fed to cut quickly, with some even suggesting that the central bank do an intermeeting move to head off worries that the economy was sinking fast.
    However, the panic was short-lived. Subsequent data releases showed jobless claims drifting back down to normal historical levels while inflation indicators showed price pressures easing. Retail sales data also was better than expected, assuaging worries of consumer pressure.
    More recent indicators, though, have pointed to stresses in the labor market, and traders largely expect the Fed to begin cutting rates in September.

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    The explosion of online sports betting is taking a toll on how people invest

    Algerina Perna | Baltimore Sun | MCT | Getty Images

    The explosion of online sports betting is taking a toll on personal finances, particularly among those who are financially distressed.
    That’s the conclusion of a recent paper, “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households.” The authors found that sports betting has exploded since the Supreme Court overturned a federal law prohibiting it in 2018. Since then, 38 states have legalized it and it has become a growth industry, generating more than $120 billion in total bets and $11 billion in revenue in 2023 alone.

    That has put considerable sums into state coffers, but it has come at a notable personal expense to gamblers and their families. Those who participate tend to invest less and have higher debt levels.
    “Our results show that not only does sports betting lead to increased betting activity, but it also leads to higher credit card balances, less available credit, a reduction in net investments, and an increase in lottery play,” the authors concluded.
    The authors noted these negative effects were particularly noticeable among “financially constrained households.” That term was not defined, but the implication is that this group typically has lower savings, lower cash levels to cover expenses, higher debt levels and lower net worth.

    Investing takes a hit

    The authors used a quarterly panel of 230,171 households in states that have legalized gambling. About 7.7% of the households made online sports bets, with a household average of $1,100 a year.
    Not surprisingly, people who gamble on sports have less money to invest, particularly in the stock market. The authors found a large decrease in net deposits to traditional brokerage accounts. “Two to three years after betting becomes legal, there is a noticeable drop in net investment relative to states where betting is not yet legal,” the report said.

    The authors estimate that legalization reduces net investments by bettors by nearly 14%, and that every dollar spent on sports betting reduces net investment by $2.13.

    More debt, overdrawn bank accounts

    But the implications are much broader.
    “The increase in betting and consumption drives an increase in financial instability in terms of decreased credit availability, increased credit card debt, and a higher incidence rate of overdrawing bank accounts,” the authors said.
    This is particularly true for financially constrained households. The higher credit card debt indicates that these households are not just shifting funds from one type of entertainment to another (for example, shifting money from betting on lotteries to betting on sports). Instead, they are “becoming more indebted to fund an addictive losing proposition.”
    Again, lower-income households suffer disproportionately. The bottom one-third of households by income had the largest increase in spending on sports gambling relative to income.

    Bettors vs. nonbettors

    There were notable differences between the characteristics of bettors and nonbettors.
    Both groups had similar incomes, but bettors displayed riskier behavior. They were more than twice as likely as nonbettors to have ever invested in crypto or ever overdrawn their bank account. They were four times more likely to have played online poker or purchased lottery tickets.
    These results are consistent with several prior studies. One 2009 study concluded gambling‐related activity is greater among low‐income investors, who tend to excessively bet on state lotteries and also are overweight risky, lottery‐type stocks.

    In a pickle

    The authors note the quandary for policymakers. By continuing to legalize and expand activities such as sports gambling — where the vast majority lose money — the government is sending conflicting signals.
    On one hand, the government attitude is: These are adults, they have a right to spend their money any way they want to. And we need the money.
    But governments have other priorities they are promoting, including encouraging saving money for retirement, that are clearly in conflict with promoting gambling.
    “As legalized sports betting gains traction, it potentially undermines government efforts aimed at promoting savings through tax incentives and financial literacy programs,” the authors concluded.
    “Policymakers should consider how the allure of betting might divert funds from savings and investment accounts, particularly for constrained households, which can affect household financial stability and long-term wealth accumulation.”

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    Why don’t women use artificial intelligence?

    Be more productive. That is how ChatGPT, a generative-artificial-intelligence tool from OpenAI, sells itself to workers. But despite industry hopes that the technology will boost productivity across the workforce, not everyone is on board. According to two recent studies, women use ChatGPT between 16 and 20 percentage points less than their male peers, even when they are employed in the same jobs or read the same subject. More

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    in Business

    As strength training gets more popular, Peloton and Planet Fitness shift focus

    Peloton and Planet Fitness are expanding their investments in strength over cardio equipment as more women and young people opt for weights at the gym.
    Planet Fitness changed its gyms up to focus on strength workouts and noted that strength equipment tends to be less expensive.
    Peloton is now testing whether strength training could be part of its way forward with a new beta app.

    Shauntil Cox lifts weights with the help of her trainer, Deano Troost, at a Planet Fitness in New Caney, Texas, on Sept. 19, 2023.
    Jason Fochtman | Houston Chronicle | Hearst Newspapers | Getty Images

    A growing share of gym users is looking to build muscle, leading major fitness companies to refocus their efforts beyond cardio workouts.
    In fact, building muscle was the No. 1 goal for 2024, ahead of weight loss and general movement, according to Life Time’s annual survey of 3,000 respondents.

    Now, both Peloton and Planet Fitness are expanding their investments in strength.
    Planet Fitness changed its mix of equipment and, earlier this month, Peloton launched testing for an app dedicated to strength workout plans called Peloton Strength+.
    Finding that members over the past year consistently sought more strength and less cardio equipment, Planet Fitness shifted its fitness supply to meet interests, especially for its Gen Z patrons, who make up 25% of the company’s base, according to the company’s earnings conference call from the third quarter of 2023.
    “Gen Z clearly seems to prefer strength and functional workouts versus cardio,” Chief Financial Officer Thomas Fitzgerald said. “Treadmills still get about the same use, but things like elliptical and bikes are getting far less use.”
    Planet Fitness beat revenue expectations in its second-quarter earnings, and an emphasis on strength workouts helped the company get there. Fitzgerald said strength equipment costs less than cardio equipment, and areas for strength workouts tend to have more space for additional members to work out.

    New York City-based strength-focused personal trainer Miriam Fried has noted a similar shift among women. She said a lot of her clients are women who previously did cardio or group fitness classes but have an interest in getting stronger.
    “Over the last 10 years, since I’ve been a part of the fitness industry, I would say it’s definitely become a little more common for women to be strength training,” Fried said.

    A Peloton exercise bike is seen after the ringing of the opening bell for the company’s initial public offering at the Nasdaq MarketSite in New York City, New York, on Sept. 26, 2019.
    Shannon Stapleton | Reuters

    Peloton is also testing whether strength training could be part of its way forward, as the company has faced growing concerns.
    Peloton has previously said demand for its fitness equipment has been sluggish as consumers pull back on big-ticket items. The company has also said its strength training content, not its cycling or running classes, is the most popular type of class for digital members and the No. 2 among those who have Peloton hardware.
    The company’s new app, Peloton Strength+, is designed for strength workouts at the gym rather than Peloton studios and will feature custom, instructor-led programming, according to the company.
    Peloton will likely weigh in on that effort when the company reports earnings on Thursday.
    Peloton’s new mobile strategy mirrors that of fitness app Ladder, which has delivered personalized strength training since 2020. CEO Greg Stewart said that although the company’s mobile workout subscription service launched in the middle of the Covid-19 pandemic, it has seen its “most explosive” growth in the past couple of years.
    As a mobile-first product that focuses on strength training, Stewart said Ladder’s users are mostly women and people who invest in gym memberships to access equipment.
    “We’re 70% women members in our app, so as strength training has become more popular and in demand, we’ve certainly benefited from that,” Stewart said.
    According to Stewart, 65% of Ladder’s users are taking the app to the gym weekly to use the equipment there. While products during the pandemic focused on home fitness consumers, he said gymgoers are now an untapped potential in the industry.
    “Most companies in our space haven’t really focused on that user, even though it’s a huge audience, 65 million in gym memberships in the U.S. … It’s a big, meaningful audience that’s motivated and excited and committed financially to their workout routine,” Stewart said.

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    in Business

    Target CEO addresses ‘price gouging’ accusations in retail

    Target CEO Brian Cornell said there’s no room for price gouging in the competitive retail landscape.
    Cornell was asked whether the tactic boosted Target’s profits, after Democratic presidential candidate Kamala Harris outlined a plan to stop price gouging.
    He spoke to CNBC after Target beat quarterly earnings expectations.

    There’s no room for price gouging in a ultra-competitive business like retail, Target CEO Brian Cornell said on Wednesday.
    In an interview on CNBC’s “Squawk Box,” the retail chief disputed campaign talking points accusing grocers of inflating prices. He said retailers have to be responsive to customers or risk losing business.

    He was asked by CNBC’s Joe Kernen, who referred to comments by Democratic presidential candidate Vice President Kamala Harris and asked if Target or its competitors ever benefit from price gouging. Harris last week proposed the first-ever federal ban on “corporate price-gouging in the food and grocery industries,” saying some companies are charging excessively and fueling household inflation.
    “We’re in a penny business,” Cornell responded, noting the small profit margins in the retail industry. He described the many places that customers can turn to check for lower prices or to find merchandise elsewhere, from going to stores to browsing on their phones to compare the prices of a gallon of milk at different retailers.
    Target’s retail chief made the comments after the discounter beat Wall Street’s expectations for earnings and revenue on Wednesday, but struck a cautious note with its full-year guidance. It said it expects comparable sales, which take out the impact of store openings and closures, to be on the lower side of its range of flat to up 2%. Yet it raised its profit guidance, saying it expects adjusted earnings per share to range from $9 to $9.70, up from the previous outlook of $8.60 and $9.60.
    Inflation and consumers’ outrage about high prices has continued to loom large for companies like Target. A wide range of retailers, including Home Depot, Walmart and Macy’s, have reported over the past two weeks that cautious consumers are being picky about where they’re spending.
    Cornell said on “Squawk Box” that the retailer is trying to appeal to “a consumer who is managing their budget carefully” and said “value is in our DNA.”

    Target is one of the consumer brands that has responded to shoppers’ concerns by lowering prices. It cut prices on about 5,000 everyday items, such as diapers and peanut butter, to try to drive higher traffic and sales. Others, such as McDonald’s, have debuted value meals.
    So far, those discounts have shown signs of resonating at Target: In the quarter, customer traffic across Target’s stores and website rose 3% — even as shoppers put a little less in their shopping carts than they did a year ago.
    Walmart CEO Doug McMillon said last week that prices have come down in many merchandise categories, but said that inflation “has been more stubborn” in the aisles that carry dry groceries and processed foods.
    On an earnings call with investors, he said some brands “are still talking about cost increases, and we’re fighting back on that aggressively because we think prices need to come down.” More

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    Ford delays new EV plant, cancels electric three-row SUV as it shifts strategy

    Vehicle production at the new plant in Tennessee was initially expected to begin next year.
    The company said it still expects to begin battery cell production at the site in 2025.
    Ford CFO John Lawler said the shifts are meant to better deliver a capital-efficient, profitable electric vehicle business.

    DETROIT – Ford Motor is delaying production of a new plant in Tennessee to produce a next-generation all-electric pickup truck and canceling plans for a three-row electric SUV, the company said Wednesday.
    Instead, Ford said it will prioritize the development of hybrid models, as well as electric commercial vehicles such as a new electric commercial van in 2026, followed by two EV pickup trucks in 2027.

    The pickups are expected to be a full-size truck, which will be produced at the Tennessee plant that’s currently under construction in 2027, and a new midsize pickup.
    The actions are meant to better deliver a capital-efficient, profitable electric vehicle business, said Ford CFO John Lawler. But, in the short-term, they will cost the company.
    Ford said it will incur a special non-cash charge of about $400 million for the write-down of certain product-specific manufacturing assets, including the cancellation of the three-row SUV.
    The company said the changes may also result in additional expenses and cash expenditures of up to $1.5 billion. Ford will reflect those in the quarter in which they are incurred, as a special item.
    Vehicle production at the new $5.6 billion Tennessee site was initially expected to begin next year. The company said it still expects to begin battery cell production at the site in 2025.

    The changes are the latest for Ford amid slower-than-expected adoption of EVs as well as automakers not being able to profitably produce the vehicles.
    The new plans come roughly five months after Ford said it would delay production of the three-row SUV and next-generation pickup, codenamed “T3.”
    This is breaking news. Please check back for additional updates. More

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    Macy’s cuts sales forecast as department stores struggle to draw shoppers

    Macy’s beat quarterly earnings expectations but it cut its sales forecast for the full year.
    The company is trying to turn around its business as it closes about 150 namesake stores.
    Beauty brand Bluemercury was once again Macy’s best performing segment.

    Macy’s logo is seen on a store in Manhattan, New York, United States of America, on July 5th, 2024. 
    Beata Zawrzel | Nurphoto | Getty Images

    Macy’s cut its full-year sales forecast Wednesday, as the department store operator said it is contending with selective shoppers and more promotions.
    The retailer posted a mixed quarter, as it topped Wall Street’s earnings expectations but missed on revenue.

    Macy’s said it now anticipates net sales of between $22.1 billion and $22.4 billion, which is lower than the $22.3 billion to $22.9 billion range it had previously anticipated. That also would be a year-over-year decline from the $23.09 billion it reported in fiscal 2023.
    Macy’s expects comparable sales, which take out the impact of store openings and closures, to range from a decrease of about 2% to a decline of about 0.5%. It had previously expected comparable sales to range from a decline of about 1% to a gain of 1.5%. That metric includes owned and licensed sales, which encompasses merchandise that Macy’s owns and items from brands that pay for space within its stores, along with Macy’s third-party online marketplace.
    The department store operator said in a news release that the new outlook range “gives the flexibility to address the ongoing uncertainty in the discretionary consumer market.”
    In an interview with CNBC, CEO Tony Spring said customers aren’t spending as freely across all of Macy’s brands — even higher-end department store Bloomingdale’s.
    “We see that there is definitely a softness, a carefulness, a delay in the conversion of purchasing,” he said. “And people on the things that they want, the things that are priced sharply, on the newness, they’re responding, but even the affluent consumer is not spending like they were a year ago.”

    He said “there’s a lot of noise out there,” which is distracting customers or causing them to hold off on spending, including higher interest rates, inconsistent weather patterns and a busy news cycle.
    Here’s what Macy’s reported for the fiscal second quarter compared with what Wall Street expected, based on a survey of analysts by LSEG:

    Earnings per share: 53 cents adjusted vs. 30 cents expected
    Revenue: $4.94 billion vs. $5.12 billion expected

    Shares fell about 8% in premarket trading.
    The iconic department store is pushing to get back to steadier footing and sustained growth. Spring announced in February that the retailer would shutter about 150 – or nearly a third – of its namesake stores and invest in the roughly 350 locations that remain. It plans to close the locations by early 2027. 
    It is also opening new, smaller Macy’s stores in suburban strip malls and adding new locations of its better-performing brands, Bloomingdale’s and Bluemercury.
    Yet Macy’s results in the recent quarter revealed its struggles to pull off that comeback at a time when consumers have been pickier about purchases – especially items that are wants rather than needs. 
    Net sales fell from $5.13 billion in the year-ago period.
    The namesake Macy’s brand continued to be the company’s weakest performer. Comparable sales fell 3.6% on an owned-plus-licensed basis, including the third-party marketplace. 
    At Bloomingdale’s, comparable sales declined 1.4% on an owned-plus-licensed basis, including the third-party marketplace. And Bluemercury comparable sales rose 2%, marking the 14th consecutive quarter of comparable sales growth for the beauty brand.
    In the three-month period that ended Aug. 3, Macy’s net income was $150 million, or 53 cents per share, compared with a loss of $22 million, or 8 cents per share, in the year-ago period.
    Yet even when excluding the weaker stores that Macy’s is shutting, sales were lackluster. Comparable sales for its go-forward namesake brand – which includes the Macy’s stores that will remain open and online sales – declined 3.3% on an owned-plus-licensed basis, including the third-party marketplace. 
    Macy’s stressed it has made progress in its turnaround plan, which it unveiled in February soon after Spring stepped into the company’s top role. At the first 50 of its stores to get additional investment, comparable sales were up 1% on an owned-plus-licensed basis. It marked the second consecutive quarter of positive comparable sales at those stores since the plan started.
    Spring said those 50 stores have outperformed Macy’s other locations, even in hard-hit categories like handbags. He said the company will share its plans for expanding the strategy beyond those stores in the fourth quarter, but it’s already decided it will bulk up staffing in the women’s shoes and handbags departments at more of its locations because of the customer response.
    Along with a choppy sales environment, Macy’s leaders had also faced a bid by an activist group to take the company private. Macy’s said last month that its board had unanimously decided to end negotiations with Arkhouse Management and Brigade Capital.
    Shares of Macy’s closed on Tuesday at $17.74, bringing the company’s market cap to $4.9 billion. As of Tuesday’s close, the company’s stock is down about 12% so far this year. That trails behind the approximately 17% gains of the S&P 500 during the same period.
    This is breaking news. Please check back for updates. More

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    TJX Companies raises full-year guidance, posts 5.6% sales gain for the most recent quarter

    TJX Companies beat Wall Street’s expectations on the top and bottom lines as it raised its full-year guidance.
    The retailer behind HomeGoods, TJ Maxx and Marshall has been taking market share from competitors like Target and Macy’s and has become a haven for price-sensitive consumers.
    The company has been looking to continue its growth and announced it’s taken a stake in a Dubai-based discounter.

    A Marshalls and HomeGoods store entrance in Miami, Florida. 
    Jeff Greenberg | Universal Images Group | Getty Images

    TJX Companies raised its full-year guidance on Wednesday after posting another quarter of strong sales, but its outlook still fell just short of Wall Street’s expectations.
    The discounter behind Marshalls, HomeGoods and TJ Maxx is now expecting full-year earnings to be between $4.09 and $4.13, compared with estimates of $4.14, according to LSEG.

    For the current quarter, TJX is expecting earnings per share to be between $1.06 and $1.08, compared with estimates of $1.10.
    So far this earnings season, retailers that disappoint with guidance haven’t seen much negative impact to their shares, suggesting investors are prepared for uncertainty in the second half of the year ahead of the U.S. presidential election and a potential rate cut from the Federal Reserve. Shares of TJX rose about 4% in premarket trading.
    Here’s how the discounter did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: 96 cents vs.92 cents expected
    Revenue: $13.47 billion vs. $13.31 billion expected

    The company’s reported net income for the three-month period that ended August 3 was $1.1 billion, or 96 cents per share, compared with $989 million, or 85 cents per share, a year earlier. 
    Sales rose to $13.47 billion, up from $12.76 billion a year earlier.

    Throughout TJX’s fiscal 2024 year, which ended in February, the company posted strong sales gains and robust guidance, but investors have been keen to see how it will lap those numbers in the quarters ahead and if it can keep growing.
    The company has looked abroad as a primary growth avenue and on Wednesday, it announced that it was taking 35% ownership stake in the Dubai-based retailer Brands for Less for $360 million. The privately-held brand is the region’s only major off-price player and operates more than 100 stores, primarily in the United Arab Emirates and Saudi Arabia, along with an e-commerce business, TJX said in a news release.
    “As TJX seeks to continue its global growth, this transaction gives the Company an opportunity to invest in an established, off-price retailer with significant growth potential,” TJX said. “The Company’s ownership in BFL is expected to be slightly accretive to earnings per share beginning in Fiscal 2026.”
    During the quarter, consolidated comparable store sales increased by 4% and were “entirely driven by an increase in customer transactions,” indicating more shoppers are coming to its stores, TJX said. That jump is ahead of the 2.8% uptick that analysts had expected, according to StreetAccount.
    The growth was primarily driven by TJX’s Marmaxx division in the U.S., which includes TJ Maxx, Marshalls and Sierra stores. During the quarter, Marmaxx comparable sales were up 5%, compared with estimates of up 2.9%, according to StreetAccount. HomeGoods posted comparable sales up 2% — short of the 3% that analysts had been looking for, according to StreetAccount — as the overall home furnishings market remains stagnant.
    In the current quarter, performance is already “off to a strong start,” said CEO Ernie Herrman.
    “We see excellent buying opportunities in the marketplace and are strongly positioned to ship fresh and compelling merchandise to our stores and online throughout the fall and holiday selling seasons. We marked a milestone for our Company in the second quarter by opening our 5,000th store,” said Herrman. “Longer term, we are excited about our potential to capture additional market share in all of our geographies and to continue our global growth”
    As of Tuesday’s close, TJX’s stock is up about about 21% year to date. Shares reached a new high in May after the company reported strong quarterly earnings.
    The retailer has been taking market share from competitors like Target and Macy’s and has become a haven for price-sensitive consumers who may be watching their dollars but still want to spring for new clothes.
    In May, Herrman said the company is winning in part because it’s “become a cooler place to shop” and has made inroads with younger Gen Z customers, who tend to be more concerned with snagging good, high-quality deals than shopping at high-end names.
    Some analysts say the nature of TJX’s business model means it does well in any economic environment. In good times, its core lower- to middle-income consumer has the extra cash to buy discretionary items like new clothes, shoes and home decor and in bad times, higher income shoppers come to its stores looking for deals on the branded clothes they’re accustomed to.
    However, a sharp downturn in consumer spending, which some analysts have warned could be ahead, could impact the company regardless of its value offering. More