Day: November 17, 2024

(Bloomberg) — A two-month slump has all but wiped out the US Treasury market’s gains for the year, as traders brace for Donald Trump’s return and also the chance of slower interest-rate cuts from the Federal Reserve.

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A Bloomberg index of Treasury returns has seen its 2024 advance shrink to about 0.7% from a peak of 4.6% on Sept. 17, the day before the Fed reduced borrowing costs for the first time since 2020.

It marks a disappointing run of losses in the world’s biggest bond market, which has been battered by signs of a resilient US economy and the expectation that Trump’s election victory will usher in quicker inflation given his campaign promises such as steeper tariffs and lower taxes.

“The Treasuries market is struggling to find the North Star,” said Ed Al-Hussainy, a New York-based strategist at Columbia Threadneedle. “There are too many moving parts.”

Investors had anticipated that Fed easing would bring a windfall. Instead, 10-year yields have soared almost three quarters of a point since Sept. 18, marking the biggest jump in the first two months of a rate-cutting cycle since 1989.

Buyers Emerge

Buyers did step in on Friday as 10-year yields rose to 4.5% for the first time since May, showing some investors are holding out hope for a positive annual return in 2024.

Others may be reluctant to conclude that the market’s slide is over as doubts grow around how much further the Fed can drop rates. Next month’s decision is now seen as close to a coin flip after Fed Chair Jerome Powell said last week that the central bank isn’t “in a hurry” to cut.

It all leaves the market potentially in a state of limbo until the next round of crucial data, starting with the Fed’s preferred gauge of inflation at month-end, the first in a series of reports that may dictate what officials do in December.

Ten-year yields reached their peak last week on Friday after a solid report on retail sales. Bloomberg’s Economic Surprise Index jumped to the highest since February, signaling economic data are surpassing expectations.

Traders are now pricing in a total of about three quarters of a point of cuts over the next 12 months, roughly half of the easing reflected for that period back in September.

Following the selloff of the past couple months, the 10-year benchmark note “appears cheap,” but the valuation is still not compelling enough to present a buying opportunity, JPMorgan Chase & Co. strategists led by Jay Barry wrote in a note last week. They “prefer to be patient in fading these recent moves.”

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(Bloomberg) — Rob Subbaraman is preparing for his second Trump presidency with a new accessory in his economist toolkit: the head of global markets research at Nomura Holdings Inc. has downloaded Truth Social, the President-elect’s conservative social media platform.

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“I’m going to get in trouble with my kids,” said Subbaraman, who’s been in his current role in Singapore for a decade. “I tell my kids in the evening to switch off all their devices but I’ve got to be on. I don’t know what Trump is going to do or when he’s going to do it.”

The job has just gotten a whole lot more unpredictable — again — for economists, a typically staid bunch who rely on precedents to build the formulas and spreadsheets that underpin their forecasts. Donald Trump’s first presidency complicated that approach and his campaign pitch and the appointments he’s made since sweeping the Nov. 5 election suggest yet more upheaval for trade, tax, immigration and just about every other policy area you can think of.

Analysts are scrambling to adapt, developing new models, hiring more wonks to crunch thousands of lines of trade code and putting in a lot more face time with nervous clients. The end goal: produce accurate forecasts to help traders, businesses and governments navigate the new, chaotic world.

“Economists use models, and models rely on stable relationships and assumptions, but right now we don’t really know what the assumptions are and the relationships might not be stable,” said Subbaraman, who hosted a call with 250 global clients until midnight US time on election night.

Analysts are particularly focused on tariffs and their impact on the world’s two largest economies — the US and China. Most agree that levies are coming — likely in the second half of 2025 and probably lower than the announced 60% on Chinese goods. There may be universal tariffs, too, but with plenty of exemptions and likely below the advertised 20%, the thinking goes.

If anything close to these levels is added, it could keep prices elevated and delay the Federal Reserve’s easing cycle, which markets have already rushed to price in.

Then there’s the issue of secondary effects, which can hit economies harder than the tariffs themselves. Uncertainty itself is a drag on activity, with Barclays Plc analysts estimating that growth could be cut by 0.3% in the US and 0.8% in China if trade policy uncertainty is heightened to 2018 levels.

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Shares of SoundHound AI (NASDAQ: SOUN) sank following the release of its third-quarter results, despite the voice artificial intelligence (AI) company seeing surging revenue in the quarter. However, the stock is still up about 200% on the year, as of this writing.

With the company reporting strong revenue growth, let’s take a closer look at the company’s most-recent results to see if this is a good opportunity to buy the stock on this dip.

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Despite the drop in its stock price, SoundHound’s Q3 results were actually quite strong. The company’s revenue surged 89% year over year to $25.1 million. Adjusted earnings per share (EPS) came in at a loss of $0.04, which was a nice improvement from the $0.06 loss it reported a year ago. Those numbers topped the analyst consensus calling for revenue of $23 million and a loss of $0.07, as compiled by Factset.

It said that its cumulative subscriptions and bookings backlog, excluding its acquisition of Amelia, was double the year-ago period. It said that this number would be more than $1 billion, including Amelia, with an average duration of its contracts of around six years.

Within the automobile space, the company said it saw double-digit automotive unit growth in the quarter, as well as double-digit unit price expansion. It noted last year that it had a large point-in-time deal with a large customer but that it has more software-as-a-service (SaaS)-like revenue now, given its scale and greater diversification. It also said it won a deal with a new up-and-coming Middle Eastern electric vehicle manufacturer.

Within the restaurant vertical, SoundHound says it now has seven of the top 20 quick-service operators as customers. It continues to expand its drive-thru, phone orders, and employee assistance services. It also noted that it recently signed another large top-three global pizza chain.

With its recent acquisition of Amelia, the company also made inroads into a number of other verticals. During the quarter, it won or renewed deals in the telecom, healthcare, insurance, retail, and banking spaces. It also renewed deals with a branch of the U.S. military and a top multinational payment card services company.

SoundHound increased its full-year revenue outlooks for both 2024 and 2025. For 2024, it now expects revenue to come in between $82 million and $85 million, which is up from a prior outlook calling for revenue to exceed $80 million. Analysts were looking for revenue of $82.6 million.

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For 2025, the company raised its guidance from an expectation of revenue to be more than $150 million to a range of $155 million to $170 million. The analyst consensus was for 2025 revenue of $152.1 million.

By all accounts, SoundHound turned in a very good quarter and issued strong guidance. Given the stock’s rise this year, however, investors perhaps wanted an even bigger guidance increase.

Yet the company sounded conservative in its forecast. It is still integrating the Amelia business, and it may look to jettison some lower-margin parts of its business. Amelia, though, is key for the company as it helps close some technology gaps and allows it to expand into more verticals.

Both the auto and restaurant industries remain ripe with growth opportunities, but SoundHound’s ultimate goal appears to become an AI voice ecosystem across industries that can help organizations handle very industry specific, sophisticated interactions. The company is rolling out its new Polaris foundation model, which it says it built on billions of real conversations, but I would imagine that adding Amelia information to future generations will help its AI models even more.

From a valuation perspective, SoundHound trades at a price-to-sales (P/S) multiple of 15 times 2025 analyst estimates, which isn’t particularly cheap.

This company is still very much in its infancy with a huge opportunity in front of it. If the company can become the AI voice leader across industries, then the sky is the limit. And while its valuation isn’t cheap, it also isn’t outrageous given its growth.

Given where the company is in its lifecycle, I view it as a solid but speculative growth stock. As such, I think investors can take a small position in the stock on this pullback.

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SoundHound Shares Sink Despite Surging Revenue. Is It Time to Buy the Stock on a Dip? was originally published by The Motley Fool

President-elect Donald Trump’s proposed tariffs have already begun to upend businesses in several industries and many are taking action to safeguard their profits. The tariffs, which include a 10-20% tax on all imports and a potential 60-100% on goods from China, are causing significant concern – and the costs are likely coming right to consumers’ wallets.

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Philip Daniele, the CEO of AutoZone (NYSE:AZO), has stated unequivocally that if these tariffs are imposed, consumers will bear the expense. On a recent earnings call, Daniele said, “If we get tariffs, we will pass those tariff costs back to the consumer.” The company expects to raise prices even before the tariffs take effect, anticipating how these new policies will impact its margins.

Many other businesses, particularly those that depend significantly on foreign suppliers, are also preparing for possible price increases, so AutoZone is not the only company preparing for these changes.

Steve Madden (NASDAQ:SHOO) is one of the first companies to make a move. The shoe retailer, which sources 70% of its products from China, announced that it will cut its reliance on Chinese production by half, moving to places like Vietnam, Cambodia and Mexico. Even with these changes, customers should anticipate price increases as Steve Madden manages the higher expenses related to the effects of tariffs and changing supply chains.

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Columbia Sportswear (NASDAQ:COLM) also raised concerns about how tariffs would make it more difficult to maintain the affordability of its products. According to CEO Tim Boyle, the company may be forced to raise prices to cover the additional tariff charges.

The National Retail Federation expressed similar views, describing the tariffs as “a tax on American families” and warning that the cost of daily goods like furniture, shoes and clothes might rise sharply.

According to their research, a $90 pair of sneakers might cost $106-116 and a $100 coat could cost up to $21 more. Footwear companies, in particular, are worried – since nearly 99% of all shoes sold in the U.S. are made abroad, it will be tough to move production to the U.S. anytime soon.

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We’ll have to wait to see if consumers come through and actually spend more this year.

If they do, it would be consistent with the years-long narrative of record consumer spending. Just this past Friday, we learned retail sales in October rose to a record $718.9 billion.

All this spending has been supported by healthy household balance sheets and real income growth.

Sure, households aren’t as flush as they were earlier in the economic recovery — but they remain strong relative to history.

This is best reflected by the debt-to-income ratio, which remains at historically low levels even as aggregate debt has been rising.

“Although household balances continue to rise in nominal terms, growth in income has outpaced debt,” wrote Donghoon Lee, Economic Research Advisor at the New York Fed.

It’s a reminder to take headlines like “US Household Debt Rises to $17.94 Trillion: N.Y. Fed” and “Credit card debt hits record $1.17 trillion“ with caution because they lack the context you need to avoid drawing the wrong conclusions. Better headlines read like “Household debt is up, but Americans are in a better spot to pay it” and “NY Fed says household debt up in third quarter as rising incomes ease debt burden.”

And in case you’re wondering: Households have a long way to go before they max out their credit cards.

Yes, debt delinquencies have been rising. It’s an economic warning sign to keep an eye on. But for now, they can be characterized as normalizing.

“Aggregate delinquency rates edged up from the previous quarter, with 3.5% of outstanding debt in some stage of delinquency,“ New York Fed researchers noted. That’s significantly below Q4 2019 levels.

Also, it’s notable that wage growth has outpaced inflation for 18 months.

“This is how most Americans will ultimately be able to get ahead,” The Washington Post’s Heather Long wrote. “Prices won’t go down, but wages will go up enough to offset the higher prices.”

We’re also on a 46-month streak of net job creation in America. When more people have jobs, more people have money to spend.

With a new political party moving into the White House next year, we can expected an upheaval in consumer sentiment.

But as we’ve learned in recent years, people won’t put their lives on hold just because sentiment is poor. If they have money, they will spend it.

There were a few notable data points and macroeconomic developments from last week to consider:

Shopping rises to new record level. Retail sales increased 0.4% in October to a record $718.9 billion.

Strength was broad with growth in electronics, cars and parts, restaurants and bars, building materials, and online shopping.

Card spending data is holding up. From JPMorgan: “As of 08 Nov 2024, our Chase Consumer Card spending data (unadjusted) was 0.8% above the same day last year. Based on the Chase Consumer Card data through 08 Nov 2024, our estimate of the US Census November control measure of retail sales m/m is 0.35%.”

Unemployment claims tick lower. Initial claims for unemployment benefits declined to 217,000 during the week ending November 9, down from 221,000 the week prior. This metric continues to be at levels historically associated with economic growth.

Inflation remains cool. The Consumer Price Index (CPI) in October was up 2.6% from a year ago, up from the 2.4% rate in September. This remains near February 2021 lows. Adjusted for food and energy prices, core CPI was up 3.3%, unchanged from the prior month’s level.

On a month-over-month basis, CPI was up 0.2%. Core CPI increased by 0.3%.

If you annualize the six-month trend in the monthly figures — a reflection of the short-term trend in prices — core CPI climbed 2.6%.

Inflation expectations remain cool. From the New York Fed’s October Survey of Consumer Expectations: “Median inflation expectations fell at all three horizons in October. One-year-ahead inflation expectations declined by 0.1 percentage point to 2.9%, three-year-ahead inflation expectations declined by 0.2 percentage point to 2.5%, and five-year-ahead inflation expectations declined by 0.1 percentage point to 2.8%.”

However, the introduction of tariffs as proposed by president-elect Donald Trump would be inflationary. For more, read: Wall Street agrees: Tariffs are bad

Gas prices tick lower. From AAA: “The national average for a gallon of gas is now less than a dime away from dipping below $3 for the first time since May of 2021. But the possible formation of a new hurricane in the Gulf of Mexico could delay or even temporarily reverse the decline in pump prices. Since last week, the national average dropped two cents to $3.08.”

Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.78%, down from 6.79% last week. From Freddie Mac: “After a six-week climb, rates have leveled off, but overall affordability continues to be an issue for potential homebuyers. Freddie Mac’s latest research shows that mortgage payments compared to rents on the same homes are elevated relative to most of the last three decades.”

There are 147 million housing units in the U.S., of which 86.6 million are owner-occupied and 34 million of which are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

Importantly, the more tangible “hard” components of the index continue to hold up much better than the more sentiment-oriented “soft” components.

Industrial activity ticks lower. Industrial production activity in October fell 0.3% from the prior month. Manufacturing output fell 0.5%. From the Federal Reserve: “A strike at a major producer of civilian aircraft held down total IP growth by an estimated 0.3 percentage point in September and 0.2 percentage point in October. Hurricane Milton and the lingering effects of Hurricane Helene together reduced October IP growth 0.1 percentage point.“

This is the stuff pros are worried about. According to BofA’s November Global Fund Manager Survey: “On tail risks… 32% of November FMS investors view higher inflation as the #1 biggest ‘tail risk’ (up from 26% in October). Concerns over geopolitical conflict took the 2nd place spot this month at 21% (down from 33% last month).”

Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy on Tuesday dropped more than five full points from the prior week to 57% as many workers went to the polls on Election Day. Occupancy also declined on Wednesday compared to the previous week, dropping 3.6 points to 57.8%. Washington, DC saw the largest decrease with its peak occupancy day dropping more than nine points to 50% on Thursday. The average low was on Friday at 32.6%, down six tenths of a point from last week.“

Near-term GDP growth estimates remain positive. The Atlanta Fed’s GDPNow model sees real GDP growth climbing at a 2.5% rate in Q4.

Putting it all together

The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.

Demand for goods and services is positive, and the economy continues to grow. At the same time, economic growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings have faded.

To be clear: The economy remains very healthy, supported by strong consumer and business balance sheets. Job creation remains positive. And the Federal Reserve — having resolved the inflation crisis — has shifted its focus toward supporting the labor market.

We are in an odd period given that the hard economic data has decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continue to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.

Analysts expect the U.S. stock market could outperform the U.S. economy, thanks largely due to positive operating leverage. Since the pandemic, companies have adjusted their cost structures aggressively. This has come with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.

Of course, this does not mean we should get complacent. There will always be risks to worry about — such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, cyber attacks, etc. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.

There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect to experience as they build wealth in the markets. Always keep your stock market seat belts fastened.

For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak long-term investors can expect to continue.

A version of this story first appeared on TKer.co

A little over 10 years ago, I had a curious encounter on the metro in Washington, D.C., that ended up changing my life.

While mindlessly scrolling on my iPhone to pass the time, I noticed a man cruising on his laptop in the seat across from me. He was wearing a black winter beanie that said “Palantir” on it. Curious about what it could mean, I went onto Google and searched for Palantir.

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Unbeknownst to me, Palantir Technologies (NYSE: PLTR) was a data analytics software developer specializing in defense technology for the U.S. military. From that moment on, I continued monitoring Palantir over the years and was particularly excited when the company finally went public back in late 2020.

Fast-forward a few years, and now Palantir has emerged as a major force within the artificial intelligence (AI) realm. Below, I’m going to break down how AI is making waves in the defense sector and why I see Palantir as a no-brainer stock to watch as the military doubles down on defense tech.

When it comes to AI, you probably think about applications related to workplace productivity, robotics, or even drug discovery capabilities. The subtle thing about use cases like these is that they tend to be viewed in a positive light. In other words, people enjoy talking about them and therefore they end up getting a lot of coverage.

The defense industry is different. While it’s pretty well known that government contracting is an enormous business, I think it’s fair to say that most people try to refrain from talking about the business side of the military. But the fact of the matter is that the federal government (including the Pentagon) has many of the same needs and pain points as a private corporation. Just like any organization, defense agencies keep track of budgets, undergo long and strict procurement processes, and have to monitor things such as headcount and inventory.

During times of geopolitical unrest, the importance of cybersecurity and data analysis becomes even more pronounced — as it’s mission-critical to provide the tools required to make informed decisions quickly and efficiently. And that’s where Palantir enters the picture.

During much of 2024, Palantir has quietly announced a number of big contract wins with the Department of Defense (DOD). Megacap tech behemoths Amazon and Microsoft have noticed Palantir’s strong presence within the defense sector, and both companies have integrated Palantir’s Artificial Intelligence Platform (AIP) with their respective cloud infrastructures, Azure and Amazon Web Services (AWS). These partnerships are focused on enhancing security protocols within the DOD.

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But in early November, Palantir may have just secured its most lucrative win yet with the military. According to public records, the Naval Information Warfare Center (NIWC) appears to be awarding Palantir with a contract worth nearly $1 billion. The release says the Department of the Navy “intends to award a contract on a sole-source basis to Palantir.” The deal is for five years and has an estimated value of $920 million.

Palantir’s U.S. government revenue is already growing 40% year over year and generates more than $1 billion of revenue per year. Now, it appears the company essentially just doubled its base of U.S. government revenue thanks to the NIWC deal.

While I am pumped about Palantir’s progress in the defense tech landscape, I have to say that this NIWC is not reason alone to buy the stock hand over fist. Palantir’s price-to-sales (P/S) multiple of 54.2 is abnormally high, and trends suggest the stock has experienced some pronounced valuation expansion in recent periods.

Even though I think shares have become overbought and the stock is too pricey to buy right now, the bigger idea is that AI is an evolving theme in the military. To me, Palantir appears well positioned to keep penetrating this space and I am optimistic that the company will remain an important player for AI-powered defense capabilities.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 Billion Reasons to Love Palantir Stock Right Now was originally published by The Motley Fool