Wall Street Breakfast: 'Proceeding Carefully'

'Proceeding carefully'

"We're not confident that we haven't, but we're not confident that we have." That statement can sum up the entirety of Fed Chair Jay Powell's press conference on Wednesday, which outlined that the central bank is still not sure whether it is done with a hiking cycle to "sufficiently bring down inflation to 2% over time." Stocks still jumped despite a lack of confidence from the Fed about "achieving such a stance," while bond yields fell back despite an FOMC that continues to "proceed carefully." At the time of writing, S&P 500 futures (SPX) are up another 0.5%, while the yield on the 10-year Treasury (US10Y) is down 1 bp to 4.70%.

Between the lines: In its last set of economic projections, the Fed implied one more hike for the remainder of 2023. While Powell tried to distance himself from any conclusions drawn from that dot plot, the fact that it's now being called into question signals a more dovish turn for the central bank, charging up investor hopes that the hiking cycle is over. Wednesday's decision to hold rates in a range of 5.25%-5.50% also resulted in the FOMC skipping a rate hike for two consecutive meetings, marking the longest period without an increase since the Fed began its aggressive hiking cycle in March 2022. There was additional good news for the economy, with Powell explaining why a recession is no longer indicative in the near term and why recent stronger-than-expected data is not problematic.

"I think everyone has been very gratified to see that we’ve been able to achieve, you know, pretty significant progress on inflation without seeing the kind of increase in unemployment that has been very typical of rate-hiking cycles like this one. That's a historically unusual and very welcome result, and the same is true of growth."

Explainer: "There are really two processes at work here," Powell added. "One of which is the unwinding of the distortions to both supply and demand from the pandemic and the response to the pandemic, and the other is restrictive monetary policy, which is moderating demand and giving the supply side time and space to recover. A significant increase in the size of the labor market now, both from labor-force participation and from immigration, is a big supply-side gain that is really helping the economy. And it's part of why GDP is so high - because we’re getting that supply. So we welcome that. But I think those things will run their course, and we're probably still going to be left with some ground to cover to get back to full-price stability. And that's where monetary policy and what we do with demand are still going to be important." Also check out the U.S. Treasury's latest quarterly refunding announcement.

Big milestone

Microsoft's (MSFT) business-focused social network LinkedIn now has over 1B members, with about 80% of its recent sign-ups coming from outside the U.S. The platform also announced the addition of certain generative AI tools for its paying members, which include a new "job seeker" experience that would assess if a particular job is a good fit. LinkedIn will initially test these tools with Premium subscribers, a group whose sign-ups jumped 55% Y/Y during Q1, though SA analyst Poonam Arora expects LinkedIn growth to dwindle due to the saturation of the subscriber base. Last month, the company also announced around 668 job cuts amid slowing revenues. (5 comments)

Top Thrill & Kingda Ka

Cedar Fair (FUN) and Six Flags (SIX) have officially inked a deal to merge, lifting the stocks during yesterday's session amid the reports and again in premarket trade. The combined entity will have a pro forma enterprise value of around $8B, with dozens of amusement and water parks across North America. The news comes after Six Flags bid $70/share for Cedar Fair in 2019, a cash-and-stock deal that was rejected by Cedar Fair. Last year, SeaWorld (SEAS) offered to buy Cedar Fair for $60/share, which was also rejected. Note that private equity firm Centerbridge last year built a more than 5% stake in Cedar Fair, saying it could get interest from other amusement park chains if it put itself up for sale. (11 comments)

Full control

Disney (DIS) is expecting to pay about $8.6B to Comcast's (CMCSA) NBCUniversal by Dec. 1 to buy the latter's one-third stake in streaming service Hulu, paving the way for Disney's 100% ownership of the company. This follows Comcast's move to take advantage of a Nov. 1 trigger date to exercise its right to engineer the stake sale. Disney could pony up somewhat more than $8.61B, as Comcast has been floating a significantly higher valuation for Hulu. The two companies have been working with banks to ascertain a fair valuation, which SA analyst Juxtaposed Ideas believes may be valued at $45B, thanks to Hulu's profitable growth trend. (23 comments)

Today's Markets

In Asia, Japan +1.1%. Hong Kong +0.8%. China -0.5%. India +0.8%.
In Europe, at midday, London +1.3%. Paris +1.8%. Frankfurt +1.7%.
Futures at 7:00, Dow +0.4%. S&P +0.5%. Nasdaq +0.8%. Crude +1.4% to $81.53. Gold +0.5% to $1,996.80. Bitcoin +2.9% to $35,377.
Ten-year Treasury Yield -1 bp to 4.70%.

Today's Economic Calendar

Auto Sales
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
6:30 PM Fed's Kathleen's Speech

Companies reporting earnings today »

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Airbnb (ABNB) falls after warning of volatility in travel demand.

Druckenmiller: Entitlement cuts needed to balance U.S. spending.

Etsy (ETSY) slips as macro woes dent holiday quarter outlook.

Super Micro Computer (SMCI) rises as 2024 guidance raised.