Consumers are 'smelling the coffee' as sentiment on future conditions sinks. (0:16) Treasury yields hit lowest levels of the year. (2:30) Tesla Europe deliveries tumble. (2:50)Show NotesHedge fund VIP stocksLucasfilm head set to retireEpisode transcripts: seekingalpha.com/wsb Sign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
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Chapter 1: Is there a crisis of consumer confidence?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Tuesday, February 25th, and I'm your host, Kim Kahn. Our top story so far. Is it a crisis of confidence?
Chapter 2: How has consumer confidence changed since August 2021?
The Conference Board's February measure of consumer confidence saw the largest drop since August 2021 amid a broad range of concerns, including inflation, future business conditions, and the labor market. The index dropped to 98.3 from 105.3 in January, and below the forecast for a smaller drop to 103.
It was the third consecutive month-on-month decline, bringing the index to the bottom of the range that has prevailed since 2022. Of the index's five components, only consumers' view of present business conditions improved. Along with general souring of consumers' moods, their 12-month inflation expectations ramped up to 6% in February from 5.2% in January.
Chapter 3: What are the components affecting consumer confidence?
The present situation index declined 3.4 points to 136.5. The forward expectations index sank 9.3 points to 72.9, an eight-month low, and below the threshold of 80 that usually signals a recession. Pantheon macroeconomist Samuel Toombs says consumers are, quote, finally smelling the coffee.
The conference board survey mirrors the Michigan survey in showing that consumers' confidence has deteriorated sharply in the face of threats to impose large tariffs and a slashed federal spending and employment, he said.
While references to inflation and prices in general continue to rank high in write-in responses, there was a sharp increase in mentions of trade and tariffs, back to a level unseen since 2019, Stephanie Gichard, senior economist, global indicators at the conference board said. Most notably, comments on the current administration and its policies dominated the responses.
Toomes added, growth in real after-tax income likely will continue to slow this year, weighing strongly on spending growth now that households have mostly depleted their excess savings. Wells Fargo economists said, Perhaps if the drumbeat of government sector job displacement and corporate layoffs abates, sentiment around the labor market will improve.
Chapter 4: What are the economic implications of declining consumer confidence?
For now, this pessimism about the labor market in combination with household worries about inflation led to a decline in consumer perceptions of their expected household financial situation six months out. The consumer confidence numbers are dictating trading, with gross stocks falling and bonds rallying. The Nasdaq Composite is down more than 1%, trailing the S&P 500 off more than half a percent.
The Nasdaq 100 is off more than 5% since its record low last week. In the bond market, the 10-year treasury yield is back down to 4.3%. Among active stocks, Tesla is among the biggest S&P decliners after the EV maker saw its sales in Europe decline 45% in January from a year ago. That's according to data from the European Automobile Manufacturers Association.
Chapter 5: How are stock and bond markets reacting to consumer confidence trends?
Tesla sold 9,945 vehicles in Europe in January, down 45% from last year's 18,161. Tesla's share of the market dropped to 1% from 1.8%. SEMPRA plunged to its lowest level since October 2023 after reporting weaker-than-expected Q4 adjusted earnings and revenues while also lowering its full-year guidance.
Chapter 6: Why is Tesla experiencing a sales decline in Europe?
The California utility said it is cutting its 2025 earnings guidance range due to regulatory matters and the backdrop of a higher-cost environment, now seeing adjusted EPS of $430 to $470 down from its previous outlook of $490 to $525 and below the $516 consensus. And chip stocks are also under pressure, following a report by Bloomberg that the U.S.
Department of Commerce is pursuing tighter sanctions to curb China's ability to produce more powerful chips. The administration is working to strengthen restrictions on China's chip industry, expanding on policies enacted under former U.S. President Joe Biden. The report said the goal is to convince U.S. allies to mimic the China export curbs already put in place by the U.S.
on chip gear companies, such as Lam Research, KLA, and Applied Materials. In other news of note, Kathleen Kennedy, the powerful head of Lucasfilm, is planning to retire at the end of this year, according to industry publication Puck.
While at the helm of Lucasfilm, and following its acquisition by Disney, Kennedy relaunched the Star Wars franchise, choreographing a new release every year between 2015 and 2019, beginning with the J.J. Abrams-directed Star Wars The Force Awakens, which went on to become the highest-grossing film within the franchise.
Along with collaborations with Steven Spielberg, with whom she co-founded Amblin Entertainment, and her husband Frank Marshall, Kennedy served as producer or executive producer for more than 70 films, altogether earning 120 Academy Award nominations and 25 wins.
And in the Wall Street Research Corner, Goldman Sachs updated its hedge fund VIP list of the top long positions of fundamentally driven hedge funds. Strategist Ben Snyder says the list represents a tool for investors seeking to follow the smart money based on 13F filings. The list has 50 stocks whose performance will largely influence the long side of many fundamentally driven hedge funds.
The top six stocks are six of the magnificent seven, Amazon, Meta, Microsoft, NVIDIA, Alphabet, and Apple, in that order. Uber, Taiwan Semi, Hess, and Netflix round out the top ten. See all 50 stocks in our story on Seeking Alpha. That link will be at the top of show notes. That's all for today's Wall Street Lunch. Look for links for stories in the show notes section.
Don't forget, these episodes will be up with transcriptions at seekingalpha.com slash WSB. And join the highest level discussion of any stock or ETF with our community of serious investors like you. Find us at seekingalpha.com slash subscriptions.
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