🐂 Double Deficit

Markets

During this earnings season, the focus has shifted away from individual company reports to larger macroeconomic concerns such as the Israel-Hamas conflict and the significant increase in Treasury yields. This has led to a unique situation in the stock market where a substantial number of stocks in the S&P 500 have moved in the same direction during four out of six trading sessions since October 13, as reported by Bloomberg.

The Economy Was Supposed to Slow by Now. Instead It’s Revving Up.

At the start of this year, economic experts and officials from the Federal Reserve forecasted that the U.S. economy would be slowing down at this point due to increased interest rates affecting consumer spending and investment. However, the situation has turned out to be completely different.

Recent economic indicators indicate that, contrary to expectations, the economy is actually picking up momentum, even in the face of higher borrowing expenses, the reintroduction of student-loan payments, and ongoing conflicts in Ukraine and the Middle East.

Analysts, many of whom had initially anticipated a recession for this year, are revising their predictions upward. Last week, Goldman Sachs economists increased their growth projection for the third quarter, which ended on September 30, from an annual rate of 3.7% to 4%. Meanwhile, High Frequency Economics, an economic consulting firm, raised their third-quarter forecast from 4.4% to 4.6% and their fourth-quarter forecast from 1% to 1.2%.

If the actual figures for the third quarter fall within this forecasted range, it would signify an acceleration compared to the 2.2% growth seen in the first quarter and the 2.1% growth in the second quarter. The official figures from the Commerce Department will be reported on Thursday.

Media

Business leaders face conflict over public stance on war

Paddy Cosgrave, the CEO of Web Summit, resigned from his position following controversy over his remarks about the Israel-Hamas conflict. He faced backlash from the tech community for his comments, which were perceived as not condemning Hamas's actions, and several major companies withdrew their participation in the Web Summit event. As of last Tuesday, around 20% of the 100 largest S&P companies had made formal statements about the Israel-Hamas conflict, with some companies like Nike and Instacart facing criticism from employees for the perceived inadequacy of their internal corporate communications regarding the crisis. There has been a trend of corporate leaders speaking out on social and geopolitical issues in recent years, but it's worth noting that public interest in hearing from companies about sociopolitical matters appears to be waning, as indicated by a Gallup and Bentley University poll that showed a decrease in the percentage of Americans who believe businesses should take stances on current events. Nonetheless, there is an established expectation that corporations will comment on urgent sociopolitical issues, even when these issues do not directly impact their operations.

International

Israel–Gaza update

A second convoy of trucks, carrying much-needed humanitarian aid, has made its way into Gaza through Egypt. The region is grappling with a severe shortage of essential medicines and supplies, exacerbated by the Israeli blockade. At the same time, Israeli airstrikes on Syrian airports and locations in Lebanon have raised concerns about the potential for a broader regional conflict.

To address the possibility of increased attacks on American troops in the Middle East, the Pentagon has announced plans to deploy additional military assets to the region. In the United States, an investigation by the police found no evidence of antisemitism in the case of the president of a Detroit synagogue who was tragically found stabbed to death outside her home. Nevertheless, there is a heightened sense of vigilance among American Jews due to a rise in antisemitic hate crimes, leading many to enroll in firearms training classes.

Government

The U.S. budget deficit increased by double this year

The 2023 federal budget deficit has increased by 23% to $1.7 trillion, marking the United States' largest yearly fiscal shortfall outside of the Covid era, as reported by the Treasury Department. However, a closer examination of the financial situation reveals that it's more challenging than the headline numbers suggest.

In the prior year, the Treasury accounted for the Biden administration's approximately $300 billion student loan forgiveness program as an expense. Still, this program was invalidated by the Supreme Court and never put into effect, leading the Treasury to categorize it as savings this year. Consequently, the year-over-year increase effectively doubled from $1 trillion in 2022 to $2 trillion in 2023.

What contributed to this situation? Over 40% of the deficit increase can be attributed to reduced tax revenues, while the government had to allocate $659 billion for interest payments, nearly doubling the figure from the past two years.

As the possibility of a government shutdown looms next month and a House of Representatives stuck in a legislative impasse without a speaker, the deteriorating state of the country's finances could add tension to federal funding negotiations.

However, there is still potential for financial assistance to allies. Treasury Secretary Janet Yellen has stated that the U.S. can "absolutely" afford President Biden's proposed $100 billion in emergency spending, which includes military aid for Ukraine and Israel. Yellen pointed to declining inflation and a low unemployment rate of 3.8% as factors supporting this possibility.

Entertaiment

Scorsese can’t topple Swift

Martin Scorsese's 3.5-hour epic film, "Killers of the Flower Moon," had a strong showing at the North American box office, raking in $23 million. While this is an impressive performance, it couldn't surpass Taylor Swift, whose concert film held the top spot for the second consecutive weekend. Nevertheless, "Killers of the Flower Moon" marked Scorsese's best opening since "Shutter Island" in 2010, and this initial box office success validates Apple's new strategy of focusing on theater releases. Apple plans to allocate around $1 billion annually for films released in theaters, according to Bloomberg's report.