🐂Let's go to the mall

Markets

The week began on a positive note for the stock market as technology firms, including Nvidia, experienced a surge, leading to anticipation among investors for Nvidia's upcoming earnings report tomorrow. This rally assisted the Nasdaq in ending a four-day period of losses. Additionally, despite the negative impact of new Covid variants on public health, these variants are contributing to an increase in the stock value of vaccine-producing companies. Novavax, Moderna, BioNTech, and Pfizer all saw gains yesterday, driven by the expected rise in demand for booster shots in the upcoming fall season.

How Hard Should the Fed Squeeze to Reach 2% Inflation?

A significant portion of the effort to reduce inflation has been successful: Through an unusually aggressive sequence of interest rate hikes over the past forty years, inflation has decreased from 9.1% to 3.2%.

This positive development presents the Federal Reserve with a new complex dilemma. The question at hand is the degree of aggressiveness the Fed should adopt in eliminating the remaining traces of inflation.

The outcome of their decision carries substantial consequences for consumers, financial markets, and the overall economy. It also determines whether the Fed Chair, Jerome Powell, can attain what is termed a "soft landing"—a situation in which inflation is curbed without triggering a recession.

Formally, the Federal Reserve's inflation target is set at 2%. Given that inflation currently exceeds this benchmark significantly, policymakers are primarily deliberating whether to implement another interest rate increase before the year ends. Nevertheless, this aspect pales in comparison to the larger query of how long interest rates should be maintained at this elevated level.

Federal Reserve officials could choose a rapid approach to reach the 2% goal, possibly within the next year, by raising interest rates more aggressively and only gradually easing them as the economy loses steam. However, such a strategy would carry the risk of a more severe economic downturn and could potentially undermine the prospects of achieving the desired soft landing.

Auto

There’s only one car left under 20K

When aiming to economize on car purchases, the conventional advice of "opt for public transit" stands. However, if public transportation isn't suitable or accessible, be prepared for a financially daunting situation: According to Cox Automotive's findings, the Mitsubishi Mirage stood out as the sole new model priced below $20,000 last month.

Although the unassuming hatchback might not exude the same speed as your mother's Prius, its average selling price of $19,205 in July appears almost illusory given the current sizzling state of the automotive market.

Cox's reports reveal the following:

• The median cost of an average new car reached over $48,000 in July, marking a 30% surge since 2019.

• The situation for used cars isn't any better, with the average price in July hitting $27,000, also reflecting a 30% increase from 2019.

The expensive four-wheeled vehicles that most Americans rely on for transportation have placed considerable strain on household budgets. According to data from Cox and Moody's Analytics for July, it takes more than 42 weeks of median household income to cover the average cost of a new car.

In addition to elevated prices, high-interest auto loans further burden car owners. In the last quarter, a record-breaking 17.1% of new car owners found themselves with monthly payments exceeding $1,000, as reported by Edmunds. This trend helps elucidate the rise in auto loan delinquencies this year, despite a robust economy characterized by exceptionally low unemployment rates.

A portion of the blame for these high prices rests on America's infatuation with larger vehicles, as car manufacturers have shifted away from producing affordable compact models. Complicating matters, disruptions in supply chains caused by the pandemic have exacerbated production challenges, resulting in a shortage of cars and allowing manufacturers to affix exorbitant price tags to their vehicles.

Tech

Arm gears up for the year’s biggest IPO

Yesterday, the chip manufacturer headquartered in the UK submitted documentation in preparation for its debut on the US market, scheduled for September. This move holds significant implications for SoftBank, which acquired the company for $32 billion in 2016, as it strives to recover from recent losses by shifting toward an AI-centered strategy, with companies like Arm at its core. Bloomberg has reported that Arm had been considering raising funds ranging between $8 billion and $10 billion, but the amount might be adjusted downward due to SoftBank's intention to retain a larger stake in the company. Despite this, the IPO is still anticipated to be the most prominent of the year, influencing the decisions of other tech firms, including Instacart, regarding their own potential IPOs.

Real Estate

Reports of the mall’s death have been greatly exaggerated

If you believed that the era of visiting malls for a snack from Auntie Anne's and exiting with the fragrance of Bath and Body Works was a thing of the past, you're in for a surprise.

As indicated by a recent report by analytics firm Coresight Research, malls are experiencing a resurgence:

• Retail sales at malls surged by 11% to exceed $800 billion from 2021 to 2022.

• Foot traffic in premium malls, frequented by individuals earning $200,000 or more annually, saw a 12% increase in 2022 compared to 2019.

What's driving this revival of malls post-pandemic? Although e-commerce initially appeared to threaten the existence of malls, brands have recognized that consumers desire a blend of both online and physical shopping experiences. To facilitate growth, they have invested in "omnichannel" marketing, which promotes both online shopping and brick-and-mortar stores. Additionally, despite missing out on the mall heydays of Aéropostale and Hollister, Generation Z remains loyal to malls. A survey by the International Council of Shopping Centers discovered that a similar percentage of Gen Z respondents shopped at physical stores (97%) as they did online (95%).

From a broader perspective, retail stands out as a positive aspect amid a less promising outlook for commercial real estate. In the second quarter, office vacancy rates reached a 30-year peak of 18.2%, while retail space vacancy rates dropped to 4.8%, marking the lowest level since real estate firm CBRE began tracking it 18 years ago. Additionally, it is projected that more stores will open than close this year, further underscoring the retail sector's positive momentum.