Friday5: Cash rich companies are getting richer, Taylornomics helped US avoid a recession, Pinterest pops as GenZs shop & more...
Plus GenZs cash cushion shrink & China wants its pandas back.
At a Glance
💰 Higher interest rates have turned into a boon for the largest S&P 1500 companies, as they substantially earn more on interest income from their cash relative to interest they pay on their debt. Coincidentally, these companies have also been the best performers in the stock market this year.
🎸 Did Taylor Swift and the revenge-spending consumer play a part in driving a 12% year-to-date return for the S&P 500? Marketwatch thinks so and it has put Taylor Swift on this year’s “MarketWatch 50 list of the most influential people in markets”.
📉 GenZ’s cash cushion is shrinking after a summer of splurge. And over 34% adults said they wouldn’t be able to pay some bills the following month if they are hit by a $400 emergency expense.
🛍️ Pinterest reported its highest monthly active users in its latest earnings call as it attracts a higher number of GenZs on its platform.
🐼 Did you know that China practices panda diplomacy, where it gives pandas to countries around the world they are friends with? China had gifted pandas to the US in the 1970s as a sign of friendship. Now, China wants them back.
💰 Higher interest rates have turned into a boon for the largest S&P 1500 companies.
As there are growing worries of an economic slowdown, rising interest rates have made big companies even richer. While the Federal Reserve raised interest rates at the highest level and at the fastest pace in over 40 years to slow down the red-hot economy, the Fed’s actions had the opposite of the intended effect in some of the largest and most secure companies.
Take Microsoft MSFT 0.00%↑ , the world’s 2nd most valuable company. It has more cash and short-term investments than debt. As a result, it was never going to be threatened by higher interest rates. Furthermore, the company had locked in low interest rates during the pandemic and the maturity dates of the bonds are far out in the future.
As a result, it paid exactly the same interest payment of $492M in the latest quarter, as it did a year earlier. At the same time, it earned substantially more on interest income on its cash and short-term investments.
On the other hand, the pain falls on smaller companies that were unable to lock in low rates for very long, or that chose to borrow using floating-rate bank loans, where interest rates rise as the Fed hikes.
This phenomenon has created a split between the haves and have-nots in the market. Split the market by size and it is clear that the biggest companies are the least affected by higher interest rates.
Calculations by Andrew Lapthorne, head of quantitative research at Société Générale, show that the interest payments being paid by the largest 10th of companies in the S&P 1500 index is barely up from its lows and still below its pre-pandemic peak. On the other hand, the interest rate paid by the smallest half of companies in the index has risen to the highest level in more than a decade, while those in the middle are roughly back at pre-pandemic levels.
The disparity between the winners and losers from interest rate increases provides yet another reason why the biggest stocks “the winners” have been by far the best performers this year.
🎸 Did Taylor Swift and the revenge-spending consumer play a part in driving a 12% year-to-date return for the S&P 500?
As a longtime Taylor Swift fan, Kat Mahon always knew she would attend Taylor Swift’s much-anticipated “Eras Tour” this year. Mahon spent at least $10,000 on tickets, travel and concert merchandise as part of her Swift sojourn, which took her to 11 concerts in the New York metro area, Philadelphia and Los Angeles. It was the kind of blowout experience Mahon felt she couldn’t miss, saying, “It was very emotionally fulfilling.”
This was a year defined by such fulfillment, as Taylor Swift created a wave of hysteria that could be likened to the early days of Beatlemania. And with that came a wave of tour-related spending from Mahon and countless other Swifties — some $5 billion in total, according to the survey firm QuestionPro.
Call it Taylornomics or Swiftonomics, if you prefer. Either way, it was a force to be reckoned with. And it served as a proxy of sorts for the consumer mindset in 2023.
Did Taylor Swift and the revenge-spending consumer play a part, in the U.S. stock market, as measured by the S&P 50, realizing a return of 12% in 2023?
Marketwatch thinks so and it has put Swift on this year’s MarketWatch 50 list of the most influential people in markets.
“She’s a market mover for sure, but I think there’s been a perfect storm that allowed her to be a market mover,” says Thomas LaSalvia, a senior economist with Moody’s Analytics. He cites the fact that the U.S. economy “held up so much better” than expected and consumers were “willing to go out there and experience life like never before.”
Here is a quick overview of the market’s reaction to Taylor Swift’s concerts in 2023:
The S&P 500 sank 7.8% from its Q1 high to 3858 on March 13, its lowest close in 2023, amid recession fears.
4 days later, Swift launched her “Eras Tour” in Glendale, Arizona. By the time she hit Arlington, Texas, at the end of March, the S&P 500 was above 4100, and it kept rising.
On the last date of her 2023 US run at SoFi Stadium in Inglewood, California, on Aug. 9, the S&P 500 closed at 4468.
Since Taylor Swift’s US tour got over for the year, the S&P 500 has fallen to 4238.
Of course, correlation should not imply causation — but still.
📉 GenZ’s cash cushion is shrinking after a summer of splurge. Over 34% adults said they wouldn’t be able to pay some bills if they are hit by a $400 emergency expense.
The share of Americans who said they could cover a $400 emergency expense with cash or equivalent dropped for the third quarter in a row, according to a survey by Morning Consult on November 2, 2023.
Young adults in particular are showing higher financial stress as they face the return of student loan payments and higher inflation. The share of GenZ adults who said that they’d have the cash to cover an unexpected expense dropped to 28%, a decline of -11% from Q1 2023, according to a poll conducted by Morning Consult for Bloomberg News.
“GenZ consumers have really been supporting a lot of the surge in spending that we have seen over the summer, especially on discretionary categories like vacations and apparel, “ said Morning Consult economist Sophia Baig in an interview. As student loans resume and cash runs out, they are starting to feel the heat a little bit more, especially with emergency expenses, “ she said.
Here is a latest survey by Morning Consult, where 11000 adults were asked how an emergency $400 expense would impact their ability to pay other bills the following month. 34% of adults surveyed said that they would not be able to pay some bills the following month, if they are hit by an emergency $400 expense. Meanwhile, 48% of adults whose incomes are less than $50K said that they would not be able to pay some bills the following month if they are hit by a $400 expense.
🛍️ Pinterest reported its highest monthly active users as it attracts a larger number of GenZs on its platform.
Pinterest reported its highest monthly active users ever on the platform on its Q3 earnings call on Monday, October 30, 2023. The company said that the user growth was largely driven by GenZ users who are the fastest growing and most engaged users on the platform.
Last week, we covered how Pinterest was using AI to become a digital bazaar. In our post, we talked about how the company had taken a bold step to double down its efforts to build an end to end shopping experience on its platform by integrating AI and shoppable media features, as it saw its monthly active users erode after the pandemic boost.
Pinterest’s Q3 earnings call was a validation that Pinterest’s business strategy was working as it saw its active users grow by more than 7% for every quarter in 2023. At Pinterest’s investor day in September, the company revealed that GenZ made up 42% of its users, calling the demographics an “emerging powerhouse.”
Pinterest PINS 0.00%↑ stock surged 17% on Tuesday after its strong Q3 performance. If GenZ is on the platform, that means advertisers are on the platform, which means that Wall Street is excited.
GenZ uses Pinterest for fashion inspiration and several brands have caught on. Founders of an internet fashion label called Jaded London regularly check Pinterest to predict the trends for under 25-year-olds, according to Vogue Business. Luxury brands such as Dior and Louis Vuitton are on the platform, trying to capitalize on Pinterest’s unique hold on the collective GenZ mind.
🐼 China had gifted pandas to the US in the 1970s as a sign of friendship. Now, China wants them back.
China is expecting its giant pandas back. In Washington D.C, the National Zoo’s 3 pandas are scheduled to depart for China by December 7, 2023 as their lease agreement expires.
China practices panda diplomacy, giving pandas to countries around the world that they are friends with. If you make China mad, they might take away your pandas. And that is what is potentially going on here.
“This is perhaps Beijing’s way of signaling to the West that they may not be very happy with how things are going,” said Chee Meng Tan, an associate professor at the University of Nottingham in Malaysia. Beijing has grown increasingly frustrated with how relations between China and the West have deteriorated in recent years, Tan said.
Pandas have been symbolic in the U.S.-China relations since 1972 — when President Richard M. Nixon made his historic visit to communist China and Chinese Premier Zhou Enlai offered first lady Pat Nixon two giant pandas, which ended up in Washington’s zoo.
“It was a signal of improving ties between Beijing and the rest of the world,” Tan said.
So, if you are in Washington D.C. and you love pandas, you have a few more months to say goodbye.
Thank you Amrita. Very insightful read. Enjoy your rest days.
Thank you!