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Market / Macro Economic Summary

Markets, even to my surprise, kept the holiday rally going into its ninth week!  While I expected the Federal Reserve board’s decision to keep the Federal Funds rate the same, I did not expect Chairman Jerome Powell’s press conference commentary to be so definitive dovish.  If you pull a daily chart from Wednesday, you’ll notice the markets were breakeven on the day right at 2pm…. then after Powell starts speaking, the markets took off to the upside.  What caused this is that most market participants did not expect a “pivot.”  Seemingly, the Fed officially pivoted from a stance of “we might” increase rates further depending on the data.  It seems that is no longer the case and the new projections based on their dot plot show that the Fed board now expect three 25 basis point rate declines in 2024.  You will hear lots of people claiming that this is because they feel like the economy is going to head into a recession.  I am here to ensure you hear from me early and often, that is not the case.  The Fed will decrease rates because they see inflation under control, and they want to ensure they do their part to keep the economy growing at a steady clip.  The cynic in me says it doesn’t hurt that our government has over 1/3 of its national debt due in the next 15 months and its easier on our balance sheet to renew those bonds at lower rates. In either case, lower rates are good news for stocks and our economy as a whole.     

Company Specific / Macro Economic Summary

Costco (COST)

Shares rose 4.5% on the heels of a great quarterly report.  Earnings per share of $3.58 were well ahead of the calls for $3.41 for the membership retailer.  Revenue of $57.8 billion was a growth of 6.2% and just ahead of the calls for $57.7 billion.  Management also disclosed the board’s decision to issue its largest one-time dividend in company history as it will pay a $15 special dividend to shareholders of record as of December 28th

Darden Restaurants (DRI)

Shares fell 1% on Friday as the company reported a mixed quarter but yet still provided upbeat guidance. Earnings per share of $1.84 came in ten cents better than the $1.74 Wall Street analysts were looking for. Revenues of $2.73 billion came in just shy of the estimates of $2.74 billion. Sales at Olive Garden rose 4.1% while at Longhorn Steakhouse they grew by 4.9%.  Management also highlighted the completion of the purchase of Ruth Chris’ Steakhouse in the fourth quarter.

Lennar (LENN)

Shares fell 2.4% as the home builder reported lower margins despite a top and bottom-line beat.   Earnings per share of $5.17 beat the estimates of $4.64.  Revenues of $10.97 billion also beat estimates of $10.34 billion.  Declining margins were the main driver for the decrease as higher interest rates are causing building to provide concessions to close that negatively impact margins.

Parting Thoughts

We welcome an opportunity to discuss the above detail and wish you much success in the rest of your week!

Regards,

E.Palacios

Erick J.  Palacios, MBA