💰 The “greedflation” debate

Tuesday, May 30, 2023 by Snacks
A scrambled debate (Justin Sullivan/Getty Images)

A scrambled debate (Justin Sullivan/Getty Images)

A scrambled debate (Justin Sullivan/Getty Images)

A scrambled debate (Justin Sullivan/Getty Images)

Last Week’s Market Moves
Dow Jones
33,093 (-1.00%)
S&P 500
4,205 (+0.32%)
12,976 (+2.51%)
$26,737 (-0.51%)

Hey Snackers,

Whenever you feel bad about procrastinating, take solace in this: a book was returned to a California public library almost 100 years late. Luckily for the man who returned the copy of “A History of the United States” the library stopped charging late fees in 2019.

The techy Nasdaq gained 2.5% for the week after an AI-fueled earnings beat from chip titan Nvidia, which became the fifth most valuable US company after Amazon. Investors were also optimistic about progress on a deal to raise the debt ceiling. Traders reduced their bets that the Fed would cut rates this year after strong economic data on Friday.


1. Corporate price hikes get the side-eye as #greedflation trends, stoking the inflate debate

More heated than the “Succession” finale… the greedflation debate. With inflation still stubbornly high, some are pointing fingers at corporate profits. The idea, also dubbed profit-led inflation or “excuseflation,” is that some corporations hike prices beyond what's needed to cover rising costs — leaning on broad inflation and black-swan events (like: pandemic, war) as an excuse. In a recent survey of 2K US consumers, over half said they believe greedflation is happening “a lot.” They’re not alone.

  • Makin’ bank: European Central Bank economists said that businesses have been padding profits, which they argued was a bigger inflation driver than rising wages in the second half of last year.

  • Corporate profit margins hit a 70-year high last year as consumers stomached higher prices, and this year companies continued flexing their “pricing power.”

Not everyone's on team #greedflation… While some margin-padding may be happening, many economists say there’s little evidence that corporate profits are significant contributors to inflation. Last week, former Fed Chair Ben Bernanke and ex-IMF chief economist Olivier Blanchard released a study that pointed to Covid supply shocks (and the trillions in gov’t stimulus that followed) as the main causes of US pandemic-era inflation. Picture: fewer goods available + more $$ to buy them with. Last year, Treasury Secretary Yellen rejected the idea that corporate greed is driving inflation, pointing to good-old supply and demand as the main culprit.


The “greedflation” debate is a symptom… of unusually resilient demand. US consumer spending jumped last month and inflation accelerated. Despite its aggressive interest-rate hikes, the Fed hasn’t been able to cool demand/inflation/the labor market nearly as fast as hoped. Without continued spending, prices wouldn’t have been able to stay so elevated. Resilient demand could be a result of extraordinary stimulus measures and years of near-zero rates that helped lead to historically low unemployment and rising wages. But some retailers are starting to see that consumers are tightening their budgets.


2. Coming up this week

Not-so-fancy feast… Americans are (finally) starting to spend less on their furry friends after years of explosive growth in the $124B US pet market. Chewy thrived during the pandemic as 1 in 5 Americans took in furry companions and showered them with goodies. But Chewy’s sales growth has slowed recently as the puppy-palooza wanes. Last week, rival Petco dropped disappointing results as owners ditched pricey kennels for smaller treats. Analysts think the trend could keep chomping on Chewy when it reports Wednesday.

Little brown bag… Macy’s, which reports Thursday, predicted lower sales this year as consumers cut back on discretionary splurges. But the mall staple’s non-namesake, higher-end brands have been a bright spot: Blue Mercury, Bloomingdale’s, and mini stores called Market by Macy’s and Bloomie’s (s’cute) have outperformed the flagship. Kohl’s got a boost from its in-store Sephoras last quarter, and Urban Outfitters from Anthropologie and Free People. Abercrombie's stellar earnings last week could bode well for Macy’s smaller-format foray.

Zoom Out

3. Stories we’re watching

Shock me like an electric wheel… California is reportedly urging the EPA to approve a proposal that could supercharge EV adoption. In August, America’s most populous state approved a plan to ban new sales of gas-only vehicles by 2035 (sales would have to be electric or plug-in hybrid). But CA still needs the Biden admin’s approval to move forward, and the White House hasn’t endorsed setting a hard date to phase out gas vehicle sales. Still, CA is leading the EV charge: last year the state accounted for 40% of zero-emission vehicles sold in the US.

Esports on hard mode… Esports has struggled to turn hype into profits as it copes with budget-tightening from sponsors (especially crypto ones) and waning lockdown-era interest in gaming. Last week the Madison Square Garden Co. offloaded its team, and esports org FaZe Clan said it’s laying off 40% of staff. The team Evil Geniuses is reportedly ditching high-paid players. But it could be hard to cut costs since companies running the tourneys (like Tencent-owned Riot Games) are charging lofty entry fees (even $10M+).


4. Last week's highlights

  • WFH: Hilton and Marriott announced extended-stay brands to tap into hybrid workers’ flexible travel style. Extended-stay hotels had 75% occupancy last year, compared to 63% for the overall market.

  • Smize: Budget makeup brand E.l.f stunned investors with 80% quarterly sales growth. E.l.f.’s no-frills products have gained buzz on social media, helping it become Gen Z’s #1 beauty brand.

  • Chipper: Nvidia soared near a trillion-dollar valuation as it positions its supercomputing chips as shovels in the AI gold rush. But quarterly revenue was down 13% as demand for its gaming chips sagged.

What else we’re Snackin’

  • Employed: The labor participation rate of US women ages 25 to 54 hit a record 78% in April, reversing the pandemic’s “she-cession.” Experts cite higher household expenses and hybrid work as the driving factors.

  • WFA: Digital nomads are boosting economies in cities like MedellĂ­n, Colombia, as remote tech workers clock in from cafĂ©s far from their HQs. But their deep pockets are also causing rents and prices to skyrocket.

  • Bottomless: As workers shift to more self-driven schedules, brunch has become a seven-day event in many US cities. Profit-friendly weekday eggs Benedict (and mimosas) are a boon to restaurants.

Snack Fact of the Day

The DNA of any two humans is 99.6% identical

This Week

  • Monday: US stock market closed for Memorial Day

  • Tuesday: Earnings expected from HP and Box

  • Wednesday: Earnings expected from Chewy, Nordstrom, and Salesforce

  • Thursday: Earnings expected from Dollar General, Macy’s, Lululemon, Broadcom, and Hormel Foods

  • Friday: May jobs report

Authors of this Snacks own shares of: Amazon and Nvidia

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