Consumer Sentiment vs Reality - Consumer sentiment has been unreliable in predicting the economy's direction [1] - Consumers are good at judging their own finances, but pessimistic about the overall economy due to media influence [2][3] - Consumer sentiment is often influenced by political affiliation [4] - It's more reliable to observe consumer spending habits than to rely on sentiment surveys [6][7] Consumer Spending and Economic Resilience - Household consumption has been steadily increasing [7] - Big banks' earnings reports show no significant cracks in the US consumer [9] - Charge-offs at big banks were below expectations, indicating no consumer credit stress [10] - The job market is the primary driver of consumer spending [10] - The labor market is cooling, but still adding jobs at a reasonable pace [11][12] - As long as real wage growth is positive, consumption will continue to be supported [13] Inflation and Tariffs - The year-over-year CPI number of 27% is driven by a low base period in the previous year [14] - Month-over-month CPI numbers are within or below expectations [15] - Economists are finding evidence that tariffs are pushing prices up, especially in product categories dominated by imports [18][19] - Trump's tariffs might raise inflation from 27% to 35%-4% [21] - Inflation had fallen to a low of 23% earlier in the year, but is now trending in the wrong direction [24]

Inflation & Tariffs Impact - CPI rose 27% last month, core CPI increased by 29%, potentially indicating tariffs are impacting the economy [1] - Core goods inflation, excluding autos, rose approximately 03% in June, suggesting a tariff impact [2] - If prices are up 03% and sales are up 03%, real spending on goods is declining in America [3] Economic Slowdown & Recession Risk - The analyst maintains a reasonable expectation of a potential recession [2][5] - Labor markets are cooling, with hourly earnings not rising at a particularly strong rate [4] - Consumer spending will likely moderate due to slowing disposable income growth [6] - The housing market may already be in recession, with prices declining in major markets [8][9] - State and local governments are tightening their belts, exemplified by layoffs [9] Key Indicators to Watch - Employment and income growth are crucial indicators for assessing the consumer and the overall economy [10][11] - Declining home prices, the most important asset for many consumers, signal potential economic slowdown [11]

Economic Stimulus - China should add up to 1500 billion yuan (approximately $209 billion) in new stimulus to boost consumer spending [1] - Maintain currency flexibility to counter the drag on growth from US tariffs [1]

Consumer Behavior - Chinese shoppers are increasing spending on leisure activities [1] - The focus of spending is shifting away from designer brands [1]

Consumer Spending Trends - Bank of America Institute data indicates a 2% increase in debit and credit card spending in June [1] - While consumer spending rebounded in June, it didn't fully offset earlier declines, suggesting a cooling trend [2] - Lower-income households are primarily driving the pullback in spending, while higher-income household spending accelerated by 1.2% [5] - Discretionary travel spending is declining, but restaurant spending shows a dichotomy, with fewer households dining out but spending more per transaction [6][7] Income and Wage Growth - Higher-income households experienced accelerated after-tax wage growth, nearing 3%, for the third consecutive month [9] - Lower-income households saw decelerated after-tax wage growth, increasing by 1.6% compared to 1.8% previously [10] Credit Card Usage - Younger generations entering a challenging labor market are a focal point regarding credit card usage [11]

Core Insights - Amazon's sales dropped 41% on the first day of its four-day Prime Day event compared to the first day of last year's two-day event [1] - Momentum Commerce's CEO suggested that the decline in sales was due to consumers adding items to their carts but delaying purchases for potentially better deals [2] - Amazon's Vice President expressed satisfaction with shopper engagement and noted that the extended duration of Prime Day was in response to consumer demand for more time to explore deals [4] Sales Performance - The first day of this year's Prime Day saw a significant sales drop, but there is potential for overall sales to surpass last year's event due to the longer duration [2] - Last year's shorter Prime Day encouraged quicker purchases to avoid missing discounts, contrasting with this year's consumer behavior [3] - Adobe reported that Prime Day's kickoff surpassed Thanksgiving 2024's eCommerce spend of $6.1 billion, with 50.2% of sales made via mobile devices [5] Market Context - Prime Day, alongside Walmart's Walmart+ Week, is viewed as a test for consumer spending amid economic uncertainty and declining consumer confidence [6] - Retailers are closely monitoring consumer behavior changes due to global tariffs and economic conditions [6]

Market Sentiment & Trade - The market has absorbed tariff headlines well, with a 26% increase since Liberation Day despite existing uncertainties [1] - There's a prevailing sentiment that bad news isn't causing sell-offs, and good news is driving the market forward, despite trade deal uncertainties [2] - The market anticipates potential rate cuts and a recovery in EPS and GDP in 2026 [5] Macroeconomic Factors - Macroeconomic degradation, specifically in unemployment or core CPI, could impact how news is absorbed [3] - Increased pricing pressure is emerging, particularly affecting low-end consumers, potentially impacting philanthropic giving and smaller businesses [4] - Philanthropic giving and spending reflect sentiment about the future rather than past data [7] Economic Dynamics - Significant cash reserves exist on the sidelines from individuals and institutions, suggesting potential for increased money velocity [8] - The "fourth industrial revolution," largely US large-cap dependent, is expected to broaden out to other sectors [8] - About half of the S&P is performing better than the S&P itself, with 175 stocks up over 10% year-to-date, indicating broadening market participation [9] Potential Risks - The Build Back Better (BBB) initiative could exacerbate existing pressures on the low end of the consumer market [10]

Market Outlook - The market reacts significantly to Trump's tweets, but the actual economy is slowing sharply in the second half [1] - Strategists are mostly following what the market is doing, not thinking outside the box with big bold numbers [8] - May to October is a seasonally fraught period, with weakness occurring 60-65% of the time in the last century [9] - There are signs consumers could slow down, as seen in disappointing early Amazon Prime data [10] Inflation and Economic Conditions - Inflation is expected to breach 3% by year-end, based on the core personal consumption expenditure deflator (core PCE) [2] - A soft stagflationary environment with inflation above the 2% target and a slowing economy will affect S&P 500 earnings, including big tech [2] - The market may experience an echo of the stagflationary trades seen in the first four months of the year, though potentially half as bad (around 12% drop instead of over 20%) [3] - Inflation faced easy anniversary comparisons, but six-month annualized data and individual components of core PCE suggest inflation is sticky [5][6] Fed Policy - With a slowing economy and sticky inflation, fewer Fed cuts are expected [10] Potential Market Pullback - The market anticipates some weakness in the second half of the year [9] - A pullback is expected due to a slowing economy, slowing earnings, sticky inflation, and fewer Fed cuts [10]

Consumer Spending & Demand - The company is seeing good demand and strength in consumer spending, with growth in the high 30s percentage year-over-year [1][2] - Consumers' shopping patterns, borrowing, and ability to pay back loans remain strong [2] - The company is witnessing a shift from revolving credit to responsible payment options [7][9] BNPL & Credit Scoring - FICO's move to reflect buy now pay later (BNPL) data in credit scores is considered beneficial [3][4] - A significant percentage of people who haven't tried BNPL services feel it doesn't reflect their repayment history or help build their credit score [3] - The company has been reporting transactions to credit bureaus since 2017, demonstrating responsible repayment behavior by customers [4] - The company encourages the rest of the BNPL industry to participate in reporting to credit bureaus [5] Business & Industry Trends - Elective medical services are becoming a component of the company's volume, indicating a shift in BNPL usage [8] - The company expects continued strength and is optimistic about the second half of the year [10] - Consumers are apportioning their money and seeking fixed payment timelines for a sense of control and confidence [10]

Consumer Travel Trends - TSA expects to screen 185 million travelers this holiday weekend, with recent days ranking among the busiest in TSA history [1] - TSA hit a new all-time high a week ago Sunday, screening over 3 million people [3] - People like to travel and continue to spend, regardless of economic conditions [2] Booking Holdings' Strategy & Performance - Booking Holdings is investing heavily in generative AI to develop tools like the AI trip planner on Bookingcom [3][5] - Booking Holdings emphasizes its global presence, noting that the US is a small portion of its global business [7] - Regional events and geopolitical risks impact specific areas, but Booking Holdings' global reach mitigates overall impact, as travelers may shift destinations [9][10] AI and Technology in Travel - Travelers want help and assistance to ensure they're getting the best value for their trip [4] - AI is transforming the travel experience, offering assistance in location, translation, and overall ease of travel [3][5] - The use of AI in travel is continuously improving, with Booking Holdings aiming to be a leader in this area due to its scale and long-term investment [5]