Let’s talk about three data points since yesterday’s scary Fed meeting that help explain why the central bank does what it does.
(1) GDP. It rose only about 7% last quarter, compared to the 5.5% estimate. For the year, the economy grew at 5.7%. And that is in “real,” ex-inflation terms. Add the price gains, which are 4% for the year as Commerce calculates, and this means that nominal GDP rose almost 10% last year. that is way higher than the 4% pace it had advanced little in the past decade, when the Fed had to continue to reverse course with its tightening plans. And remember, at the moment, the Fed is still doing quantitative easing! For an economy growing by 10%, and a prime-age employment-to-population ratio that recovered in just two years to 79% in December-something that is needed seven years to reach the past decade, despite a higher starting point, as MKM’s Michael Darda continues to point out. “In other words, the Fed is behind the curve,” he wrote.
(2) Technology revenues. First it was Microsoft, yesterday on strong earnings despite ugly post-Fed market action. Its cloud business grew “only” 46% year-on-year, but the CFO said the segment will see “acceleration” of growth this quarter. And now, we have ServiceNow rising 13% after posting 40% growth in charges, the strongest year-on-year growth since 2018. “The general concern/anxiety about‘ deceleration ‘the software is DEBUNKED, “Bank of America’s tech traders wrote this morning. Which is a big deal – it means the basics for a major part of the tech sector will certainly look solid when other “pandemic winners” like Netflix and Peloton hit a post -Covid demand gap.
(3) Tesla. Its recent run-up to the trillion dollar mark was just done by people more nervous about what should happen to the market if its growth story fizzled out. But last night’s earnings did more to show why its premium was justified-not from everything about autonomous driving and the “humanoid” bot, but from the nuts and bolts of the car business. its. Tesla’s automotive gross profit margin last year was a stunning 30.6%, up from 24% last year during a historic supply-chain squeeze and a chip shortage that kept it running under full capacity. Compare that to General Motors and Ford, which ran at 14% and 12% respectively in their most recent quarters, according to Reuters. Its revenue grew 65% last year-even before its massive new factories in Texas and Berlin went online. Shares actually dropped 5% this morning-and who knows where they will end up-but its success is no mirage.
In other words, the US economy is showing strong growth even during the Omicron outbreak; a continuous shift toward software and digitization that Goldman says should help boost productivity in the long run; and continued success in the face of change. This may not be a recipe for all stock to do properly, but this is certainly no recipe for failure.
Let’s meet at 1pm!
Kelly
Twitter: @KellyCNBC
Instagram: @realkellyevans
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