US Treasuries Soar on Stronger-Than-Expected Economic News
This week, bond yields soared as a result of stronger-than-expected economic data. The strong economic data helps support Fed Chairman, Jerome Powell’s, narrative that additional will be needed to cool the US economy and prevent a major economic downturn. GDP growth for the first quarter showed growth at 2%, far higher than the previous 1.3%. Recently, Powell indicated that there was a possibility of two more rate hikes after inflation came in as expected at 4.0% for the month of May. Bonds reacted to this news with precision, with the 10-year US treasury yield rising 0.13 percentage points to 3.84%
Student Loan Forgiveness
The Supreme Court threw out the Biden administration’s plan to forgive student loans held by 40 million Americans, ending a $430 billion program the White House considers a crucial way to cement the president’s support among younger Americans. The 6-3 decision by Chief Justice John Roberts said that while Education Secretary Miguel Cardona holds some power under federal law to alter the terms of student-aid programs, the massive plan he approved last year vastly exceeded the authority Congress delegated to the executive branch. As a presidential candidate in 2020, Biden said he would pursue legislation to erase $10,000 in student debt per borrower. Once in office, however, he confronted a gridlocked Congress where neither Democratic efforts to cancel student debt nor Republican bills to prohibit loan forgiveness survived. Under pressure from progressives to make good on the promise, Biden chose to make permanent the decision to forgive certain borrowers’ student debt during the Covid-19 emergency.
Airline stocks trend bullish after strong travel demand
Airline stocks pushed higher on Tuesday, June 27th, after Delta Air Lines (DAL) lifted its second-quarter profit outlook and posted full-year guidance at the high end of its prior range. Delta Air Lines (DAL) CEO Ed Bastian pointed to sustained travel demand during his talk at an investor event and said airline customers are still financially healthy. “Everyone is worried about the consumer; our customer is quite strong,” he noted. Balance sheets may also be getting healthier in the airline sector, with Delta Air Lines (DAL) guiding for free cash flow for next year of $4B, which is just a shade below the pre-pandemic level. Despite Delta’s (DAL) guidance update, Bank of America raised its 2023 EPS estimates across the sector due to lower fuel costs than earlier in the quarter.
General Mills’ Message on Pricing Power
Maker of Cheerios, Pillsbury, Bisquik, and other items in your pantry, General Mills ($GIS), reported earnings on Wednesday. After quarters of aggressive price hiking and shrinking product size, General Mills is finally hitting a wall on how much incremental cost it can pass on to shoppers. There comes the point where customers see a price label and then turn to something else; that is what General Mills is seeing as sales fell below expectations. Barring an undiscovered breakthrough in consumer tastes and preferences, the company’s growth opportunity lies merely with population growth and marketing optimizations. Let this be a sign for not only other consumer staples but the economy as a whole. As companies find and hit the definitive price limits of US consumers, we can feel confident that peak inflation is behind us.