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Walgreens stock is cheap and oversold: is it a value trap?

Walgreens Boots Alliance (WBA) has become a fallen angel, costing investors billions of dollars in the past few years. Its stock has imploded, falling from $69 in 2014 to $9 today, meaning that a $1000 investment at its top would now be worth just $130. On the other hand, a similar investment in the benchmark S&P 500 index would be worth over $2,600.

Major headwinds remain

Walgreens Boots Alliance, the second-biggest pharmacy chain in the US, has gone through substantial challenges in the last decade. 

A closer look, however, shows that some of its most recent problems have also happened across other speciality companies in the US. 

Discount stores like Dollar General, Dollar Tree, and Family Dollar are some of the worst-performing companies in the S&P 500 index this year.

Similarly, Lululemon, one of the best-known players in athleisure, has crashed, while Ulta Beauty, the market leader in the cosmetics industry, has moved into a bear market.

The main issue is that these companies are competing with other national brands like Amazon, Target, and Kroger which have boosted their investments in their respective verticals. For example, a company like Walmart has worked to become a one-stop shop for all pharmaceutical needs.

Competition is coming from other companies as well. For example, a company like Hims & Hers that focuses on several key verticles has done well, with its stock surging by almost 200% in the last twelve months. 

Similarly, pharmaceutical companies have started to sell some products directly to consumers. Eli Lilly has launched Lilly Direct, while Pfizer will launch PfizerForAll. 

Walgreens has also faced other challenges, like retail theft, which has pushed it to lock some of its items. Also, it has had some self-inflicted issues like its large acquisition of VillageMD, which it had to write off earlier this year. 

Walgreens is not the only pharmaceutical retailer that is in trouble. Rite Aid, then the third-biggest player, went bankrupt, while CVS Health’s stock has dropped by over 22% this year.

WBA is cheap for a reason

Walgreens Boots Alliance has become one of the cheapest companies in Wall Street. It has a non-GAAP P/E ratio of 2.70 and a forward multiple of 3. These numbers are significantly below the industry – consumer staples – median of 18.5 and 18.2. The S&P 500 index has a P/E multiple of 21.

The company also has a trailing and forward EV to EBITDA multiples of 10 and 9, which are lower than the industry medians of 12 and 13. 

Therefore, to some investors, Walgreens is a good and undervalued blue-chip company that has a room to engineer a strong turnaround in the future.

As part of the management’s turnaround efforts, the company has laid off staff, closed some stores, remodelled others, and launched strategic options for its Boots business. It hopes to achieve $1 billion in annual savings and cut stores by 25% over three years.

The most recent financial results showed that Walgreens Boots Alliance’s revenue rose by 2.6% in the last quarter to $36.5 billion, while its adjusted operating income fell by 36.3% to $613 million. 

In the first six months of the year, its revenue rose by 6.2% to $110 billion, while its operating loss was $13 billion because of its VillageMD write-off. 

Most importantly, the company lowered its forward guidance for the year, with its EPS expected to come in at between $2.80 and $2.95. It attributed this cut to the “worse-than-expected consumer environment driving higher promotional activity.”

Walgreens also noted that these challenges would persist in the coming year, which explains why the stock has plunged.

Therefore, buying WBA stock now is a bet that the management will do well and turn around the company as challenges remain. Implementing a good turnaround is possible but is expected to take time, as we’ve seen in other similar companies like General Electric.

Analysts are relatively pessimistic about Walgreens, with those at Bank of America, Morgan Stanley, and Barclays having an underweight rating. Others at UBS, Mizuho, and Truist have a neutral rating.

At the same time, Walgreens’ stock has seen an elevated increase in short interest, which hs moved close to 10%. This is a sign that many investors are pessimistic about the company.

Walgreens stock price analysis

WBA chart by TradingView

The weekly chart shows that the WBA share price has been in a strong downward trend for a long time. It crossed the important support level at $27, its lowest point in 2020, and 2022 in July 2023. By moving below that level, the stock invalidated the forming double-bottom pattern.

Walgreens shares have remained below all moving averages while oscillators like the Stochastic, Relative Strength Index (RSI), and the percentage price oscillator show that it has become highly oversold.

Therefore, the path of the least resistance for the stock is downwards, with the next point to watch being at $8. However, with the stock being oversold, a single positive news can push it much higher quickly. The next potential catalyst will come out on October 15, when the company publishes its financial results.

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GameStop stock: Time to embrace the MicroStrategy approach?

GameStop (GME) stock price has moved sideways in the past few weeks as investors reflect on its recent earnings and cash raise. It was trading at $22.48 on Friday, much lower than the year-to-date high of $64.

GME is in a conundrum

GameStop is in a difficult place as its business continues slowing down as more customers move to video games streaming. 

The most recent financial results showed that the company was not doing well, with its revenues continuing to fall.

GameStop’s net sales dropped from over $1.16 billion in the second quarter of 2023 to $798 million in the last quarter.  On the positive side, its quarterly net profit jumped to over $14 million. 

The challenge, however, is that analysts expect that the company’s growth will continue moving in the negative direction in the future since there is no potential catalyst. 

The average estimate is that GameStop’s revenue will come in at $887 million in the third quarter, followed by $1.5 billion in the next quarter. Its Q4 revenue will be a 16% drop from what it made last year.

Analysts also expect that its annual revenues will drop by almost 23% this year to over $4 billion followed by $3.8 billion next year. 

GameStop’s annual revenue has been dropping in the past few years. It stood at $6.45 billion in 2019 followed by $5 billion in 2020 and $6 billion in the following year as the meme stock hype led to higher sales. It then generated $5.2 billion in the last year. 

Therefore, with GameStop, we have a company with almost 3,000 stores in the United States and thousands of employees. If the trend continues, the company will not be in existence in the next decade as customers opt for online game purchases. 

GameStop has a solid balance sheet

On the positive side, GameStop is different from other troubled retailers because of its strong balance sheet. 

It ended the last quarter with over $4.19 billion in cash and cash equivalents, $11 million in marketable securities, and over $560 million in inventories. Its cash hoard has grown recently after raising $400 million by diluting shareholders. 

Most importantly, GameStop does not have any meaningful debt, with its total long-term debt being $12.4 million.

Therefore, the management should work to change its business. Jim Cramer has recommended that it should be a bank while other analysts believe that it should be an investment company.

On the latter, one of the potential approaches would be to simply invest the cash hoard in a low-risk index fund such as one tracking the S&P 500 or the Nasdaq 100. It would then, painfully, do away with its shrinking retail stores.

S&P 500 index has an average annual return of 10.5%, while the Nasdaq 100 index averages about 13%. Therefore, assuming that its annual return is 10%, it means that the company would make a high-margin $400 million in annual revenues a year.

The other approach is to replicate what MicroStrategy has done. With its business slowing, MicroStrategy has become the biggest holder of Bitcoin, with its holdings valued at over $16 billion and its market cap being at $35 billion. 

Investing in Bitcoin makes sense because it is a rare asset that has done well over the years, which explains why Blackrock, the biggest asset manager, has started buying Bitcoin for its balance sheet. 

Analysts believe that GameStop’s management will change the company into an investment holding company, which explains why its market cap of $9 billion is higher than its cash on hand.

GameStop stock analysis

On the weekly chart, we see that the GME share price has been in a tight range in the past few weeks. It has remained at the 50-week moving average. Most importantly, the stock has formed a falling wedge pattern, a popular bullish sign. Therefore, the stock will likely bounce back in the coming weeks as bulls target the next key resistance point at $30.

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CFOs predict tech stocks to outperform for next 6 months

Tech stocks have done exceptionally well this year and that outperformance will likely continue for another six months, as per nearly half of the CFOs who participated in a recent CNBC survey.

Still, only 3.0% of the chief financial officers said their companies were spending on new AI capabilities even though Statista forecasts artificial intelligence to be a $1.0 trillion market over the next ten years.

These top executives named consumer demand, regulation, and monetary policy as possible risks for their businesses but remained bullish on the stock market, expecting further upside in the Dow Jones Industrial Average that’s already at a record high at writing.

Capex to remain put despite interest rate cuts

The US Federal Reserve lowered its key interest rate by 50-basis points this month and signalled another 50-bps of rate cuts by the end of 2024.

Typically, interest rate cuts result in increased capital expenditures as they make it cheaper for companies to borrow money for growth and expansion.

Still, only 7.0% of those who participated in CNBC’s third-quarter CFO Council survey projected higher CAPEX moving forward.

Responding to how their businesses will spend capital, more than 25% said building new factories will be a top priority while tech investments “not” related to AI was the second most common answer.  

Note that as much as 66% of the participating financial decision makers expect the 10-year to remain between 3.0% and 4.5% over the next six months.

CFOs predict Kamala Harris will outshine Donald Trump

According to the CNBC survey, over 50% of the chief financial officers expect Donald Trump’s policies to be more effective in defeating inflation while stimulating the economy.

Still, more than half of them are convinced that Kamala Harris will come out victorious in the 2024 US presidential elections scheduled for November.

Also on Thursday, a separate survey conducted by UBS revealed well over 50% of the wealthy investors in the US plan on voting for Harris.

These millionaire investors dubbed economy as currently the top issue and much like the CFOs, more than half of them also picked Donald Trump as “better equipped to address the economy.”

But Joel Naroff – president of Naroff Economics has a different opinion altogether.

Responding to another CNBC survey, he wrote:

Assuming Trump intends to follow through on his proposals, a broad-based tariff and a mass deportation, would raise inflation and slow the economy to the extent that a recession would likely follow.

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China’s industrial profits fall 17.8% in August amid weak economic growth and property slump

China’s industrial profits plunged 17.8% in August compared to the previous year, signaling growing concerns over the country’s economic slowdown.

The sharp decline, reported by the National Bureau of Statistics on Friday, comes after a brief recovery in July when profits saw a 4.1% year-on-year increase — the fastest pace in five months.

This drop highlights the significant challenges facing China’s factories, mines, and utilities: sluggish domestic demand, a prolonged housing crisis, and rising unemployment weighing on the world’s second-largest economy.

For the first eight months of 2024, profits at large industrial firms grew by a modest 0.5%, reaching 4.65 trillion yuan ($663.47 billion), a notable decrease from the 3.6% growth reported in the year’s first seven months.

This slowdown has heightened concerns that China may struggle to meet its full-year GDP growth target of around 5%, which was set by Beijing earlier this year.

In response to the ongoing economic challenges, China’s government has taken steps to bolster growth.

On Thursday, top officials, including President Xi Jinping, emphasized the need to halt the property market downturn and increase fiscal and monetary support.

The People’s Bank of China followed through by cutting the reserve requirement ratio (RRR) — the amount of cash banks must hold — by 50 basis points.

Additionally, the central bank lowered the 7-day reverse repurchase rate by 20 basis points to 1.5%, down from 1.7%, to inject liquidity into the market.

The latest economic data reveals that China’s industrial activity, retail sales, and urban investment are growing slower than anticipated.

Retail sales increased by just over 2% in August, while industrial production grew by 4.5% compared to a year ago.

Meanwhile, real estate investment dropped by 10.2% through August, maintaining the same pace of decline as in July.

The urban unemployment rate also rose to 5.3%, up slightly from 5.2% in the previous month.

The combination of weak consumer spending, a struggling property market, and rising joblessness is creating a challenging environment for China’s industrial sector.

As Beijing ramps up efforts to stabilize the economy, investors and analysts will be closely watching for signs of recovery or further deterioration in the coming months.

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CAC 40 index hits key price as LVMH, Hermes, Kering stocks lead

The CAC 40 index soared this week, thanks to ongoing stimulus measures by the Chinese government and actions by the Federal Reserve and the European Central Bank (ECB). It soared to a high of €7,740, its highest point since June 13. It has risen by over 10% from its lowest point in August.

Chinese stimulus hopes

The CAC 40 index is a leading instrument that tracks the biggest companies in France. Like other global indices, the main catalyst was the decision by the Chinese central bank and the government to implement a series of stimulus measures.

The central bank slashed interest rates again and implemented measures to lower bank reserves. As a result, the bank hopes these actions will help stimulate lending to individuals and companies. 

At the same time, Chinese officials announced major measures, which are expected to unleash over $140 billion. 

These actions came at a time when the Chinese economy was slowing. The most recent economic numbers showed that the economy rose by 4.7% in the second quarter, missing the analyst estimates.

Other numbers have shown that the country’s retail sales, industrial production, and manufacturing sectors continued contracting in August. 

China’s actions are important for both local and international companies because of its size as the second-biggest economy in the world. 

It is also crucial for the CAC 40 index because many constituent companies do a lot of business in the country. Luxury brands like Louis Vuitton, Hermes, and Kering are the most notable ones. 

LVMH stock jumped by over 14% this week, while Kering, the parent company of Gucci, jumped by 11%. Hermes, commonly seen as the best luxury company in the world, rose by 15%. 

These stocks, especially Kering, have come under pressure in the past few months as concerns about China’s slowdown continued. 

Other companies with substantial Chinese exposure, like L’Oreal, Pernod Ricard, ArcelorMittal, and Stellantis, jumped by over 5%. 

Central banks easing

The CAC 40 index continued rising because of the recent actions by global central banks, which have started to unwind their post-pandemic hikes.

In Europe, the European Central Bank (ECB) has delivered two interest rate cuts this year and there are signs that the trend will continue. Data released this week by S&P Global showed that the manufacturing and services sector contracted in September.

The Federal Reserve also delivered a jumbo rate cut last week. It slashed rates by 0.50%, a bigger number than most analysts expected. At the same time, officials who talked this week pointed to more cuts in the last two meetings of the year.

Other central banks from countries like Switzerland and Sweden also slashed interest rates this week. 

Stocks often do well when rates are falling for two main reasons. First, in most periods, money in fixed-income assets like bonds often rotates back to equities. Recent data showed that over $6.1 trillion was tied to money market funds.

Second, corporate activity tends to jump when rates fall. Data shows that deals worth over $1.6 trillion have been announced this year, a trend that will continue if rates continue falling. Analysts believe that some French companies could become acquisition targets because of their cheap valuations.

A potential deal that is being watched closely is between Unicredit and Commerzbank, the second-biggest bank in Germany. Unicredit has bought shares and its CEO has hinted that an acquisition is a possibility. Analysts expect some French banks to become targets as interest rates continue falling. 

A key risk for the CAC 40 index is that the euro has become quite strong, rising to 1.1160, its highest level in months. A stronger euro affects some of the biggest French exports.

CAC 40 index analysis

The daily chart shows that the CAC 40 index has staged a strong comeback in the past few weeks. 

It has moved back to the neckline of the inverse head and shoulders chart pattern. Also, the index has risen above the 38.2% Fibonacci Retracement point.

It has also jumped above the 50-day and 200-day Exponential Moving Averages (EMA), pointing to more upside. 

Oscillators like the Relative Strength Index (RSI) and the MACD have also pointed upwards. Therefore, the CAC 40 index will likely continue rising as bulls target the next key resistance point at €7,910, the 23.6% retracement point. 

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Chinese stocks soar, posting best weekly gains since 2008 amid stimulus optimism

Chinese stocks surged on Friday, on track to close their best week since the 2008 global financial crisis, driven by optimism over new government stimulus measures.

The CSI 300 Index, a key benchmark for China’s largest companies, climbed as much as 3.8%, marking an impressive 15% gain for the week.

The last time the index saw a bigger weekly gain was in November 2008.

The tech-heavy ChiNext Index also posted a record jump of 9.3%, while a gauge of Chinese stocks listed in Hong Kong surged 3.7%, marking its longest winning streak since 2018.

Meanwhile, Hong Kong’s Hang Seng Index gained 12.85% this week—its strongest performance since February 1998, according to FactSet data.

Investor FOMO ignites a buying frenzy

Investor enthusiasm is surging, spurred by hopes of further stimulus.

David Chao, a strategist at Invesco Asset Management, commented in a Bloomberg report, “FOMO is running high for investors as Chinese equities have rallied nearly 10% in just three days.”

Chao also predicts Chinese stocks could have “another 20% runway to go,” based on historical valuation trends.

The rapid increase in trading volume led to technical disruptions on the Shanghai Stock Exchange, where turnover reached 710 billion yuan ($101 billion) within the first hour of trading.

Brokerages reported delays in processing orders due to technical glitches. The exchange acknowledged the issue and is currently investigating the cause.

This trading frenzy is partly driven by investor fears of missing out on gains, as Chinese markets will close next week for the Golden Week holiday.

Friday’s trading volume was double that of earlier days this week, highlighting the intense buying pressure.

Morgan Stanley turns bullish on China

Investor confidence was bolstered earlier in the week by reports suggesting that China may issue 2 trillion yuan ($284.43 billion) in special sovereign bonds.

Additionally, new guidelines introduced by the country’s securities regulator aim to encourage companies to attract long-term investors, further lifting market sentiment.

Raymond Chen, a fund manager at ZiZhou Investment Asset Management, remarked, “This feels more like a market reversal than a mere rebound, and we may soon see fiscal measures rolled out as well. Many skeptics are being left behind.”

Morgan Stanley, along with other major financial institutions, has become increasingly bullish on China’s markets.

Strategist Laura Wang stated that the CSI 300 Index could see an additional 10% upside in the near term, signaling renewed confidence after months of market uncertainty.

Earlier this week, the Wall Street bank shifted its stance, no longer favoring onshore Chinese stocks over offshore counterparts due to the absence of state-backed buying.

The surge in Chinese stocks has also lifted other Asian markets with significant exposure to China, amplifying the region’s overall risk-on sentiment. As Chinese markets head into a holiday break, investors across Asia remain optimistic about further gains in the near term.

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China’s New World Development shares up 23% after CEO resignation: here’s why

Shares of Hong Kong’s major property developer New World Development surged by 23% after the unexpected resignation of CEO Adrian Cheng, a prominent figure from the company’s founding family.

The Hong Kong-listed company saw its stock price jump when trading resumed on Friday, after being temporarily halted for a major announcement regarding Cheng’s departure, CNBC reported.

In a statement, New World Development announced that Cheng, grandson of the company’s founder, is stepping down to focus on “public service and personal commitments.”

His resignation marks a significant shift in leadership, as Chief Operating Officer Eric Ma Siu-Cheung was named the new CEO.

Ma’s appointment is notable, as it marks the rare occasion when an outsider has taken the reins of a family-run business in Hong Kong.

Financial struggles amid property market downturn

New World Development has faced significant financial challenges in recent months, with the company reporting projected losses of between HKD 19 billion ($2.4 billion) and HKD 20 billion ($2.6 billion) for the fiscal year ending in June.

These losses are attributed to a combination of declining property sales, investment losses, and substantial impairment charges.

The property developer, like many in the region, is grappling with the continued slowdown in Hong Kong’s real estate sector and broader financial difficulties in mainland China.

With debt levels mounting, New World Development’s financial outlook has been weighed down by the same macroeconomic headwinds affecting the entire region’s property market.

Focus on corporate governance

The decision to appoint Ma Siu-Cheung as CEO is seen as a shift toward better corporate governance, an issue that has gained increasing importance in Asia.

Alicia Garcia-Herrero, chief economist for Asia Pacific at investment bank Natixis, remarked that the move away from traditional family succession signals a potential new direction for Hong Kong’s corporate elite.

“This shows that corporate governance is crucial. Family-run firms with preferred heirs can struggle in challenging markets. It’s a tough environment, and only the best management can thrive,” Garcia-Herrero told CNBC.

Stimulus measures boost investor confidence

The surge in New World Development’s stock price also coincides with a broader rally in Hong Kong and Chinese equities, spurred by recent stimulus measures from China’s central bank.

Investors have reacted positively to Beijing’s efforts to stabilize the economy, including fiscal and monetary policy support aimed at halting the real estate market’s continued decline.

On Thursday, China’s top leaders declared their intention to curb the property market downturn, further buoying investor sentiment.

The combination of leadership changes and China’s economic stimulus has created a wave of optimism for the embattled developer, signaling that the company’s fortunes could improve in the wake of these major shifts.

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Steel rebar futures jump to CNY 3,170: Chinas’ stimulus measures boost market optimism

In September, the futures for steel rebar experienced a notable increase, reaching CNY 3,170 per tonne.

This spike represented the highest price seen in a month, largely driven by the market’s response to new fiscal stimulus measures introduced by the Chinese government.

Following a crucial Politburo meeting, officials strongly committed to revitalizing the struggling housing sector, creating a positive outlook for future demand.

The Politburo’s emphasis on economic recovery is particularly significant, as it is not often that such meetings prioritize discussions on economic issues.

The focus on tackling the sluggish housing market has raised hopes for boosted steel demand, especially in manufacturing sectors.

By prioritizing one of the nation’s most vital sectors, this initiative suggests potential growth for associated industries, particularly in steel production.

Impacts on the construction sector

The recently introduced fiscal stimulus package clearly signals the Chinese government’s intent to support heavily indebted property developers, who are among the largest consumers of steel rebar worldwide.

By backing these companies, the government aims to prevent further economic decline and promote the completion of projects, which is crucial for maintaining steel demand.

However, this economic support comes with a double-edged sword.

While the stimulus is meant to rejuvenate the market, the ongoing efforts by Beijing to limit new construction in order to control housing oversupply pose a challenge.

As the government tries to stabilize the overheated real estate market, fluctuations in steel rebar futures may occur, given that construction activities are being tightly regulated.

Monetary measures to support growth

Alongside the fiscal stimulus, the People’s Bank of China (PBoC) has introduced an extensive monetary policy initiative.

This week, the central bank rolled out several measures aimed at injecting liquidity into the market, which included cutting interest rates, lowering the reserve requirement ratio, and creating innovative facilities to aid mortgage refinancing under more favorable conditions.

These changes in monetary policy are intended to alleviate financial pressure on both consumers and businesses. By reducing borrowing costs, the PBoC aims to stimulate demand for housing and construction projects, which in turn could indirectly lift steel demand.

This blend of fiscal and monetary policies highlights a unified effort to tackle the economic challenges brought about by the pandemic and the resulting market fluctuations.

Market sentiment and future outlook

As the steel industry considers the implications of these events, market sentiment remains mixed. While optimism about fiscal stimulus may lead to increased buying activity, concerns about potential overstock remain.

Investors and experts are keenly monitoring government statements to determine the exact scope and impact of the proposed measures.

Furthermore, continued challenges in the housing market and the government’s regulatory regulations on new projects may hinder the predicted rise.

Stakeholders realize that, while higher demand is imminent, regulatory changes may result in a more gradual recovery than previously anticipated.

The surge in steel rebar futures in September reflects China’s overall economic situation and the government’s proactive yet cautious plan to promote growth.

While the announcement of fiscal measures to revitalize the housing market has spurred optimism, the dual difficulties of supply management and regulatory constraints will play a critical role in shaping the steel industry’s future in the coming months.

As industry participants adjust to this shifting climate, maintaining a balance between fostering growth and regulating excess supply will remain critical.

The following weeks may provide further information, but for the time being, all attention is focused on China as it navigates this complex economic terrain, with steel demand at a potential turning point.

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US GDP grows 3% in Q2 2024: private inventory investment drives upward adjustment

In the second quarter of 2024, the US economy expanded at a 3% annualized rate, demonstrating its resiliency.

This figure is consistent with the prior estimate and represents a significant rise above the revised growth rate of 1.6% reported in the first quarter.

This continuous performance highlights the economy’s recovery path, which is being driven by a variety of sectors, including private inventory investment and federal government spending.

Key contributors to economic growth

The upward adjustment in private inventory investment, which increased to 8.3% from an earlier estimate of 7.5%, was a major contributor to the second-quarter growth.

This rise indicates that businesses are boosting their stock levels in anticipation of future demand. In addition, federal government spending increased to 4.3% from a previous forecast of 3.3%.

These increases in government spending are crucial, particularly during recovery periods, because they boost total demand.

Imports also played a role in the economic landscape with a 7.6% increase, revised from an earlier estimate of 7%.

This uptick in imports may imply a growing consumer base seeking foreign goods, reflecting consumer spending habits that are still on the rise, although slightly less vigorous than anticipated.

Consumer spending shows a modest increase

Despite the overall good growth results, consumer expenditure fell slightly, growing by 2.8% instead of the originally expected 2.9%.

Although this figure still reflects robust spending levels, the change raises worries about consumer confidence and spending behavior in an uncertain economic situation.

This minor reduction may reflect consumers’ cautious approach to financial decisions, affected by growing inflation and uncertainty about future economic prospects.

Downward revisions in investments and exports

However, not all indicators were on an upward trajectory. Nonresidential fixed investment, a vital measure of business confidence regarding investment in infrastructure and equipment, was adjusted down to 3.9% from 4.6%.

This reduction raises concerns about businesses’ readiness to make long-term investments amidst economic fluctuations.

Likewise, exports were revised down to 1% from an earlier estimate of 1.6%, suggesting potential challenges in international trade that could affect overall economic growth in the upcoming quarters.

Revised annual economic accounts

Along with the quarterly adjustments, the Bureau of Economic Analysis (BEA) has released its annual update of the National Economic Accounts.

The findings found that the US economy’s growth in the first quarter of 2024 was previously underreported, with the estimate revised from 1.4% to a more favorable 1.6%.

Additionally, GDP growth for 2023 has been increased upward to 2.9%, up from 2.5%. GDP expansion in 2022 was recorded at 2.5%, up 0.6 percentage points from previous projections.

These annual adjustments not only clarify the economic environment during these times, but also help policymakers and businesses assess the success of earlier fiscal actions and make educated future decisions.

Looking ahead: navigating challenges and leveraging opportunities

As the US economy continues to adjust in the post-pandemic era, the combination of stronger growth in multiple sectors and slight declines in consumer spending and exports presents a mixed outlook.

The Federal Reserve’s ongoing scrutiny of inflation and employment rates will be vital in shaping future fiscal policies that aim to maintain growth while nurturing consumer confidence.

Economic researchers will keep a careful eye on the linkages between government spending, private investment, and consumer behavior in the coming quarters.

The longevity of this boom period will be heavily influenced by how these variables connect, perhaps paving the path for a robust rebound or revealing obstacles that could undermine long-term economic resilience.

In conclusion, while the US economy is showing signs of stable development, skillfully navigating the intricacies of consumer and company spending will be critical as the year 2024 approaches.

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China’s industrial profits fall 17.8% in August amid weak economic growth and property slump

China’s industrial profits plunged 17.8% in August compared to the previous year, signaling growing concerns over the country’s economic slowdown.

The sharp decline, reported by the National Bureau of Statistics on Friday, comes after a brief recovery in July when profits saw a 4.1% year-on-year increase — the fastest pace in five months.

This drop highlights the significant challenges facing China’s factories, mines, and utilities: sluggish domestic demand, a prolonged housing crisis, and rising unemployment weighing on the world’s second-largest economy.

For the first eight months of 2024, profits at large industrial firms grew by a modest 0.5%, reaching 4.65 trillion yuan ($663.47 billion), a notable decrease from the 3.6% growth reported in the year’s first seven months.

This slowdown has heightened concerns that China may struggle to meet its full-year GDP growth target of around 5%, which was set by Beijing earlier this year.

In response to the ongoing economic challenges, China’s government has taken steps to bolster growth.

On Thursday, top officials, including President Xi Jinping, emphasized the need to halt the property market downturn and increase fiscal and monetary support.

The People’s Bank of China followed through by cutting the reserve requirement ratio (RRR) — the amount of cash banks must hold — by 50 basis points.

Additionally, the central bank lowered the 7-day reverse repurchase rate by 20 basis points to 1.5%, down from 1.7%, to inject liquidity into the market.

The latest economic data reveals that China’s industrial activity, retail sales, and urban investment are growing slower than anticipated.

Retail sales increased by just over 2% in August, while industrial production grew by 4.5% compared to a year ago.

Meanwhile, real estate investment dropped by 10.2% through August, maintaining the same pace of decline as in July.

The urban unemployment rate also rose to 5.3%, up slightly from 5.2% in the previous month.

The combination of weak consumer spending, a struggling property market, and rising joblessness is creating a challenging environment for China’s industrial sector.

As Beijing ramps up efforts to stabilize the economy, investors and analysts will be closely watching for signs of recovery or further deterioration in the coming months.

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