Breakfast Bites - US CRE worries

Rise and shine everyone.

It’s Jobs Friday. Now that the big tech earnings reports are behind us, the focus is on the jobs numbers. The Fed said weakness in the employment report could force them to cut sooner, and that’s what the market is focused on with the macro. While January tends to be a seasonally weaker month for payroll creation, most analysts estimate a solid number for the month given the weather patterns and expect the participation rate to also improve after last month’s surprising decline. The read-through from the higher JOLTS data and somewhat weaker jobless claims also suggest we could see higher payroll numbers. Here are the estimates:

And speaking of earnings, Meta absolutely crushed it, with the stock price over +15% after hours on initiating a quarterly dividend of $0.50/share. Amazon was up over +7%.

But, Apple was down almost -3%. While Apple beat overall EPS, Revenue, and iPhone estimates, the rest of the earnings were lackluster. Most revenue numbers were down and below estimates, including China - which Tim Cook said was the result of a stronger Dollar. They did see iPhone active devices surpass 2.2B, and talked about the announcement of AI features this year.

Barclays on Apple Results: “We continue to see demand weakness across hardware categories echoed by continued weak sell-through and excess inventory…. Near term, we expect heightened macro uncertainty and demand weakness to remain an overhang.”

US Equity Futures are higher this morning after earnings and a higher close. Regional banks are still down on CRE concerns. Concerns are spreading even to Japan, where a bank with US CRE exposure issued a loss warning. This issue now is different from what happened last March because this constitutes a credit default issue, and there are concerns that this could spread. The market is also speculating on the Fed not discussing the strength of banks. Thus far, this is what I have:

Goldman Sachs on bank CRE Exposures: “In our view, this episode is largely idiosyncratic; through a comprehensive analysis of bank financials, we conclude that delinquency rates in CRE loan books, albeit elevated, do not pose a systemic risk to the banking system.”

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