Bonds, Shutdowns, and Fed Could Yet Scupper a Soft Landing. Here’s Why.

It doesn’t help that on top of the instability government dysfunction creates there are concerns about spending. Moody’s Investor Service on Friday lowered its outlook for U.S. government debt, citing worries that the deficit could get too large. It still seems nearly impossible that the U.S. would ever actually default but Moody’s may just be saying out loud what a lot of bond traders are thinking already.

Higher bond yields have been the bane of stocks in recent months. Another leg up on yields, just after the 10-year fell back from 5%, would be detrimental.

Then there are earnings this week. Big-name retailers such as
Home Depot
and Walmart are reporting. Ideally, the results will be in line with a Goldilocks scenario for consumers–not too hot and not too cold. Too hot and the Fed may feel the need to raise rates again. Too cold and an economic slump looks more likely.

Powell warned last week he’s not entirely sure he’s done lifting interest rates. A new inflation reading on Tuesday will add to the picture. The consumer-price index came in too hot last time. Another will raise fears of more Fed hikes.

So buckle up. It’s too early to rule out a bumpy descent.

—Brian Swint

*** Join Barron’s senior managing editor Lauren R. Rublin and deputy editor Ben Levisohn today at noon when they talk with Dave Bujnowski, partner and investment manager of U.S. Equities at Baillie Gifford Baillie Gifford, on the outlook for growth stocks, financial markets, industry sectors, and individual stocks. Sign up here.

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Lawmakers Return to Consider House’s Two-Step Spending Plan

Lawmakers return to Capitol Hill today with just days left to pass a stopgap funding measure that will keep the federal government from shutting down on Friday. House members could vote as soon as Tuesday on Speaker Mike Johnson’s two-step temporary funding proposal.

• Sen. Chris Murphy (D., Conn.) told NBC’s Meet the Press that the priority is to keep the government open past the Nov. 17 deadline, and said the Speaker’s laddered proposal looks “gimmicky.” The Senate is proceeding with a clean continuing resolution, he said.

• White House press secretary Karine Jean-Pierre called the proposal “unserious” and “a recipe for more Republican chaos and more shutdowns.” Murphy said Congress must pass foreign aid before the end of 2023, before Ukraine runs out of ammunition and because Israel needs support.

• On CBS’ Face the Nation, Rep. Michael McCaul (R., Texas) said lawmakers urgently need to approve aid to Israel. The chairman of the House Foreign Affairs Committee said funding for Ukraine, Taiwan, and at the southern U.S. border are also priorities.

• Johnson’s laddered approach may face more pushback from Democratic House members than a standard continuing resolution, BTIG analyst Isaac Boltansky wrote. Democrats want a bill that keeps spending at current levels. Republicans want to avoid a fight with the Senate around the holidays.

What’s Next: The Wall Street Journal reported that if Johnson’s two-step plan doesn’t pass, House GOP members will turn to a full-year continuing resolution, keeping spending flat. It would contain adjustments for national security priorities, the report said.

—Janet H. Cho

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Retail Results Will Highlight Spending Trends for Holidays

When retailers
Walmart,

Target,
and
Macy’s
report earnings this week, Wall Street will be looking for clues about how consumers are coping with higher energy and borrowing prices, what they are buying, and how the industry is responding heading into the holiday shopping season.

• Target reports earnings Wednesday, amid signs that consumers are spending more on higher-priced essentials and less outside of the grocery aisles. Walmart, which reports Thursday, has observed more higher-income and lower-income shoppers seeking cheaper options.

• After retailers’ supply-chain headaches in 2021 and too much inventory in 2022, supply levels have returned to those before the Covid-19 pandemic. Target had 17% less in stock in its last quarter ended July 29 compared with last year, while Macy’s inventory was 10% lower.

• UBS analysts said retailers are cutting prices on items such as clothes that consumers don’t want, MarketWatch reported. UBS said discounting has increased from last year and inventory levels are at new peaks, which will weaken fourth-quarter sales and squeeze profits.

• A more subdued shopping season may have gotten off to a start already. Wednesday’s retail sales data for October are expected to dip 0.4% from September. Excluding autos, sales are expected to fall 0.2%. Both measures were up in September.

What’s Next:
Adobe
expects American shoppers to spend $221.8 billion online over the holidays, up nearly 5% from last year. Vivek Pandya, lead analyst for Adobe Digital Insights, said consumers might skip higher-priced expedited shipping, spend more during discount days, and use buy-now-pay-later services.

—Janet H. Cho and MarketWatch

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Ford production Workers Vote Throws Labor Deal in Doubt

Ford’s production workers at its Louisville assembly and Kentucky trucks plants have voted against a proposed contract agreed between the company and the United Auto Workers late Sunday. It means the strike-ending labor agreements between the union and the Big Three auto makers may not be a done deal.

• The UAW Local 862 union said 55% of production workers voted against the deal, while 69% of skilled trades workers voted for the new contract, in a post on Facebook. The local branch didn’t reveal the overall percentage result.

• The majority of workers at each auto maker need to approve the deals for them to be ratified. The UAW will reveal the final results but some local union branches have been disclosing theirs.

• The first vote, of UAW Local 900 workers at Ford’s Michigan assembly plant, was overwhelmingly in favor of the deal with 82% accepting the proposal.

What’s Next: With some unions posting results and others not, it’s hard to say whether the deals are at risk of being rejected. But with more votes by
Stellantis,
Ford, and
GM
workers to come, investors will be watching for more signs of doubt.

—Callum Keown

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House Prices Could Be Poised for a 2024 Reset

Housing market bears have been predicting significant home price declines since the pandemic began. A prolonged drop could be around the corner for the first time in more than a decade, especially if the buyer-seller dynamic changes, or a recession or mass layoffs shake consumer confidence.

• The typical U.S. home value is more than 40% higher than it was before the Covid-19 pandemic, according to Zillow. Even buyers who purchased their homes at the height of housing market mania in June 2021 have seen a typical 17% increase in their home values.

• Matthew Walsh, a Moody’s Analytics housing economist, expects prices to slump in the second half of next year for the first time in more than a decade. Affordability right now is an issue. He estimates prices will fall between 3% and 4% in 2024’s fourth quarter from a year earlier.

• A drop in 2024 isn’t the consensus view. Several industry forecasts based on home-price indexes expect prices to keep rising. With mortgage rates near 8%, a typical buyer would need to devote more than 40% of their income to monthly payments, ICE Mortgage Technology said, the largest percentage since 1984.

• The National Association of Home Builders releases its Housing Market Index for November, rating the relative level of current and future house sales. Economists forecast a 40 reading, matching the October data. The index is at its lowest level since January.

What’s Next: Housing starts for October are expected to fall 1% from the prior month, a reverse from September’s 7% monthly gain. Building permits and annualized housing starts are also expected to decline from the prior reading.

—Shaina Mishkin and Liz Moyer

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Disney’s Latest Marvel Action Movie Flops in Debut Weekend

Walt Disney’s
latest movie The Marvels failed to deliver at the box office in its opening weekend, bringing in $47 million domestically. That’s sharply lower than expectations and underscores the struggle the Hollywood studio has had with the brand after 33 Marvel Cinematic Universe films. The Marvels was the worst opening performance of all of them.

• The actors’ strike, tentatively resolved last week, prevented stars Brie Larson and others from promoting the opening. Still, earlier estimates had opening sales at around $75 million to $80 million. Two other films in the series opened below $60 million: The Incredible Hulk in 2008 and Ant-Man in 2015.

• International sales for The Marvels were $63.3 million, bringing overall sales to about $110 million, which is also below expectations. The film cost more than $200 million to make and $100 million more to promote, Variety reported.

• Comscore’s senior media analyst Paul Dergarabedian told Barron’s that superhero, and action films in general, were a once failure-proof genre but moviegoers’ tastes have evolved. With plenty of options on streaming and elsewhere, studios have to deliver more than just a cookie-cutter experience, he said.

• Disney has delayed the release of four other Marvel Cinematic Universe films, including Deadpool 3 to mid-2024 and Captain America: A Brave New World to 2025. Disney CEO Bob Iger, eager to cut costs, has already said the studio will spend less on Marvel productions.

What’s Next: More action films are slated for release during the coming holiday season, including Lions Gate Films’ The Hunger Games: The Ballad of Songbirds & Snakes and
Sony’s
Napoleon. Disney has an animated adventure feature Wish set to open Thanksgiving weekend.

—Liz Moyer

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MarketWatch Wants to Hear From you.

People looking to buy a home know all about high mortgage rates and plunging affordability levels, but what about the down payment? Do house buyers have to have 20% at a minimum?

A MarketWatch correspondent will answer this question soon. Meanwhile, send any questions you would like answered to [email protected].

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner