Equity markets posted their best weekly gain of the year after the Federal Reserve continued hinting a decision to hike rates is likely at its mid-December meeting. More importantly, the Fed is signaling the pace of liftoff will be moderate at best. The S&P 500 gained 3.3 percent, the Dow Jones Industrial average rose 3.4 percent, and the NASDAQ Composite gained 3.6 percent.
Sub-Prime Auto Lending Revs Up
History doesn’t repeat itself; it rhymes, so the saying goes. This is why financial regulators are growing increasingly concerned about the rise in subprime lending in the auto industry. In the six months leading up to September, more than $110 billion of auto loans were originated for borrowers with less than “good” credit, or a FICO score below 660. Of that, more than $70 billion went to those whose credit is scored as “bad” (below 620), according to data released last week by the Federal Reserve Bank of New York. This is nearly the same level reached in 2006 just before the financial crisis. This comes as auto lending as a whole has been reaching historic heights. Following the financial crisis, lending began recovering in 2010 and, by 2013, it returned to its pre-crisis peak. Earlier this year the amount of originated loans topped $1 trillion for the first time. The deteriorating credit quality of the aggregate loan portfolio is having little impact, at least so far. According to data from the New York Federal Reserve Bank, just 3 percent of auto loans were more than 90 days delinquent in the third quarter. This has actually improved from 5 percent nearly five years ago.
Inflation Shows Up at Thanksgiving Table
The average cost of a Thanksgiving dinner is rising this year by nearly 1.5 percent according to the 30th annual price survey conducted by The American Farm Bureau Federation. For the first time ever, the average cost of the turkey dinner for ten people will top $50. This compares to just under $29 in 1986 and between $49 and $49.50 where the price has hovered since 2011. The study uses information from 138 volunteers who check prices at grocery stores in 32 states. The largest component of this basket is obviously turkey, and this year the average price of a 16-pound turkey will run $23.04, up more than 6 percent year-over-year. Most products included in the basket have increased since last year with the notable exception being milk. The average price of a gallon of whole milk has dipped nearly 14 percent to $3.25. The price of canned pumpkin pie mix rose only 2.5 percent, surprising many experts who expected a shortage due to heavy Midwestern rains in late summer.
Stock Splits Lose Favor
Late last week, Nike became only the 11th company within the S&P 500 to announce a stock split this year. By this time in 2000, more than 83 companies had done so. Stock splits have historically been a way for management teams to attract retail investors with a more attainable price per share. Now, however, now that seems less important to CFOs. As the average stock price has risen since the housing crisis, so have the number of companies with per share prices above $100. Within the S&P 500, 114 companies now have a share price above $100. This compares to just 12 in 2000. In recent years, stock splits have taken a back seat to share buybacks. According to FactSet, S&P 500 companies used just over 5 percent of their cash towards share repurchases in 2000. That number has climbed to nearly 7 percent so far this year.
Fun Story of the Week
Beginning in 2016, the brewer of Guinness is changing the recipe of its famed Irish stout for the first time in more than 250 years by removing one ingredient: fish guts. The move comes after months of protests by vegan beer lovers. Guinness, like many other brewers and wineries has used a substance called isinglass for centuries to clarify the beer and help stabilize yeast. Isinglass is a collagen derived from the swim bladder of a fish. While most of substance is filtered out during brewing, traces of the fish bladder remain in every pint. Fortunately, newer technologies are taking hold in the brewing community, and the usage of isinglass is being phased out by Guinness and others.