Finimize - 🤫 Buffett’s been hinting

What’s going on here?

Wall Street’s big banks aced the Federal Reserve’s stress tests.

What does this mean?

Ever since the 2008 Wall Street horror show, the Federal Reserve (the Fed) has subjected big banks to yearly tests, to see if they’re prepped for real-world problems. And this year’s paper was a real doozy. Banks had to prove that they could navigate a serious nightmare situation: unemployment rising to 10%, commercial real estate prices diving by 40%, house prices taking a 38% tumble, and short-term interest rates nearing zero. The results, believe it or not, were pretty promising: although that doomsday scenario would see the 23 biggest US banks lose a chunky $541 billion, they’d still have more than enough left over to survive the freefall.

Why should I care?

The bigger picture: Rainy day funds.

Investors watch stress tests keenly: after all, they determine how much banks need to set aside as a cushion, meaning the rest could potentially be paid out to shareholders through buybacks or dividends. And this year, heavyweights like JPMorgan and Bank of America aced the tests – prompting a small investor celebration and a share price bump to boot. But there’s a twist: see, rumor has it that US regulators might soon raise the bar on reserve requirements. There is a silver lining, though: those new rules could extend to midsized banks too, the instigators of this year’s banking crisis, which could help steady the sector.

Zooming out: Get on your hiking boots.

For those praying that rate hikes are done and dusted, the recent meeting of the world’s central bank heavyweights may be a bit of a downer. See, the Fed, the Bank of England, and the European Central Bank have hinted that they’re not finished wrestling with inflation. And that means more rate hikes could be on the horizon, sticking around longer than folk expected too.

What’s going on here?

H&M, the mammoth retailer, had a moment of triumph this Thursday, bagging a win in the increasingly contested clothing world.

What does this mean?

H&M’s been knee-deep in unsold clothes since 2016 – but last quarter, things seemed to be turning around, with inventory levels dipping to their lowest since the pandemic. And the best part? The firm did it without offering any extra promotions. Its ongoing cost-cutting campaign is bearing fruit too: the clothing giant has closed hundreds of underperforming stores in the past year, and decided to open new ones only in high-potential “growth markets”. Sun-struck Europe added to all that positivity as well, with a heat-induced boost in summer clothing sales. The upshot was that H&M wound up beating profit expectations – and with a 10% sales jump in June, the good times might keep on rolling. Investors, ever predictable, swiftly drove H&M shares to a 16-month high.

Why should I care?

The bigger picture: Time to Shein.

H&M is still playing catch-up with its arch-rival Zara, but the two firms have a shared concern: the Chinese fast-fashion juggernaut, Shein. With consumers tightening their belts, Shein is eating into their market share, and H&M’s responding by trying to boost the appeal of its higher-priced offerings instead. That strategy puts the company even more at loggerheads with Zara – but with a shrinking pie, tough decisions have to be made. After all, Shein’s growth has already made H&M’s aim of doubling sales by 2030 look like a pipe dream.

Zooming out: Dirty laundry.

Fast fashion’s a big polluter: see, the industry relies heavily on materials like oil-derived polyester and water-hungry cotton. And with clothing production doubling while the population has increased by around 30%, it seems the world’s shoppers are buying a whole lot more than they need. That’s brought fashion’s share of global carbon emissions to almost 10% – suggesting that sustainable fashion initiatives have seriously got their work cut out for them.