Finimize - 🇺🇸 The US has money issues

What’s going on here?

According to an August report from the Federal Reserve Bank of New York, Americans have been falling behind on their debts – so investors wiped certain stocks from their portfolios.

What does this mean?

More Americans have fallen behind on their credit card payments over the past year than at any other time in the last decade, with 9.1% of accounts hitting “delinquency” status. Car loan delinquencies hit a 10-year high, too, landing at around 8%. In fact, Ally – a major car loan provider – warned of a spike in late payments and bad debts in July and August. That’s serious: car payments are usually one of the last bills to slip, as wheels are more than a nice-to-have for many Americans. Investors heeded the warning, ditching consumer lending stocks Synchrony Financial, Bread Financial, and Ally Financial after the news.

Why should I care?

For markets: There’s nothing like a fresh trim.

Investors have been searching for signs of a recession, anxious that two years of rising interest rates could have been too much for the US to handle. Unemployment now sits at 4.2%, after all – up from 3.8% at the same time last year. Plus, hiring slowed down in June and July – although it did pick up in August. Now, the Federal Reserve is expected to cut rates at its next meeting, which could help borrowers catch up with their dues. But if the economic damage has been done, the decision could be too little, too late.

The bigger picture: Big Tech’s old news.

Investors have switched their attention to stocks related to consumer staples – that’s products that still sell, regardless of the state of the economy – like Coca-Cola and Colgate-Palmolive. And in their droves, too: the consumer staples sector has outperformed the S&P 500 in six of the last eight weeks, calming some of the concerns that the index’s rally was being driven purely by Big Tech.

What’s going on here?

BHP, the world’s biggest mining firm, warned that the rise of AI will exacerbate a looming copper shortage.

What does this mean?

Copper’s a must-have metal for many of the industries tasked with helping the world achieve net-zero emissions targets. Think renewable energy, power cables, and EVs. Problem is, producers are getting less copper out of existing mines, and firms aren’t investing enough in new sites to keep production steady – let alone ramp it up. That has many analysts predicting a shortage in the future – and according to BHP, AI will only aggravate the issue. See, the sector uses copper to build, power, and cool the data centers that AI applications rely on. In fact, BHP expects data centers to account for up to 7% of total copper demand by 2050, up from less than 1% today.

Why should I care?

Zooming in: We’re still flush – for now.

That drought is forecast for further down the line, though. Demand for copper actually looks weak right now, mainly because China – responsible for half of the world’s consumption of the metal – is contending with stuttering economic growth and a long-lasting property slump. So while BHP expects companies to be fighting over copper in the future, the mining giant expects supply to dwarf demand not just this year, but next year too.

For markets: Investors love a sale.

That weak short-term outlook has already pushed the price of copper down 15% since its peak in May. So now, Goldman Sachs expects the metal to fetch an average price of $10,100 per metric ton next year – when only four months ago, the investment bank had predicted an all-time high of $15,000. Of course, for investors who believe the longer-term forecasts, the low point could be an opportunity to buy the metal – key in both the AI and decarbonization megatrends – for a relative bargain.