CHRIS VERSACE: Good morning, Action Alerts Plus members. It's Tuesday, November 15, and all eyes are back on inflation following this morning's read of the producer price index. The report confirmed what we saw in the October consumer price index as both headline PPI and core PPI figures came in softer than expected.
No surprise, this has led to a sizable shift in expectations that now favor a 50 basis point rate hike by the Fed in December. And yes, markets are warmly embracing this pivot. Now, our take on the October PPI report is, yes, this is indeed welcome news. Of course, we want inflation to soften and the Fed to make progress on its goal.
However, smaller bite sizes are still likely, and that means the Fed funds rate will still be higher in the coming months than it is today and certainly where it was when we entered 2022. Now, we also have to remember the Fed will be keeping interest rates at these elevated levels for some time, and we are certainly a ways away from any conversation about the Fed becoming dovish.
Odds are that is exactly what we're going to hear from the latest group of Fed heads making the rounds both today and later this week. As we see it, there's a high probability that we simply have not seen the last set of downward revisions for both GDP and earnings expectations when it comes to 2023. It means we will continue to watch the data like a hawk as we look to get a read on both, especially as more companies announce layoffs in the face of slowing demand and the overall macroeconomic environment.
Just yesterday, Amazon joined a growing list that now seems to include Morgan Stanley, Intel-- yes-- Disney, as well as Meta Platforms, Seagate Technology, Twitter, Stripe, Microsoft, Citigroup, Credit Suisse, and FedEx that have recently announced layoffs, employee furloughs, or plans to do so. Now members, note, I did just say FedEx, so you're probably wondering, what does this likely mean for UPS?
And I have to point out that the furloughs that FedEx is announcing is at its truckload business, better known as FedEx Freight. Very different than UPS's business that skews more toward packages. And again, we continue to see UPS as a likely beneficiary of the shift back to digital shopping this holiday season.
That said, we're going to continue to watch expectations for the consumer and holiday shopping as the bout of retailer earnings continues to come in. Now, several months ago we cautioned members about the self-fulfilling nature of a recession. And to be fair, layoffs certainly contribute to that. Folks who unfortunately lose their job tend to be understandably dialing back their spending.
But so, too, do folks that are at firms making big layoffs. That uncertainty tends to put them in a defensive position, and that's a big headwind for an economy that is strongly influenced both directly and indirectly by the consumer, especially when it comes during the holiday spending season. As we talk about consumer spending, let's check in on what former AAP holding Walmart and Home Depot had to say given their earnings reports.
And digging into them, we noticed that inventories are simply not being worked off as fast as expected. In fact, Walmart, saw its inventory levels rise in October verse July, and up 12.5% year over year. Moreover, its margins took a solid hit, and odds are this is going to continue as it has to work those inventory levels down. Even complicating it more so, Walmart guided for softer than expected comp sales in the current quarter.
So when we see the shares up today, is it likely a little bit of a relief that it wasn't as bad as feared? I think so. Over at Home Depot, we saw some modest inventory declines, but nowhere near what Wall Street was looking for. Now, with those reports in hand, we continue to be concerned about these high levels of inventory, weaker than expected consumer spending, and what that combination could mean for retail expectations as we start 2023.
Thanks for joining us on today's rundown. We'll be back with another edition tomorrow.