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- Monday's Scoop: Rattled 🌦️
Monday's Scoop: Rattled 🌦️
Chevron ditches California & Alphabet faces a breakup
Scoops Team
August 05, 2024
Hey friend - wild day in the markets. The USA is back on top of the Olympic medal counts.
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Insiders, catch up with the Weekly Scoop.
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Here’s what you need to know today to inform your work, spending, and investments:
🌎 Big picture
Unemployment keeps rising, and hiring keeps slowing.
The US services sector bounced back in July.
Corporate profits are showing solid growth, but revenue gains are lagging.
How are you feeling about the economy? |
💼 Work trends
Unemployment Rate: 4.3%
Relatively normal, low
Unemployment keeps rising, and hiring keeps slowing. According to the Labor Department, the US unemployment rate jumped to 4.3% in July, the highest in nearly three years. While much of last month’s increase can be attributed to more people entering the labor market, it was the fourth consecutive monthly unemployment rate increase and reflects a significant slowdown in hiring. Employers added only 114,000 new jobs last month, much lower than expected and below what’s needed to keep pace with population growth. Wages aren’t growing as quickly anymore either, with average hourly earnings increasing by only 0.2% in July. While none of these numbers uniquely signal a recession, the trends of the last few months indicate a tangible slowdown that has economists expecting a shift to lower borrowing costs and less restrictive economic policy from the Federal Reserve.
🤓 Inside Scoop: How does the labor force participation rate affect the unemployment rate?
The unemployment rate and the labor force participation rate are two key metrics policymakers track to understand the state of the jobs market. The labor force is defined as everyone who is employed or unemployed. The participation rate is that number divided by the whole working-age population.
The most important part to understand is that the government only defines the unemployed as those who have actively looked for a job in the past four weeks. The unemployment rate does not track those who have stopped looking for a job, like discouraged workers or people who stopped working to care for their children or elderly parents.
Comparing these two measures can provide more insight into the economy. A declining unemployment rate paired with a declining participation rate might indicate structural problems keeping people from working. Both metrics declining is not typically a good sign.
The US services sector bounced back in July, showing some positive signs for the economy. Activity in the services sector, which makes up over two-thirds of the economy, grew for the first time in six months. The Institute for Supply Management (ISM)’s nonmanufacturing purchasing managers (PMI) index rebounded from a four-year low in June. New orders and employment both saw significant increases, helping to ease some fears of a potential recession. This recovery comes after a series of downbeat economic reports last week, including higher unemployment and a slowdown in manufacturing.
📈 Investment trends
The Market: ⬇️ -3.0%
S&P 500: 5,186.33
1Mo: -7% | 1Yr: +15% | 5Yr: +78%
The market tumbled on Monday after a steep slump on Friday, marking the worst few days for the stock market in two years. With fewer traders at their desks, August can be a particularly volatile month. An ongoing trend of underwhelming economic data in recent weeks culminated with a jobs report on Friday that sparked more talk of a recession. With the stock market hovering near record highs all summer, investors took the excuse to sell and take their profits. Shifting central bank policy in Japan and heightened tensions in the Middle East added fuel to the selloff. While none of the recent economic data releases have been particularly shocking, they have substantially confirmed a trend of slower spending, hiring, and business activity.
Corporate profits are showing solid growth, but sales are lagging. We're about 75% through the second-quarter earnings season, and according to FactSet, 78% of these companies have reported more profit than investors expected. However, they haven’t beaten expectations by much. Actual profits have only been 4.5% above estimates, below historical averages. S&P 500 companies are on track to report 11.5% higher profit than a year ago, the fastest growth since the end of 2021. Despite this, sales growth is less impressive, with only 59% of companies surpassing sales expectations. This indicates that much of the profit growth may be due to cost-cutting rather than increased sales.
🏭 Companies worth watching
👍👎 APPROVAL RATINGS
Act like a boardmember and judge how companies behave. Engaging helps build your financial confidence and hold corporations accountable. (+2pts)
 Chevron | The Exodus The second-largest US oil company is relocating its headquarters from California to Houston, citing conflicts with California over climate policies amidst disappointing sales. Chevron’s shift to Texas underscores its alignment with other industry giants consolidating around Houston amidst regulatory and financial pressures.
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💭 Broader perspectives… (+2pts)
Are state governments the right people to decide how much a company can pollute? |
 Tyson Foods | Feeding Profits America's largest meatpacker finally ended the losses in its chicken business after slashing staff and shuttering facilities over the past year, reporting higher sales on lower grain and operational costs. Tyson Foods' biggest business, beef, still struggles with low supply as cattle ranchers manage drought and inflated costs.
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 Coca-Cola | Tax Time Coca-Cola will pay the IRS $6B in back taxes and interest after a judge sided with regulators about incorrect income calculations on foreign profits. The beverage giant plans to appeal the ruling and hasn't significantly shifted its financial outlook.
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 Hawaiian Electric | Settling the Flames Hawaiian Electric will pay nearly $2B to resolve lawsuits from homeowners and businesses affected by the devastating Maui wildfires that killed 102 people and destroyed 2,200 structures. The Hawaii-based power company was criticized for inadequate equipment and not turning off power before the storms despite warnings.
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 Alphabet | Search Monopoly Google lost the first major antitrust trial against a US tech giant in over two decades when a judge ruled that its deals with smartphone makers to be the default search engine illegally created a search monopoly. The tech giant may be forced to break up its search business from Chrome or Android.
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🛠️ Recommended resources (+2 pts)
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