Today's Scoop:

Hey friends, if you have questions about what’s happening in the economy, don’t hesitate to reply to any email directly. We’ve got you.

Here’s what you need to know today…

1. The banking system can withstand a severe recession.

2. Rents are falling across the country.

3. Policymakers are still on high alert for signs of an inflation comeback.

S&P 500: 4,376.86
1Mo: +4% | 1Yr: +15% | 5Yr: +61%

The market didn't do much today. We're in a bit of a news and data drought until the end of the month.

Banks are solid and prepared for the worst. The Federal Reserve annual bank stress test evaluated whether America’s biggest banking institutions would be able to continue operating and lending in the face of a severe recession, with unemployment surging to 10%, a 40% decline in commercial real estate values, and a 38% drop in housing prices. All 23 banks passed the test without a problem. [🤓]

Rents are falling. For the first time in three years, the national median rent was lower than the year prior. Realtor.com reported the May median rent reached $1,739, roughly 0.5% lower than in May 2022. While rents have decreased slightly since their peak in July 2022, they’re still more than 25% higher than in 2019.

Policymakers are still on alert for an inflation comeback. The Federal Reserve Chairman reiterated many of his recent comments on potential policy at a conference in Portugal. They’re ready to raise interest rates and restrict the economy further if inflation doesn’t keep trending lower.

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• DoorDash shakes up the delivery model with hourly wages

• Domino’s Pizza has the largest EV fleet in the country

• UBS plans to cut half of Credit Suisse’s staff in the merger [🤓]

• General Mills says consumers aren’t accepting higher prices anymore

• Bank of America’s trying to catch up with Chase [🤓]

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Bank Business Models

Wall Street bank business models can be opaque and confusing. They mainly earn revenue from lending, managing investments, executing trades, and brokering corporate deals.

The traditional banking business model entails taking deposits, paying some interest to the depositor, then lending that money to someone else at some higher interest rate. Banks profit from the spread between the rate they pay the depositor and what they earn from their loans.

Investment banking isn't actually the investing arm of the bank. Investment banks assist companies with large transactions, earning fees for their advice. In the same way that a real estate broker earns a commission for helping sell your house. Investment banks earn a hefty commission for helping you value and sell your company to other companies or the public (IPO).

The investing arm of the bank is called asset or wealth management. These divisions earn fees to oversee clients’ money, provide advice, and invest on their behalf.

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