🧭 The Weekly Scoop

Hey friends, Happy Friday! Look out for our Explained on the moral debate around stock buybacks this Sunday.

Welcome to our 146 new subscribers this week! Take a second and share the scoop!

Here’s what you need to know this week.…

You never know what you’ll get from the markets during a holiday week, especially a summer holiday week. One unexpected news event can send markets flying and ruin the supposedly-slow week for that unfortunate analyst holding down the office.

Summer can often bring more market volatility because of a substantial decline in trading volume. As much as it seems like the stock market is a big machine, it's still run by people. As portfolio managers and analysts head to the Hamptons and more people take a moment to unplug, trading volumes decline.

A market with fewer participants allows for more significant disruptions. Imagine the stock market like the Price is Right, with contestants guessing the price of a new car. When you have more people with more information, there will be a concentration of people valuing the brand-new car around the same price. Each one may be adding $1 to the other’s guess. Now if you add an unexpected event that’s harder to value (maybe you learn a famous person owned the car), the guesses spread out more. That’s why unexpected news shakes the market. Depending on how unexpected the news is, there will still likely be a concentration of people guessing something similar. But then, as you take people away from the group, there’s less concentration on a single price. Fewer participants plus new unknowns lead to wide price swings. Luckily, nothing crazy happened this week.

Overall, signs point to a continued slowdown in the economy that’s not slowing quickly enough for policymakers to end their war on inflation. [🤓] So investors are starting to expect higher interest rates again. Next week starts earnings season, when we hear financial updates from every public company. Get pumped!

🐂 Reasons to be optimistic:

• There are still a lot of job openings, but the numbers are shrinking. The Bureau of Labor Statistics reported there were 9.8 million open positions at the end of May, a decrease of roughly 500,000 from April but well above pre-pandemic levels of around 7 million. Healthcare and finance cut back the most, while education and government organizations expanded recruiting.

• Companies hired way more than expected in June. A report from payroll provider ADP showed businesses hired 497,000 people in June, more than double what economists projected. ADP’s reports have been a little out of sync with the Labor Dept’s official jobs report that comes out today. [🤓]

🐻 Reasons to be pessimistic:

• Policymakers are still ready to raise interest rates further if inflation makes a comeback. Minutes released from the June Federal Reserve meeting confirmed many of the policymakers’ recent comments indicating higher rates may be coming. They’re ready to raise interest rates and restrict the economy further if inflation doesn’t keep trending lower. Investors place an 80% likelihood of a 0.25% increase in baseline interest rates, making loans, credit cards, and mortgages more expensive. [🤓]

• Consumer spending has been slowing. On Friday, the Bureau of Economic Analysis reported personal consumption expenditures rose only 0.1% in May. When considering inflation, personal spending hasn’t grown much in the past four months. Shoppers have kept a tighter grip on their wallets, not opting for unnecessary purchases.

• Living costs are still rising. Policymakers’ preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Index, rose 0.3% in May. Overall, price tags are only 3.8% higher than a year ago, but core living costs are still rising faster than normal each month.

• Hiring may be strong, but wages aren’t rising anymore. A report from payroll provider ADP showed businesses are paying workers less than they were at the start of the year. Median salaries are up only 6.4% over the past twelve months. ADP’s reports have been a little out of sync with the Labor Dept’s official jobs report that comes out today. [🤓]

• Layoffs picked up last week. The Labor Department reported initial jobless claims rose to 248,000, slightly above pre-pandemic averages. Layoffs and unemployment have been extremely low until this month, when layoffs picked up for three straight weeks.

• US manufacturing might be in a recession of its own. The Commerce Department said factory orders for American-made goods rose only 0.3% in May, less than half of what economists expected. The Institute for Supply Management's manufacturing index has been in contraction for eight months, the longest stretch since the ‘08 crisis. Factories are receiving fewer orders from retailers trying to clean up their inventories, and budget-conscious consumers are shifting spending from stuff to services like travel and restaurants.

• Businesses have been cutting back big spending too. The Commerce Department reported businesses had purchased less equipment for two straight quarters; the first tthat'sat’s happened since 2020.

• Student loans will not be forgiven. The Supreme Court struck down President Biden’s student loan forgiveness plan on Friday, invalidating the program as unconstitutional. Tens of millions of student loan borrowers will expect to restart payments in October. President Biden vowed to produce a new plan to provide relief to borrowers.

🏡 For your home

6.9% = Average 30-year mortgage rate

That’s up from 6.8% a month ago and up from 5.8% a year ago. _{Mortgage Bankers Association, 6/29/23}

$396,100 = Median existing home sales price

That’s up from $386K a month ago and down from $409K a year ago. _{National Association of Realtors, 5/31/23}

💼 For your work

248,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 236,000 the week before and slightly above pre-covid averages. _{Labor Dept., 6/29/23}

339,000 = New jobs added in May

That’s up from 294K the month before and above pre-covid averages. _{Labor Dept., 5/31/23}

3.7% = Unemployment rate

That’s up from 3.4% the month before and still near the lowest rate in 50+ years. _{Labor Dept., 5/31/23}

9.8M = Available jobs

That’s down from 10.3M the month before and well above pre-covid averages of ~7M. _{Labor Dept., 5/31/23}

Who’s hiring: Education and government organizations

Who’s firing: Healthcare and finance

👜 For your wallet

4.0% = Cost of living increase (1-Year Inflation)

Living costs are 0.1% higher than the month before. Normal inflation sees prices rise by 0% to 0.2% per month, 1-2% per year. _{Bureau of Labor Statistics, 5/31/23}

5.8% = Groceries cost increase (1-Year inflation)

Groceries are 0.1% more expensive than a month ago. _{Bureau of Labor Statistics, 5/31/23}

$3.52 = National Gas Price/Gallon

That’s down from $3.55 a month ago and down from $4.78 a year ago. _{AAA., 7/6/23}

💰For your savings

0.42% = Average interest banks pay on a savings account_{, FDIC, 6/20/23}

5.25% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 6/14/23}

The Federal Reserve has raised baseline interest rates from 0% to 5.25% in the past year. Make sure your bank is paying you higher interest on your savings.

Find a high-yield savings account.

💸For your investments

+1% = This past week’s change in the US Stock Market

+3% past month, +15% past year, and +62% over 5 years. _{S&P 500 Index, 7/6/23}

4.03% = The yield on the 10-Year US Treasury Bond

Yields are +9% this past week, +9% this past month, and +43% over the past year. _{US Government Bonds, 7/6/23}

-1% = This past week’s price change for Bitcoin

+12% in the past month and +47% in the past year. _{Coinbase, 7/6/23}

+1% = This past week’s price change for Ethereum

+4% in the past month and +58% in the past year. _{Coinbase, 7/6/23}

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but had been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

People watch four main reports to understand trends in the labor market.

The main "jobs report" comes from the US Bureau of Labor Statistics on the first Friday of each month. It highlights the unemployment rate, new jobs added, and wage growth.

The Labor Department also releases the Job Openings and Labor Turnover Survey (JOLTS) each month but on a one-month lag. That report helps us understand how many open positions there are, how many people quit their jobs, and how many were hired.

There's also a monthly private-sector survey from payroll services company ADP that doesn't include government jobs and the weekly initial unemployment claims (a proxy for layoffs) report from the Labor Department.