🧭 The Weekly Scoop

Hey friends, Markets are closed on Monday in observance of the Juneteenth holiday commemorating the emancipation of enslaved African Americans on June 19, 1865. We'll be back again on Tuesday.

Welcome to our 119 new subscribers this week!

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

In case you missed it, the stock market has been on a sneaky big run. The market just hit its highest point in more than a year. It’s up about 15% in 2023 and up 26% from the lows in October.

Why? We talked about how the stock market is not the economy and how investors haven’t decided whether the Federal Reserve’s aggressive policies restricting the economy [🤓] will lead to a crash or a “soft landing.” Mostly, the market’s drift higher has been the manifestation of a slowly-growing consensus that the economy is doing fine.

While investors have debated every economic data release and corporate report, the economy has proven stronger than investors gave it credit. There are plenty of risks, but inflation has been slowly trending in the right direction, unemployment has stayed at record lows, and consumers have kept spending.

The media headline specialists can attribute the run of the last week or two to whatever they like (because they are mostly just winging it anyways), but the main reason for the recent new highs:

Greed. Nothing turns a pessimist into an optimist like rising markets. Fear of Missing Out has taken over. We’ll see how long it lasts. As companies start to deal with the limits of their pricing power and move into discounting, second-quarter financial updates might shake investor confidence. Either way, investors are beginning to think about 2024, which most analysts feel pretty good about anyways.

🐂 Reasons to be optimistic:

• People are still spending, exceeding all expectations. The Commerce Department reported retail sales rose 0.3% last month after increasing 0.4% in April. Economists expected to see less spending in May, but consumers purchased more cars, garden equipment, furniture, and a range of other goods and services. A drop in fuel prices and spending at the gas station helped. Consumer spending powers two-thirds of the economy, so everyone watches it closely.

• The Fed [🤓] has stopped raising interest rates (for now) but warned that it could hike baseline rates again by 0.5% at some point this year if inflation doesn’t keep falling. The Fed has raised interest rates by 5% in a little over a year, the most extreme policy move in decades aimed at restricting the economy. So far, it looks like it has been effective at slowing business activity enough to stop the breakneck surge in prices of everything from homes to eggs and cars.

• The Federal Reserve [🤓] thinks the economy is doing better than expected. Policymakers more than doubled their economic growth projection for 2023 from 0.4% to 1% and lowered their year-end projected unemployment rate from 4.5% to 4.1%. That’s not far from the current unemployment rate of 3.7%, which is near historic lows.

• Living costs are still marching higher, but less quickly than last year. The Bureau of Labor Statistics reported the Consumer Price Index [🤓] climbed 0.1% in May, which is back to a pretty average monthly pace. That’s driven mainly by a decline in energy prices, with gasoline prices down 5.6% in one month. Overall, everything still costs 4% more than a year ago.

• Food prices are starting to come under control, with the price of eggs tumbling -14% last month. Overall food costs rose 0.2% in May after staying flat for two months.

• Businesses are finally getting a break from inflation. The Labor Department’s Producer Price Index [🤓] declined 0.3% in May, driven by a steep drop in fuel prices. Wholesale costs are only 1.1% higher than a year ago.

• Oil prices keep falling, reaching their lowest level since December 2021. Russian oil supply hasn’t been as limited as expected from the international sanctions, and China’s economy and oil demand hasn’t rebounded as quickly as investors projected.

• Americans expect inflation to fall this year but are getting more comfortable with rising prices. The NY Federal Reserve’s Survey of Consumer Expectations showed people see living costs increasing 4.1% over the next twelve months but averaging about 3% for the next 3-5 years. Inflation expectations are important because they can be self-fulfilling.

🐻 Reasons to be pessimistic:

• Layoffs stayed high last week. The Labor Department reported initial jobless claims remained unchanged at 262,000, the highest level since October 2021. Layoffs and unemployment have been extremely low, so we’ll have to see if this is the start of a new trend of higher joblessness.

• When you strip out the more volatile food and energy prices, other living costs are still rising. The Core Consumer Price Index [🤓] has climbed about 0.4% each month for the past six months. That’s much lower than last year's big jumps but still higher than usual. The good news is that rent and home prices, the most significant component of inflation, have slowed or started falling in many areas. Government statistics are usually on a lag for rent costs.

• The manufacturing sector is still struggling but might be turning a corner. Two regional gauges of manufacturing activity from the Philadelphia and New York Federal Reserve indicated that supply chain disruptions and inflation have cleared up significantly. Sentiment is still negative in the Philadelphia region, but optimism rebounded in New York last month.

• The main highway between the east coast’s two biggest cities may be shut down for months after a fiery tanker truck crash caused the I-95 interstate highway in Philadelphia to collapse. The route carries 160,000 vehicles a day and billions of dollars of goods each year. No deaths or injuries were reported, but the shipping disruptions are likely.

🏡 For your home

6.8% = Average 30-year mortgage rate

That’s up from 6.5% a month ago and up from 5.4% a year ago. _{Mortgage Bankers Association, 6/8/23}

$388,800 = Median existing home sales price

That’s up from $375K a month ago and down from $396K a year ago. _{National Association of Realtors, 4/30/23}

💼 For your work

262,000 = Layoffs Last Week (Initial jobless claims)

That’s the same as the week before and about 20% higher than pre-covid averages. _{Labor Dept., 6/8/23}

339,000 = New jobs added last month

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}

10.1M = Available jobs

That’s up from 9.7M the month before and well above pre-covid averages of ~7M. _{Labor Dept., 4/30/23}

Who’s hiring: Retail, healthcare, and transportation

Who’s firing: Manufacturing and business services

👜 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 up 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}

$3.59 = National Gas Price/Gallon

That’s up from $3.54 a month ago and down from $5.01 a year ago. _{AAA., 6/15/23}

💰For your savings

0.40% = Average interest banks pay on a savings account_{, FDIC, 5/15/23}

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

+4% = This past week’s change in the US Stock Market

+7% past month, +18% past year, and +59% over 5 years. _{S&P 500 Index, 6/15/23}

3.72% = The yield on the 10-Year US Treasury Bond

Yields are -2% this past week, +6% this past month, and +8% over the past year. _{US Government Bonds, 6/15/23}

-4% = This past week’s price change for Bitcoin

-7% in the past month and -13% in the past year. _{Coinbase, 6/15/23}

-10% = This past week’s price change for Ethereum

-9% in the past month and +35% in the past year. _{Coinbase, 6/15/23}

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.

The Consumer Price Index (CPI) is one of the main ways economists track inflation. Inflation is the rate at which things get more expensive. The CPI looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month. The rate of change is inflation.

Prices rarely go down. It's normal for things to get more expensive. You'll never be able to buy a Coke for a quarter again, but that's ok. Low inflation (~1-2% per year) is standard and almost unnoticeable. High inflation, like we saw last year, with prices of essential goods going up nearly 7-10% per year, is a problem. It's unmanageable, especially if our incomes aren't rising in tandem.

Policymakers have been raising interest rates to slow economic activity and cool spending so prices stop rising so quickly.

The Producer Price Index (PPI) is another important indicator for economists tracking inflation. Inflation is the rate at which things get more expensive.

Unlike the Consumer Price Index (CPI), which looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month, the PPI tracks the prices of wholesale goods - like how much Ford pays for the tires it installs in its cars before selling them to you. The rate of change in those prices is inflation.

Prices rarely decline. Inflation, aka rising prices, is only a problem when it's really fast. Business supply costs increasing by 5-10% per year like last year is not manageable.