🧭 The Weekly Scoop

Hey friends, hope you’re all staying safe. Look out for our Explained this Sunday digging into how wildfires will reshape our economy and exacerbate inequality.

Welcome to our 166 new subscribers this week! Shoutout to the newbies who suggested starting with the reasons to be optimistic. 😎👍

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

Amidst a pretty light news week, the Market quietly floated to the highest point of the past year. The stock market has rallied 20% in just eight months. That’s a lot. So, the natural question is: what? And how?

Three things:

First, the stock market is not the economy. “The Market” we watch and reference is the S&P 500 Index, which tracks the value of the biggest 500 US corporations.

1. 99% of businesses are small businesses.

2. Small businesses employ half the country.

3. The movements in the value of Big Tech firms heavily dominate the S&P 500 Index. Apple, Microsoft, Amazon, Nvidia, Google, Tesla, and Meta combined makeup 25% of the S&P 500, while the other 75% is split between the other 493 companies. So if big tech is doing well (new AI), the Market rises. Without those companies’ massive rallies, the Market would actually be down on the year.

4. The Market works in anticipation. Investors are buying a share of a company’s future growth and profits. So just like when markets bottomed in February 2020, before we were even canceling basketball tournaments and hit new highs while we were still locked in our apartments, last year’s crash was in expectation of what’s happening now.

Second, we might already be in the middle of a recession. We’ve talked about how these past few years have been unprecedented, and it’s true. It will be a bumpy ride back to normal if there’s ever a normal again. Parts of the economy will be fine while others struggle. Getting too caught up in the semantics debate of traditional definitions of a recession isn’t worth the trouble. The Market has been gently drifting upward because the future keeps looking less gloomy than last fall.

The Wall Street Journal isn’t our first stop for humor, but this headline was funny, and the article clearly presents the inconsistent economic data we’ve been discussing.

Third, what you’re feeling might just be inequality. The increasing difficulty in achieving financial security might not be a short-term, cyclical issue. It’s a long-term trend. The middle class is disappearing. Working a full-time job no longer covers basic living expenses. More than half of all Millennials and Gen-Zs have side hustles, and most aren’t confident they could pay their bills without them. The costs of climate change will continue to fall on those most vulnerable. Look out for our piece on Sunday.

What can we do? Demand a living wage, save, and invest. Become a shareholder and grow with the wealth of the corporations instead of being an expense to be minimized. Go take your share.

🐂 Reasons to be optimistic:

• The stock market has rallied 20% from its lows last year, entering a new bull market. [🤓] The stock market works in anticipation, so the crash last year was in expectation of the slowdown we’ve seen so far in the economy this year.

• Used car prices are finally coming down. The Manheim Used Vehicle Value Index declined 2.7% from April to May. The average listed price of a used vehicle was $27,000. Used car prices are down slightly from their peak last year but have surged 63% in the past three years.

• The government suspended the national borrowing limit and avoided default. President Biden signed the debt ceiling bill last Friday after agreeing to cap most non-defense discretionary spending for two years.

• Companies are still hiring like crazy. The Labor Department reported US employers added 339,000 new workers in May, way more than economists expected, and revised the hiring numbers from March and April up a combined 93,000. So, the jobs market has been even stronger than we thought. The unemployment rate rose to 3.7% but still sits near a 50-year low.

🐻 Reasons to be pessimistic:

• Layoffs spiked unexpectedly last week. The Labor Department reported initial jobless claims increased by 28,000 to 261,000, the highest level since October 2021. Previous weeks have consistently been revised down, so we’ll see next week if this is the start of a new trend of higher unemployment.

• There is a massive shortage of available homes. A new report from Realtor.com and the National Association of Realtors indicated a steep decline in the percentage of homes that someone making less than $100,000 per year can afford, from about 67% to just 39% in just five years. Overall the supply of homes for sale is nearly half of what it was in 2019.

• Fewer people are buying homes amidst high mortgage costs and fewer homes on the market. The Mortgage Bankers Association said the number of applications to purchase a new home fell 2% last week and was 27% lower than a year ago. The average 30-year fixed-rate mortgage is around 6.8%.

• The United States imported much more than it exported in April. The Commerce Department reported the most considerable increase in the US trade deficit since 2015. Imports of consumer goods like cell phones surged, while exports of fuel and industrial supplies shrank. The US dollar is expensive, and foreign economies are suffering.

• US regulators are cracking down on crypto. The Securities and Exchange Commission sued the two biggest cryptocurrency exchanges this week - Binance yesterday and Coinbase today. The SEC says that crypto tokens are securities and both platforms were operating as unregistered securities exchanges. Regulators complained Binance and Coinbase need to follow the same investor protection and disclosure rules as stock exchanges.

• Student loan payments will restart again in September after a three-year pause. During the pandemic, President Trump suspended federal student loan payments, allowing borrowers to hang on to their savings. President Biden extended it. The pause was officially terminated as part of the debt ceiling deal over the weekend.

🏡 For your home

6.8% = Average 30-year mortgage rate

That’s up from 6.5% a month ago and up from 5.3% a year ago. _{Mortgage Bankers Association, 6/1/23}

$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

261,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 232K the week before and about 20% higher than pre-covid averages. _{Labor Dept., 6/1/23}

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

4.9% = Cost of living increase (1-Year Inflation)

Living costs are 0.4% 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, 4/30/23}

7.1% = Groceries cost increase (1-Year inflation)

Groceries are -0.2% less expensive than a month ago. _{Bureau of Labor Statistics, 4/30/23}

$3.56 = National Gas Price/Gallon

That’s up from $3.54 a month ago and down from $4.96 a year ago. _{AAA., 6/8/23}

💰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, 5/3/23}

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

+3% = This past week’s change in the US Stock Market

+4% past month, +4% past year, and +55% over 5 years. _{S&P 500 Index, 6/8/23}

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

Yields are +3% this past week, +6% this past month, and +23% over the past year. _{US Government Bonds, 6/8/23}

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

-3% in the past month and -12% in the past year. _{Coinbase, 6/8/23}

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

+1% in the past month and +3% in the past year. _{Coinbase, 6/8/23}

Bull & Bear Markets

Bears and bulls are Wall Street's favorite animals. Bearish means pessimistic. Bullish means optimistic. Someone can be bearish on a particular stock or broader market, while another investor can be bullish on the same thing. The market is made up of bulls and bears buying and selling to each other.

Investors also apply those animal terms to general market cycles. A bear market starts when the stock market falls more than 20% from its recent highs. That happened last year. The bull market definition is a little less clear. Some say it starts when the stock market rises 20% from its recent lows. Remember, that doesn’t mean it has recovered to the previous high. That would require a 25% gain (if 100 drops to 80, that 20 to get back to 100 is 25% of 80). So that’s why some prefer to call it a new bull market only after the market makes a new high.

Bull and bear markets don’t really mean anything other than to characterize the general investor sentiment. Since we know short-term stock market moves are all about investors’ emotions, designating a consensus emotion can have compounding effects. It’s easier to be optimistic if you hear everyone’s optimistic.