🗺️ The Weekly Scoop

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Hey friends, this is our third Weekly Scoop. Let us know what you think of it!

Let’s start with the most important reminder of the week: the stock market is not the economy.

1. “The Market” = the S&P 500 index, which tracks the value of the biggest 500 companies in the US. All are global corporations with employees, sales, and operations around the world.

2. The total stock market is made up of 4,000+ large and individual companies spanning multiple sectors. We talk about the market as a whole, but these are all individual companies with individual problems.

3. The stock market works in anticipation. Investors buy stock for a share of a company’s future growth and profits. The current stock price reflects investors’ expectations of what’s to come.

4. 99% of US companies are small businesses, not public companies. Small businesses produce half of our economic output and employ half of our workers.

5. “The economy” is roughly 67% consumer spending, 20% business spending, and 20% government spending, less 7% import spending (sending money overseas). So keeping consumers spending is paramount.

Those things are important to remember when trying to understand the conversation about the rising stock market amidst a possible recession. Recession does not inherently mean down markets. Remember when the market bottomed in February 2020, before we were even shutting stuff down, then rallied to one of its best years ever while we fell deep into recession? Last year’s crash could very well be the anticipation of this recession. Many argue that a recession would trigger a big rally because policymakers would shift back to stimulus mode, and investors would start thinking about next year. But, the word of the month is uncertainty.

It’s absolutely possible for small businesses to continue to struggle with high costs, staffing, and staying in business while multi-national conglomerates keep growing profits. Many consumers can keep struggling to build savings, work multiple side hustles, and never be able to afford a home while multinational corporations continue growing their profits. China’s economy is only just coming out of covid lockdowns, so they could boost corporate profits while US small businesses struggle. It’s not going to be one communal experience.

No one who’s raising the alarm about an upcoming recession can really define it - how bad, how long, or who gets hurt. We are in unprecedented times, not only of social inequality and resource scarcity but also from an employment, stimulus, inflation, and interest rates perspective. Policymakers literally call their actions of the last few years an experiment.

The economy is clearly slowing down from the explosive growth after the pandemic stimulus. So everyone’s debating whether that slowdown takes us to neutral or negative. We might already be in a recession in many ways. The last few years have revealed that the road won’t be the same for everyone and every industry. Some people may already be feeling the worst of it, some might have more pain ahead.

Most people expect a bumpy ride this year but then clearer skies.

🐻 Reasons to be pessimistic:

• The tech industry might already be in a recession. Reports from major tech suppliers this week, like CDW, IBM, and Taiwan Semiconductors, warned of a significant spending pullback. Big Tech has been announcing tens of thousands of layoffs for months while some industries continue hiring sprees. Silicon Valley Bank collapsed. We get more tech updates next week.

• The manufacturing sector isn't doing well and might already be in a recession. The Philadelphia Federal Reserve reported factory activity in the mid-Atlantic region plunged to its lowest level in almost three years in April. The Institute for Supply Management's index of national manufacturing activity has declined for five straight months. The New York Fed did report a surprise jump in output in April after five months of declines, providing some hope of a turnaround.

• There’s good reason to worry about the real estate market. Big Banks reported concerns this week about commercial real estate and office space, given the shift to remote. Higher mortgage rates, low home supply, and stubbornly-high prices keep the residential real estate market on ice.

• New home construction is down. Despite a pickup in homebuilder confidence in January and February, the Census Bureau reported a 0.8% drop in new home construction in March. Housing starts are down 17% from a year ago, limiting the supply of new homes coming to the market. A supply shortage could keep home prices high even if buyers stay away.

• Mortgage rates are picking up again and scaring away homebuyers. The Mortgage Bankers Association said the average 30-year mortgage rose from 6.3% to 6.4% last week, and new home purchase applications dropped 10%.

• Home sales are down again. The National Association of Realtors said the volume of existing home sales fell 2.4% in March as mortgage rates resumed their climb and deterred buyers. There was a brief jump in sales in February for the first time in months.

• Banks are getting more cautious with lending. The Beige Book report from the Federal Reserve indicated groups of regional banks have tightened lending standards due to the uncertainty in March and the fear of bank runs. Less lending slows business activity.

• Layoffs rose last week. The Labor Department reported initial unemployment claims rose to 245,000 last week, as layoffs from the tech sector might be starting to flow through. Layoffs are still roughly in line with pre-pandemic averages.

• Inflation's making people spend less. The Commerce Department reported retail spending broadly fell 1% in March, though shoppers still spent more than they did a year ago. The University of Michigan's April consumer sentiment index increased in April, but respondents said they expect inflation to increase this year. Consumer spending accounts for 70% of the economy, so everyone's watching to see when rising prices truly stall spending.

🐂 Reasons to be optimistic:

• Consumers aren't yet in debt trouble. Most of America's biggest banks have discussed a surprisingly healthy client base. While delinquency rates and loan defaults are creeping up, they still sit well below pre-pandemic normal levels. Higher incomes and widespread employment have helped consumers keep up with their loan and credit card payments.

• Consumers are still spending. Airlines expect a big travel season. Wealthier segments are doing really well, according to American Express, Ferrari, and luxury brands giant LVMH.

• Big banks are healthy. While many Wall Street CEOs cited some looming clouds, they see resilience among consumers and small businesses.

• More signs point to lower inflation. Both New York and Philadelphia Federal Reserve indicated lower pricing for businesses. Many major automakers are talking about price cuts, and vehicles have been a big source of inflation.

🏡 For your home

6.4% = Average 30-year mortgage rate

That’s flat from 6.4% a month ago and up from 5.1% a year ago. _{Mortgage Bankers Association, 4/13/23}

$375,700 = Median existing home sales price

It was $364K a month ago and $379K a year ago. _{National Association of Realtors, 3/31/23}

💼 For your work

245,000 = Layoffs Last Week (Initial jobless claims)

That’s up from 240K the week before and a little higher than pre-covid averages. _{Labor Dept., 4/20/23}

236,000 = New jobs added last month

That’s down from 326K the month before and slightly above pre-covid averages. _{Labor Dept., 3/31/23}

3.5% = Unemployment rate

That’s down from 3.6% the month before and near the lowest rate in 50+ years. _{Labor Dept., 3/31/23}

9.9M = Available jobs

That’s down from 10.6M the month before and well above pre-covid averages of ~7M. _{Labor Dept., 2/28/23}

Who’s hiring: Construction, leisure, and hospitality

Who’s firing: Finance, technology, and business services

👜 For your wallet

5.0% = 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, 3/31/23}

8.4% = Groceries cost increase (1-Year inflation)

Groceries are -0.3% less expensive than a month ago. _{Bureau of Labor Statistics, 3/31/23}

$3.69 = National Gas Price/Gallon

That’s up from $3.44 the month before and lower than $4.11 a year ago. _{AAA., 4/20/23}

💰For your savings

0.39% = Average interest banks pay on a savings account_{, FDIC, 4/17/23}

5.00% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 3/22/23}

The Federal Reserve has raised baseline interest rates from 0% to 5% 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

+0.7% = This past week’s change in the US Stock Market

+4% past month, -8% past year, and +53% over 5 years. _{S&P 500 Index, 4/20/23}

3.5% = The yield on the 10-Year US Treasury Bond

Yields are +2% past week, -2% past month, and +25% over the past year. _{US Government Bonds, 4/20/23}

-7% = This past week’s price change for Bitcoin

+1% in the past month and -35% in the past year. _{Coinbase, 4/20/23}

-3% = This past week’s price change for Ethereum

+11% in the past month and -37% in the past year. _{Coinbase, 4/20/23}