🧭 The Weekly Scoop

Hey friends, have a great weekend. Look out for our Explained on Sunday.

Welcome to our 216 new subscribers this week!! Take a second and share the scoop!

FYI from the Founder: There will be no scoops the week of July 30th as I take off for my wedding. Thanks for understanding. We’ll be back in full force with exciting releases in August.

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

The stock market is on a tear, breaking new 2023 highs multiple times in the past week. The market has soared 30% from its low in October and sits only 6% from a new all-time high. So the main question everyone’s wondering is: can it continue? The answer: eh, maybe.

If you ask a Wall Street Analyst, they’ll give you a technical answer about what a reasonable EPS multiple for the S&P 500 might be - say 19x on next year’s EPS gives you an S&P 500 value of ~4,550. [🤓] That’s about where the market is right now. But that doesn’t really matter all that much. Because they’re using numbers to justify what they’re willing to pay for a theoretical piece of a company. That process is exactly as arbitrary as it sounds. A Gucci sandal and an Adidas sandal might cost the exact same amount to create, but the markup of what someone will pay for it is dramatically different. Whether 17x, 19x, or 23x, you’re going to hear someone say they wouldn’t buy at that price while others would. So can it keep going up? Absolutely. Will it? We’ll see.

The most important thing that drives the stock market is corporate profits, aka earnings. The earnings per share is the cost of the flip-flop. Investor emotions drive the price multiplier. We’re in the middle of earnings season, where we get a peek under the hood of every public company. So far, earnings have been better than feared. But there are key risks ahead - namely, lower prices.

Inflation continues to slow, meaning living costs aren’t rising as quickly as last year, aka disinflation. We’re even seeing some things get cheaper, aka deflation. We’ve discussed how the stock market is not the economy. While lower prices are great for consumers, it means lower potential profits for corporations. It’s hard to be sad about that, but more executives have brought it up on calls this week. Retailers, automakers, and many other industries have been cutting prices for good reasons (clearer supply chains and improved efficiency) and bad reasons (less demand). This will be another bumpy ride to see which companies make it through with their profits intact and how investors react to it. Keep watching those earnings reports.

🐂 Reasons to be optimistic:

• People are feeling more optimistic about the economy than they have in years. The University of Michigan's index of consumer sentiment rose to a new two-year high in July as people felt more confident about their job security and falling grocery prices.

• Corporate profits are holding up better than feared. So far this earnings season, 74% of companies have reported higher profits than investors expected, according to Factset. We’re only about a week into earnings season, the few weeks after each quarter when most public companies provide quarterly financial updates—more updates to come. [🤓]

• Companies have cut back on layoffs. The Labor Department reported initial jobless claims fell again last week to 228,000, in line with pre-pandemic averages. But, people might be having a harder time finding work. Continuing claims, which include those who have been unemployed for longer than one week, rose for the second straight week by the most in three months. Unemployment still remains near historic lows.

• The manufacturing sector is showing some signs of a turnaround. The Philadelphia Fed’s index of business activity indicated negative growth for the eleventh straight month. New York’s gauge also indicated low activity. Both surveys indicated rising optimism from business owners, though.

• The housing shortage might have some relief on the way. The Commerce Department reported permits to build new single-family homes hit a 12-month high in June. New home construction starts fell slightly following an explosion in May, but have been trending higher. There are more new multi-family units under construction than there have been in over fifty years.

• Homebuilders feel confident again, signaling more construction and potential relief from the housing shortage ahead. The National Association of Home Builders’ Confidence Index rose for the seventh straight month in June to the highest level in a year. Home prices have remained high due to a very low supply on the market.

• Consumers are still spending. The Census Bureau reported retail sales rose 0.2% in June and revised spending numbers for May even higher. People spent more online and in areas where they had been cutting back, like electronics and furniture. Department stores, gas stations, and food and beverage stores saw less traffic. Consumer spending powers two-thirds of the economy, so it’s important to watch.

🐻 Reasons to be pessimistic:

• There are fewer homes on the market, and it’s keeping home prices high. The National Association of Realtors reported 3% fewer homes were sold in June as the median existing house price rose to $410,200. Mortgage rates are very expensive, nearly 7%, encouraging homeowners to hang on to their cheaper existing rates. The available homes supply is roughly half what it normally is.

• Expensive mortgage rates are also keeping home buyers on the sideline. The Mortgage Bankers Association reported applications to purchase a home fell 1% last week, down 21% from a year ago. The average 30-year fixed-rate mortgage sits at about 6.9%.

• China’s economy hasn’t rebounded as expected from its covid lockdowns. The second-largest economy slowed in the second quarter, with weak consumer spending growth of only 3.1% and lower property investments. Youth unemployment keeps rising, now over 20%.

• Russia’s trying to make food more expensive by not renewing a grain export agreement with Ukraine. Before the Russian invasion, Ukraine produced nearly a fifth of the world’s wheat exports, but the interruption of trade pushed global food prices to record highs. The agreement expired this week, and Russia threatened to attack ships, making it difficult for trade to continue and risking a global food crisis. Wheat prices have surged by over 10% in the past week.

🏡 For your home

6.9% = Average 30-year mortgage rate

That’s up from 6.7% a month ago and up from 5.7% a year ago. _{Mortgage Bankers Association, 7/13/23}

$410,200 = Median existing home sales price

That’s up from $396K a month ago and down from $414K a year ago. _{National Association of Realtors, 6/30/23}

💼 For your work

228,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 237,000 the week before and in line with pre-covid averages. _{Labor Dept., 7/13/23}

209,000 = New jobs added in June

That’s down from 306K the month before and above pre-covid averages. _{Labor Dept., 6/30/23}

3.6% = Unemployment rate

That’s down from 3.7% the month before and still near the lowest rate in 50+ years. _{Labor Dept., 6/30/23}

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

3.0% = Cost of living increase (1-Year Inflation)

Living costs are 0.2% 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, 6/30/23}

4.7% = Groceries cost increase (1-Year inflation)

Groceries are about the same price they were a month ago. _{Bureau of Labor Statistics, 6/30/23}

$3.58 = National Gas Price/Gallon

That’s the same as a month ago and down from $4.47 a year ago. _{AAA., 7/20/23}

💰For your savings

0.42% = Average interest banks pay on a savings account_{, FDIC, 7/17/23}

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 here.

💸For your investments

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

+3% past month, +15% past year, and +61% over 5 years. _{S&P 500 Index, 7/20/23}

3.89% = The yield on the 10-Year US Treasury Bond

Yields are +2% this past week, +4% this past month, and +27% over the past year. _{US Government Bonds, 7/20/23}

-5% = This past week’s price change for Bitcoin

+6% in the past month and +28% in the past year. _{Coinbase, 7/20/23}

-5% = This past week’s price change for Ethereum

+6% in the past month and +24% in the past year. _{Coinbase, 7/20/23}

Earnings season is full of "beats" and "misses." News articles typically reference whether the company reported more or less profit/revenue/whatever for the quarter than investors expected.

Wall Street Analysts make projections, and then media outlets will compare the reported financial figures to the average of the Analysts' expectations. Having a tiny bit more or less revenue (sales) or earnings (profit) than the average of a range of expectations isn't typically something to worry about, especially when it's only three months of a company's lifetime. The important stuff is the report's context and whether the company feels confident about the future.

One important thing to keep in mind: Beats and misses are just short-term relative terms, so they’re not that helpful for understanding the company’s financial health. A company can “beat” and still report declining sales and profits if analysts projected a decline. The company may have lost a little less money than expected, but it still lost money. The same is true the other way. A company could report surging profits, but if analysts had high expectations, it would be classified as a “miss.” Make sure to read into the news a little more closely.

Earnings Per Share (EPS) is one of the two main metrics you'll find in the news about a corporation's quarterly financial update. Earnings is another word for profit, and so is net income. Earnings per share are the company's profit divided by the number of shares available. It's a standard way for an investor to evaluate whether the company is earning more or less profit this quarter than the investor expected.

Understanding how much the stock price is marked up over the company's profitability is also helpful. That's called a price-to-earnings multiple (P/E multiple). If one company's share price is 15x higher than its earnings per share, investors are more confident in its future growth than a company whose share price is 12x its EPS.