🎢 The Weekly Scoop

Hey friends, this is our fourth Weekly Scoop. Thanks for all the positive feedback last week! If there are any ways we can make this more useful, don’t hesitate to reply. Also, help us pick the subject line emoji for this series:

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

This week was a lot of mixed emotions. Investors are trying to figure out where the economy is headed and whether the market will head in the same direction. We discussed last week how the stock market is not the economy.

The main things everyone’s watching are:

1. Corporate Earnings Reports: Each quarter, public companies give an update on their financial health and outlook. So far, companies are mostly outperforming low expectations. Corporate leaders are acknowledging a sharp slowdown to start the year but expressing optimism for the year ahead.

2. Economic Data: This is the confusing one because the outcomes for the stock market aren’t the same as for the economy. Investors want to see the economy slow (but not too much) because that would cause policymakers to ease back on raising rates and restricting growth. Mixed data points to a potential economic rebound in April, but it’s messy.

3. Possible Bank Failures: Reports from basically every bank but First Republic Bank seem fine or good. First Republic going under isn’t a good thing, but it looks like it might not be a systemic issue.

4. The Debt Ceiling: The government must figure out its debt issues quickly before the Treasury can’t pay its bills. This is a looming risk that will gain more attention.

What is the debt ceiling issue?

Every term, regardless of the political parties in power, we face the risk of defaulting on our debt and being unable to pay our bills. It’s entirely avoidable and highly political. At best, it creates unnecessary volatility in the market. At worst, it could spark a global financial crisis.

As per normal government function, Congress directs the Treasury to spend money (on defense, infrastructure, etc.), and the Treasury pays from its income (taxes) or charges bills to the credit card (issues Treasury bonds). Congress regularly directs the Treasury to spend more than it can afford, and the Treasury hits its credit limit. Only Congress can raise the limit. Raising the debt ceiling doesn’t approve more spending; it just allows the Treasury to complete the spending Congress already approved.

If Congress chooses not to raise the limit, then in some unknown amount of time, maybe 1-4 months, the Treasury won’t be able to pay the bills. The impacts of that are unprecedented and could push the US economy and the world into a downward spiral. So it’s doubtful Congress chooses not to raise the debt ceiling, but rational preparation for future risks doesn’t make for good television. So, it will likely come down to the wire and force us to question our faith in the government. The House passed its first proposal to raise the debt ceiling, but there are still a lot of negotiations left. We’ll be watching.

As for the economy and the market, the uncertainty continues. Remember, anyone getting paid to make predictions would rather be wrong on the upside than the downside. Keep that in mind as you read the headlines.

🐻 Reasons to be pessimistic:

• Consumer confidence is fading. The Conference Board’s Consumer Confidence Index dropped to a nine-month low in April, with fewer people planning significant expenses and travel.

• Businesses have slowed spending on supplies and equipment. The Commerce Department reported declining business investment in equipment and other capital goods in March. Orders for durable goods, things that last more than three years, like vehicles or appliances, jumped thanks to a pickup in airplane orders last month. Otherwise, durable goods orders have been declining.

• The housing market turned sour in March. The National Association of Realtors (NAR) said pending home sales tumbled last month unexpectedly after a three-month rebound. Last week, the NAR reported the number of existing home sales dropped by 2.4% in March. New home sales, a smaller portion of all homes, jumped, but there isn’t a lot of supply in the market. Fewer available homes, high prices, and high mortgage rates have deterred buyers and sellers.

• Layoffs have hit high earners by surprise. A new Census Bureau survey revealed the number of high-income households collecting unemployment jumped sixfold since last year. More than 113,000 households with an annual income of over $200K received unemployment benefits as of April 10th, up from 18,000 a year ago. White-collar workers may have been caught off-guard with no emergency savings.

• Retirement keeps moving further out of reach. A survey from Credit Karma reported more than a quarter of Americans over age 59 had no retirement savings. Of those still working and saving, one in five have reduced retirement contributions to afford higher living costs. One-in-four millennials and gen z have a negative net worth, meaning more debt than savings.

• Investors are worried about another bank collapse. First Republic Bank has been on crisis watch since Silicon Valley Bank went under, speculated to be the next bank at risk of failure. It reported a massive decline in deposits in March but said deposits have stabilized. Something is going to happen, but the problem so far seems bank-specific, not systemic. Other banks reporting this past week have looked healthy.

🐂 Reasons to be optimistic:

• The US economy grew in the first three months of the year but at a slower pace. The Commerce Department reported real gross domestic product [🤓] rose at an annualized rate of 1.1% in the first quarter, slower than the 2.6% growth rate for the fourth quarter. Consumer spending, which powers about two-thirds of the economy, stayed pretty strong, despite higher living costs. Businesses invested in less equipment and machinery. Spending on home construction continued to slump.

• US manufacturing data might hint at a rebound. Many regional Federal Reserve reports have indicated a continued slowdown in US manufacturing, but some regions have signaled a rebound. S&P Global’s index tracking business activity across manufacturing and services sectors reported a surprise spike in activity in April. Like we’ve said before, get ready for a bumpy ride.

• Layoffs declined last week. The Labor Department reported initial unemployment claims fell to 230,000 last week after a steady rise. Layoffs are still roughly in line with pre-pandemic averages.

🏡 For your home

6.6% = Average 30-year mortgage rate

That’s up from 6.5% a month ago and up from 5.2% a year ago. _{Mortgage Bankers Association, 4/20/23}

$375,700 = Median existing home sales price

That’s up from $364K a month ago and down from $379K a year ago. _{National Association of Realtors, 3/31/23}

💼 For your work

230,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 246K the week before and in line with pre-covid averages. _{Labor Dept., 4/27/23}

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}

$3.64 = National Gas Price/Gallon

That’s up from $3.44 the month before and lower than $4.13 a year ago. _{AAA., 4/27/23}

💰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

+0.1% = This past week’s change in the US Stock Market

+4% past month, -1% past year, and +55% over 5 years. _{S&P 500 Index, 4/27/23}

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

Yields are -1% past week, -2% past month, and +24% over the past year. _{US Government Bonds, 4/27/23}

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

+9% in the past month and -25% in the past year. _{Coinbase, 4/27/23}

-2% = This past week’s price change for Ethereum

+12% in the past month and -34% in the past year. _{Coinbase, 4/27/23}

Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is how we track how much stuff the economy is producing. The actual number (~$26 trillion) doesn't matter as much as the direction and magnitude. We track the growth rate of real GDP (inflation-adjusted) to know whether the economy is expanding or contracting from the previous quarter.

The reporting style can be a bit confusing. The main number you hear will be an annualized growth rate (+1.1%), representing how much the GDP would increase/decrease if the economy hypothetically grew at that rate for an entire year. It's different from how much our production increased/decreased quarter-to-quarter (+0.3%) and not representative of the growth/decline over the past year (+1.6%). Annualizing the past quarter’s change makes the backward-looking number a little more forward-looking.