1. The summer in parts of the country has been hot, hot, hot, while other parts of the country, like our home office in Ohio, have not had a hot summer at all, but rather a little too cool for my taste and that’s kind of like what’s happened to the stock market these last two weeks. The rush of a comeback year has stalled a bit in the month of August. Before we get into the weekly numbers, let’s track our reoccurring weekly numbers. First, let’s look at some stocks that really moved the markets this week.
How about WeWork, which is a commercial real estate company that provides flexible workspace to technology start-ups and other entrepreneurs that need a more flexible workspace than the traditional office lease. This stock jumped 54% last few days from about .12 to .20. This stock is almost certainly in the throes of insolvency, and meme stock crazies are just trying to make some money on it before it plunders. Newscorp, which owns the Wall Street Journal was the S&P 500 best performer on Friday when it jumped 4.6% as they reported record profit which is interesting because it shows the advertising dollars from corporations is still strong. Finally, UBS, a non-S&P 500 component, was up 5.6% because they told the Swiss Government they no longer needed the $10 billion government backstop, which it was granted when it took over the troubled investment bank Credit Suisse, another Swiss investment bank.
How about our weekly look at GDPNOW from the Atlanta Fed, the best running estimate of real GDP growth based on available economic data for the current measured quarter. There is no forward-looking thought put into this, just real-time economic data, as it’s released, will move this number. And here we go, the estimated GDP rate is now 4.1, moving up from 3.9 where it last landed on August 1st. This week, the data that moved it were releases from the US Census Bureau, the Institute for Supply Management or ISM, and the US Bureau of Economic Analysis and Labor Statistics. You can see, as I mentioned last week, even the stubborn wall street economists are being forced to move off their pessimism.
The initial claims for unemployment insurance, which we use as one of our proxies for the future health of the labor market, did have a spike up this week, although not to the highs of the summer when they came in 248,000 initial claims for unemployment insurance for the week.
And finally, let’s look at the markets this week. The S&P 500, which is our proxy for growth and growth & income, but only when taken together, was negative 0.31% this week. The Russell 2000, which tracks small and mid-sized companies or aggressive growth in our Dave Ramsey vernacular, was negative 1.59% for the week, the largest loser this week. And finally, the MSCI EAFE which tracks developed international stocks, was negative a fractional 0.04%, almost squeaking out a gain for the week but ending the week negative, just the lowest loser this week.
2. This week we got inflation data. The CPI is consumer inflation data, and the PPI which is producer inflation data.
Let’s look at CPI first, where CPI increased 0.17% month over month. If you annualize that number all by itself, that will get you to the 2.00% target the FED is searching for, however, can they hold that number will be the key. This is right in line with where it came in at last month, where it hit 0.18%. Your news media sights will just tell 0.20% because they’ll round up, but we get right to the nitty gritty as you see on your screen. Using the previous 12 months’ monthly inflation numbers that you can see on your screen, we are sitting at 3.2% annual inflation currently and this is slightly higher than the 3.00% we saw in June when using their previous 12-month numbers. The CORE inflation number, which the Federal Reserve looks at more closely because it excludes the volatile food and energy numbers, also increased 0.20% for the month. So good numbers in regards to CPI and the markets liked those numbers.
However, to add to your confusion, the PPI numbers or Produce Price Index, came out on Friday of this week, and those ticked up to 0.30%, which as you can see is the highest level since the early part of 2023 when we hit 0.43% for January’s number, which was reported in February. The main increases for PPI, which very simplistically is what businesses are paying for goods and services, however the uptick for businesses was in the services side of the sector and 40% of that increase was tied to prices for portfolio management. Suffice to say that businesses having portfolio management done for them are seeing a decent increase in the prices they pay. This is a good time to remind our clients that WMWM has never levied a price increase on our clients. As our motto goes, we do better when you do better, so our price increases come when we do a good job, the way you should be rewarded. To wrap this up, the PPI numbers are seen as a leading indicator for CPI, so let’s watch CPI next month to see what happens.
3. This week The US Index of Consumer Sentiment was released. Remember this survey provided by the University of Michigan tracks consumer sentiment in the US, based on surveys on random samples of US households.
The index aids in measuring consumer sentiments in personal finances and business conditions, among other topics. Historically, the index displays pessimism in consumers' confidence during recessionary periods and increased consumer confidence in expansionary periods. Consumer sentiment is very important because consumers are 2/3 of our economy. If they are not happy, they are not spending money, and the economy is not moving forward. This month it came in at 71.2, which was below the 71.6 reading in July but still 42% above Its all-time low and moving toward its long-term average of 86. The reading mainly ticked down because of higher gas prices that have consumers a little less optimistic.
4. This week, credit card balances hit $1 trillion dollars. A flashy number and one that anyone that is trying to sell you gold, annuities, or any variation of whole life or universal life or, as I call them, Whole LIE Insurance, however, they’ll use this to convince you not to invest in the US economy because this will kill us. Welp, here we are with data to the rescue to dissect their horrible sales tactics. And thanks to my friends at DataTrek for this helpful information and chart.
Before the pandemic from 2013 to 2019, the compound annual growth rate of credit card balances was 4.68%. Does anyone want to guess the growth rate from 2022 to now? It’s also 4.8%; thus, to simplify it, we are right where history says we should be. Yes, as you can see on the screen, the growth rate has accelerated in 2020 and 2021 because the government gave massive amounts of stimulus, which people used to pay down their credit card balances, only to spend them again, once they found something they wanted to buy. This is just part of the long-term trend you would expect to see with an economy that is growing its population and inflation is moving the cost of everything up – credit card balances should rise, so don’t let anyone tell you this is a reason to bearish on the US economy, frankly, it’s more a reason to bullish. NOW! Let’s remind everyone very quickly – we don’t advocate for nor endorse the use of credit cards – as we believe that a debt-free life is a simple and more risk-free life, but as Dave Ramsey says, his advice is outside of the norm because being normal in America is a student loan around so long it’s a pet and having capital one take everything in your wallet.
What We Learned in the Markets This Week: August 11th 2023
August 12, 2023
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