Don’t Worry (About The Economy), Be Happy
🚀 The quick version: Two big financial events dominated the headlines this week: The Fed and company earnings reports.
The quick version is that both continue to point to a view of what Wall Street likes to call a “soft landing,” meaning the economy is staying strong while we gradually see lower levels of inflation (feels kind of like a nice smooth plane landing we had yesterday coming back to FL).
Here is what happened in more detail:
Powell is optimistic. The Federal Reserve met and raised interest rates by 25 basis points (0.25%). What was more notable was Chairman Jerome Powell’s tone in a press conference afterwards (Wall Street dissects his words for meaning more than I did after my first date with my wife). He would not commit to raising rates further, noted positive signs in the economy, and said that the Fed removed previous forecasts calling for a recession.
Company earnings paint a positive picture. Q2 earnings season is past its halfway point and results have been strong with about 81% of S&P 500 companies beating Wall Street estimates by an average of nearly 6%.
In terms of what we have learned so far that is worth knowing:
The airlines say they are planning to lower fares (it’s about time!) as they have built out a ton of new capacity (i.e. have purchased a lot of new planes and now need to fill seats).
Microsoft and other tech companies are pumping the breaks on how fast Artificial Intelligence will change business and life as we know it.
Credit card companies continue to say the U.S. consumer is still spending at a strong pace, and this probably won’t change until savings from Covid are depleted (likely happens around Q1 2024)
Auto companies are about to start an electric vehicle price war as they have concluded consumers aren’t buying them because of the high prices
Staffing companies are telling us that companies generally aren’t shedding workers, but they have started slowing new hires
👪 How it affects your family: Recent data continues to confirm our previous view on the overall economy.
We would expect to continue to see evidence of prices and inflation come down over the next few months which is positive relief for so many families.
Ultimately, low prices may backfire on companies as their profits shrink (because they can’t charge as much), but we would think this problem will not be an issue for at least several months.
Here are some suggestions for families today:
Organize your outstanding loans. Post the Fed meeting it seems likely that interest rates have peaked (or come close), and that in the next 12 months we may see them start to come down. If you have taken out a loan recently (personal loans, mortgages, student loans, etc.), this may provide you with refinancing opportunities. If you are thinking about taking out a loan today, it might be better to hold off for a lower rate (if you can) or structure the loan in a variable way to take advantage as rates come down.
Watch travel and EV prices. With airlines saying they are getting ready to lower prices, if you are taking a trip with the family make sure you set price alerts or look for a low price guarantee if you have already purchased a ticket. We would also start to keep your eye on hotel rates for signs of them dropping (we would think they likely follow the airlines). Also, if you are in the market for an electric vehicle, they are about to get a lot cheaper so maybe wait a few months.
Take a breath when it comes to AI. Worried AI is going to take your job or destroy humanity? Companies that spent billions of dollars on it just told everyone to pump the brakes. There is still a long way to go here before the robots take over, so you can use the time to start to learn more about the subject and teach the kids (don’t worry if you feel like you are behind - you’re not).
