The stock market once again felt the force of gravity last week. After two wonderful weeks of gains, reality hit investors in the face on Tuesday. Much like me post-vacation. Inflation numbers (more on this below) were released Tuesday morning and like clockwork markets immediately dropped. The S&P 500 fell 3% in one day, the Nasdaq fell 4%. These were the worst days in the market since the Covid Pandemic period.
MARKET RESULTS:
Tale of the Tape
Economy
INFLATION IS STILL GOING STRONG
Although gas prices have been falling, inflation continues to remain stubbornly high. August CPI actually increased 0.1% month over month. Core CPI which removes volatile prices of food and energy unexpectedly rose by 0.6%. The expectations were for core CPI to increase only 0.3% and for headline inflation to fall 0.1% month over month.
Three things are keeping inflation high: food, medical, and shelter prices.
Mortgage Rates are 6% for the first time since 2006
This of course sent the market into a panic. I was excited to see because cheaper stocks to buy. But more importantly, it means the Federal Reserve has all the information they need to continue raising interest rates at a high clip.
My Takeaway: Jerome Powell has stated over and over again that his goal is for inflation to return to the 2% range. He is on his Paul Volker, so expect him to raise interest rates this week by at least 0.75% during the FOMC meeting on Wednesday (more on this below). Its gonna be a PAINFUL 6-12 months. I believe Cardi B said it best
FedEx Warning Signs
FedEx is seen as a bellwether for the global economy because of the amount of good that moves through its delivery network. If FedEx is doing well, then the broader economy is expected to be doing well as well. However, if FedEx is having issues then no one is happy.
FedEx announced earnings for the second quarter of the year ending August 31st. It was not pretty at all. Much like how they deliver packages sometimes
FedEx said revenue and profits declined, plus they expect a weakening in global business conditions. CEO Raj Subramaniam said, “Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S." Following the announcement the stock got absolutely destroyed!
My Takeaway: Although, FedEx is a barometer for the economy. It does not always align perfectly with the economy. This might just be a problem particular to FedEx and something to do with unwinding from the pandemic era where the only way we got anything was by shipping. Consumers are still spending at a high clip. Retail sales rose by 0.3% in August when a decline was expected. So although worrying, we cannot use one sign alone to determine where the economy is.
Stats of the Week
First time since 2008, a 30-year mortgage has an interest rate of 6%
One year ago, this was 2.48%
This is putting pressure on home buyers and removing most people from the market
"For real estate markets, the rising costs of borrowing are further cooling demand for homes and deepening the affordability crisis. The buyer of a median-priced home is looking at a monthly payment of $2,100 at today’s mortgage rate, a 66% jump from last year. The buyer of a median-priced home is looking at a monthly payment of $2,100 at today’s mortgage rate, a 66% jump from last year,” said George Ratiu, Realtor.com manager of economic research
The current number of children living in poverty according to the Census Bureau
Although insanely high, it is a 90% drop from 2009, which was 12 million
The most significant cause of the plunge in child poverty was the child tax credit that was given last year and expires this year
This is also in line with the reduction in parental poverty, particularly single mother poverty.
Women heads of household poverty declined to 4.95 million in 2021 from 7.98 million in 2020
Amount the US economy would have lost if freight trains stopped moving
There was a potential of a strike by railroad employees, who want better work schedules
The main gripe is the way the on-call system works for the crews.
It forced most people to be on call for seven days a week which means even when they get days off. They don't actually get days off
A strike would halt all railroad activity in the US
Fun Fact: Most foods and goods are moved across the US by rail (about 33%)
If it’s in your house, it was a railroad at some point
Any disruptions would put us back in the times of the Suez Canal and supply chain disruptions of 2020 and 2021
The White House definitely did not want that to happen and they jumped right in the middle of negations, something that typically does not happen.
Crisis was averted but we still have to wait to see the details of the agreement
The amount Patagonia makes in revenue every year.
Why am I talking about Patagonia? Because the founder, Yvon Chouinard, and his family, just gave away the entire company
Talk about putting your money where your mouth is.
They transferred 100% of the stock (Patagonia is a private company) to a bunch of trusts and nonprofits
The goal is to do more to help with Climate Change.
It's like a saying I heard once, "If your principles are more important than your life then you sacrifice your life."
Looking Ahead
All eyes are on Papa Powell and the Federal Reserve at the FOMC meeting on Tuesday and the FOMC press conference on Wednesday morning. We all know Jerome is going to announce another 0.75% increase in interest rate. However, how he speaks about the economy will be important to give a glimpse of how the Fed is thinking about the state of the economy. The last time he spoke, he was very direct on the direction of the Federal Reserve to bring inflation down to 2%. He even said it would be painful and made no mention of the possibility of a soft landing. The question is with the news from FedEx will that bolster or lighten his forcefulness?
I expect him to come out and be just as direct. Like I’ve been saying he is on his Paul Volker, he does not want the Fed to get caught with its pants down again.
Sports I Care About Update
Man U did not play in the premier league this week. Something about the queen dying and not enough cops for the game. At least, I can take this as a moral victory. On the Europa league front, they barely beat Sheriff which is just sad
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God bless Each and Everyone of y’all
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Extras
Having months of stalled attacks, Ukraine is beginning to go back on the offensive
In the last week, Ukraine has been able to drive the Russian military out of territory they had seized in Spring
About 1100 square miles (size of Rhode Island per Morning Brew)
But Russia responded by launching airstrikes and causing a blackout in eastern Ukraine
Just a reminder that as things are going back to normal here in the US, there are still many parts of the world that are dealing with problems
Roger Federer announced his retirement from the Tennis world on Thursday
He finished with 20 Grand Slam titles
And being one of the three men to make tennis something that regular people talked about
Djokovic and Nadal being the other two