437: News of the Week 06/12/24
Thoughts on Sunday podcast on internet business investing:
- Seems like a platform really suited for people with e-commerce expertise
- I wouldn’t know how to evaluate or run an Internet business
- Investing under a manager who knows what they’re doing might make sense, but we’d need to see the track record
- I tend to think this is an area where you need to have operating expertise to be successful, even as a passive investor
Latest on the economy and markets:
- When we spoke last week, we had just received the latest job openings report which showed some continued slowdown in the job market with decreasing (but still positive) job openings.
- Since then, another labor market statistic, came in a bit hotter than expected in terms of payrolls added in the month of May
- So we’re seeing some mixed data on the labor front as well as mixed data on various inflation measures
- Generally speaking the economy, inflation and labor markets are cooling. But it’s not a necessarily smooth ride; there’s volatility as can be expected
- Implications:
- Chairman Powell will do a press conference Wednesday
- The focus will all be on his messaging related to outlook as we head into the 2nd half of 2024
- Most economists have been assuming 2 or 3 rate cuts in 2024; so there will be a focus on Powell’s messaging
- The FED is likely to keep steady on the Fed Funds Rate in the months ahead
- The FED is currently in its two-day FOMC meeting which is being held over Tues and Wed of this week
- Overall, the trading markets have been stable over the past week:
- Equity markets are up 1%-2% since last week depending on which indices you look at, S&P, Nasdaq, Dow…
- The 10-year bond yield ticked up about 10 basis points in that time
- Gold and Bitcoin are down a bit off their highs
- One thing to note about the performance of the stock market this year is that strong positive performance has been very narrow
- But if we look at which type of companies have fueled that gain, it’s all based on the very large cap stocks like Apple, Alphabet, Microsoft, Amazon, NVIDIA, META- the companies with market capitalization in excess of $1 Trillion
- In fact, those companies have gained about 40% in price YTD, while all other companies together (that are below $1 trillion market cap) have pretty much traded flat on the year.
- The real end game with AI is unleashing productivity for companies and therefore driving profitability
- For example, the S&P 500 is up about 13% year to date in 2024
- On the one hand, this is not reassuring since it’s so concentrated and it seems most companies are not doing all that well
- On the other hand, it could be the case that the $1 Trillion companies are benefiting most right now from AI-driven earnings growth and that will spread across a much broader universe of companies in the coming months and years
- What I continue to like in this investment environment is real estate
- Buyers are able to negotiate better purchase prices, especially in situations where the seller is distressed
- If inflation gets to a point where the Fed starts cutting rates, real estate prices will go up
- If inflation remains an issue, well you want to own hard assets with leverage
- I am optimistic about the equity markets over the longer term, because I think the US economy will continue to grow and we have the potential for AI to drive profitability over the next several years