July 5th, 2023
I’ve always considered myself an ‘optimist’. A ‘positive thinker’. Over the years my definition of what it means to be optimistic has changed quite a bit.
I used to have a delusional quality about me. No matter what was happening I had a smile on face. Not necessarily a bad thing, but this often resulted in a lot of negative happening in m y life. Why? Because I wasn’t taking responsibility for reality – I wasn’t looking at things how they actually were. I was looking at things how I preferred them to be. Which means I dismissed many of the negatives, while seeking and celebrating only the positives.
The optimist I am today is very different. Now, I’ve come to believe the most spiritual and responsible thing we can do in this life is to be with reality exactly as it is. Not how we’d prefer it to be. This can be challenging – for obvious reasons. For me, this is what’s resulted in my optimism.
When we take responsibility for the truth. The present moment. We take back our control. Our power. We remove our wishful thinking and preferences. We just see things as they are and from that place we can make profoundly POSITIVE changes in our lives and the lives of others. This is the approach I take with asset management, and what I hope to give you as a reader of these monthly newsletters. No silly narratives, just a data driven approach which I hope can bring us all closer to the truth and result in an effective investment methodology and execution.
And now, your Monthly Market & Economic Update by the numbers.
Interested in learning more? Schedule a call with me HERE.
Warmly,
Mark S Sauer
Economic Update
GDP, Inflation, Student Loan Relief, Powell Testimony, Bank of England & Housing
Market Update
Global Equities: Upwardly revised GDP data and slight progress on inflation helped propel markets to weekly gains to close out the quarter. In June the S&P 500 added 7.11%, the Nasdaq rose 7.25% higher, and the Dow Jones Industrial Average advanced 4.56%. Developed International markets were also up, posting a 3.47% gain, while Emerging Markets finished up 4.17%. The Nasdaq Composite finished with its best first half start to a calendar year since 1983, gaining 31.7%.
Economic Update
GDP Revised: Revisions to consumer spending and inventories caused a surprise revision in first quarter GDP from 1.3% to 2.0%, as the economy avoided a widely anticipated recession. The uptick in consumer spending may have been attributable to an 8.7% boost in Social Security due to a cost-of-living adjustment. The Atlanta Fed’s “GDPNow” model is forecasting continued strength, with an estimate of 2.2% second quarter GDP growth.
Charts of the Month
PCE
Our first chart of the month shows the annualized quarterly rate of change in Core PCE (black line) along with the three key subcomponents Chairman Powell identified in his most recent FOMC press conference. Housing (light blue) has been a persistent driver of overall inflation but has finally rolled over. Core Goods inflation (dark blue), however, has been surprisingly stubborn as corporate profit margins suggest that some companies have taken advantage of the supply chain narrative to implement coordinated price gouging, which consumers have willingly accepted for the time being. Overall, Core PCE is showing slight signs of improvement but still declining far slower than the Fed would like.
Student Loan Debt
Our next chart examines the ballooning student loan burden facing young US borrowers. Student loan payments are set to resume in October. A report from the Center for Responsible Lending this month showed that 67% of borrowers are now underwater on their student loans, owing 100% to 125% of the borrowed amount as unpaid interest has piled up. Regardless of your stance on loan forgiveness, and the Supreme courts decision, resuming student loan payments will have to major implications:
- A Positive – discretionary speeding will take a large hit as the average loan hold’s monthly payment is just under $400. Giving the Fed much needed help with easing inflation.
- The Bad – discretionary speeding will take a large hit as the average loan hold’s monthly payment is just under $400. A large reduction in spending power by young Americans could result in GDP falling sharply and put further pressure on the potential of a light recession by year’s end.
Rents
Our final chart shows the change in median US asking rent prices, which have fallen significantly after surging during the pandemic. Chairman Powell specifically mentioned shelter inflation, which includes rent prices, as an area the Fed is focused on during his press conference. While inflation remains sticky for homebuyers, renters are seeing some relief which is crucial in getting core inflation measures lower.
