Weekly Good Reads: 5-1-1
Slowing down, reshoring, stock market composition, sleep
Welcome to another issue of 5-1-1! I am Marianne O, an investment professional and author of The Learner’s Mind on investing, economy, and wellness ideas. For this Weekly, I include 5 links to relevant economic and investment news, finance, and wellness/idea pursuit based on what I read. I also include 1 important chart and 1 investment term to know. You can easily subscribe to my newsletter by clicking below.
Market and Data Comments
This week’s economic data confirmed major economies are slowing at various speeds. The softer core services (ex-housing services) inflation in the Euro area and the US reflected slower demand. The US economy is the most resilient among all major developed economies. Its Q1 real GDP (third estimate) was revised up from 1.1% quarter-on-quarter annualized (first estimate) to 2% due to better estimates of exports and consumer spending.
Futures market price in an over 70% probability for a 25bp rate hike by the Fed in July (and another 25bp in September).
With the S&P 500 rising 8.3% in Q2 (third straight quarterly gain) and Nasdaq up 12.8%, so much for central bank quantitative tightening. Various banking failures since March prompted central banks to inject liquidity via programs such as short-term lending to commercial banks. While big banks aced the Fed’s stress test, mid-size banks suffer from higher interest rates.
Plenty of liquidity is required to roll over vast debts built up by the private and public sectors. Michael Howell of Crossborder Capital estimated seven out of eight dollars changing hands in world financial markets are now used to refinance existing debts. He also expects global liquidity to continue to support stocks (over bonds.)
remarked in ‘The Economic Perception Model’ the power of fiscal policy.What fiscal policy has accomplished is honestly incredible. We are building a lot of chip fabs and EV manufacturing facilities, and that has provided support to the manufacturing side of the economy, which has allowed the U.S. to remain stable as other countries try to find their footing.
Read about ‘Reshoring’ below.
In Japan, rising inflation (GDP deflator has reached 2%) is due to the underlying improvement in wages and inflation. Firms continue to pass through cost increases to selling prices in services. Bank of Japan governor Ueda sticks to his dovish monetary policy, which means yield curve control will continue for longer. The large US-Japan interest rate gap prompted Yen to weaken to a seven-month low of 145 vs. the Dollar this week.
Next week, data to monitor include the Chinese Caixin manufacturing PMI on Monday and the US June employment report and unemployment rate on Friday.
Economy and Investments (Links):
FTC Lawsuit is Just the Latest Headache for Amazon (Retail Brew)
Nothing Knows Anything 2023 First Half Edition (The Big Picture) - a great piece talking about the decision-making process and information you hear. What are the sources of these people, their process for making macro decisions, do they ever consider they could be wrong, and if other factors may drive their decision-making?
Finance/Wealth (Link):
Automated Tax-Loss Harvesting? We’ll Pass (Ellevest Magazine)
Wellness/Idea (Link):
Bonus: The Ugly Shoes Now Worth Billions of Dollars (WSJ)
One Chart You Should Not Miss: A Visual Breakdown of S&P 500 Companies
When investing in the broad market, be it the US like the S&P 500, Germany (DAX), or Korea (KOSPI), it is important to research and know the market structure or the makeup of the sectors and industries that drive the index returns. You might have heard about the ‘magnificent-7’ tech companies making up all the rallies in the S&P 500 this year.
Factors such as size also matter. This year, mega-cap stocks (S&P 500) and tech-focused Nasdaq have done much better than small-cap stocks (Russell 2000).
One Term to Know: Reshoring
Reshoring is the process of returning the production and manufacturing of goods back to the company’s original country or simply back home. Reshoring is also known as onshoring, inshoring, or backshoring. ~ Bohuslav Lipovsky
As the chart below shows, reshoring and foreign direct investment are projected to create 400,000+ jobs in 2023 in the US, which leads to a long-term investment theme of reshoring in semiconductor manufacturing, industrial automation, and clean energy production. Read more about reshoring in my One Chart One Idea here.
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