Updated September 5, 2023
Adam Damko, CFA
The Piggy Bank
📈 The market rallied strongly this week–up all five days–as jobs data convinced investors the Fed is likely done raising rates.
The number of available job listings in the US just hit 8.8 million in July, down from 9.2 million in June. This is the lowest number in over two years as new job postings have fallen for six of the past seven months.
Additionally, a Thursday update to the Personal Consumption Expenditures (PCE) Index showed that inflation edged higher in July. The PCE – which excludes food and energy prices – is typically the Fed’s preferred metric and rose 4.2% in July, in line with expectations.
👀 What to Be on the Lookout for This Week
There are several economic reports to keep an eye out for this week, including:
New orders for manufactured goods
IBD/TIPP Economic Optimism Index
ISM Services PMI
30-year fixed-rate mortgage, which currently sits at 7.31%.
Nonfarm labor productivity
Additionally, although it’s a short week due to Labor Day, there are still a few earnings reports to watch for:
Tuesday: Asana, Aerovironment, Gitlab, Zscaler
Wednesday: C3.ai, Dave and Busters, American Eagle
Friday: Kroger, Rent the Runway
📰 In Other News
There was turbulence across many different sectors this week, as bans, fines, and shortages shaped the week’s business news.
Bans: To start, the city of Los Angeles announced a potential ban on cashless businesses – AKA businesses that force customers to pay with a debit/credit card or payment app. Under this proposed rule, all businesses in the city would be forced to accept cash as legal tender, which not all currently do.
This rule was introduced after a city councilman alleged that not accepting cash payments could systematically exclude low-income segments of the population. Specifically, it could exclude those who have less access to banking, debit/credit cards, and payment apps.
Fines: The state of Texas has announced that all EV owners must pay a $200 annual registration fee, as well as a $400 upfront fee when buying a new EV. With this legislature, the Lone Star State has joined 32 other states that are imposing an EV fee.
These fees aren’t meant to be punitive or hinder the transition to EVs. Instead, they're simply designed to offset the gas taxes that will be lost in the switch from gas to EVs. In other words, the government wants to transition to EVs…but they also don’t want to lose gas tax revenue.
Speaking of EVs. The Biden Administration announced another $15 billion to help assist in the nation’s transition to EVs. These funds will mainly be for retooling existing factories and supporting workers during the transition.
The nation’s investment in EVs is already starting to reshape certain Southern states, as thousands of workers flock into small towns in preparation for new EV factory jobs.
Shortages: Finally, the nation is facing an Adderall shortage which is currently plaguing 97% of community pharmacists. Since we are gearing up to enter the school year, this shortage is only expected to worsen. Federal drug regulators have already called on manufacturers to increase production.
Reflects performance at market close 9/1/23
🚀 What’s Fueling Gen Z’s Investments?
A Generation of Active Traders?
Last week, we peeked into Gen Z's investment mentality. This generation has witnessed more than their fair share of economic shifts. When it comes to investments, many young investors approach it with caution, seeking advice from experts first. Gen Z has also been seen to prioritize quality of life over wealth.
With that said, coming out of an economic rollercoaster can sometimes also have the opposite effect. This week's article sheds light on another side of this generation — who may prove to be the boldest generation yet.
According to a new survey by Bankrate, a whopping 90% of Gen Z investors bought, sold, or withheld stocks in response to inflation, rising interest rates, and other economic factors. Only 68% of Millennials, 38% of Gen X, and 35% of Baby Boomer investors followed suit.
More than 50% of Gen Z investors plan to increase their investments in the stock market this year. Only 43% of Millennials, 19% of Gen Xers, and 9% of Baby Boomers plan to up their stock holdings this year.
Clearly, a good part of Gen Z doesn't hold back when it comes to the stock market. But, how are the bulls of Gen Z so confident?
Gen Z’s Motivation
There is one factor that’s motivating Gen Z to be more aggressive: FOMO.
FOMO — the Fear of Missing Out — is a feeling of anxiety, a fear of missing out on exciting or rewarding experiences. Social media has been a driving force behind FOMO: as people share their thoughts and experiences, feelings of being left out are triggered in many.
With Gen Z, FOMO is driving investment decisions.
Gen Z's investment FOMO is sharper than in previous generations because volatile assets have been the norm in their lifetime. Since the start of the 2020s, this generation has seen continuous cycles in assets like meme stocks, cryptocurrencies, and NFTs. In some cases, these assets have spiked hundreds — if not thousands — of percent in just a few days.
It's also easier than ever before to get in the game. Various apps allow anyone to open up an investment account, and start trading with just a few dollars. Investing in stocks was not as simple, back in the day. In fact, a young millennial looking to day trade stocks in the 2000s would first have to invest in the steep fees needed to start a trading account. Strict account minimums are also a thing of the past.
What Do Experts Say?
The experts say it's easy for young Gen Z investors to get caught up in the hype of investment bubbles. When the popular cryptocurrency, Dogecoin, had its bull run in 2021, it spiked 6,000% in just a few months. Anyone who made a relatively small $1,000 investment could have walked away with a payday of $60,000. In the mind of a young Gen Z investor, a $1,000 investment could have been a ticket to pay off all of their student loan debt overnight.
In hindsight, however, it's always 20/20. Seasoned traders say it's nearly impossible to tell when the next big run will start. By taking big bets on risky assets, experts say you’re more likely to turn $1,000 into $10, than $60,000.
Gen Z may be actively day trading to keep up with their peers, but trying to hit a home run won't come as easily. Instead, experts say creating a well-diversified portfolio and playing the long game may be a better way to build wealth. This strategy, they say, may save time and reduce stress over the years, while likely generating a higher ROI at the same time.
Still, as seen last week, wealth may not be the driving factor for Gen Z. And now, considering FOMO and the importance placed on experience, Gen Z may continue to be the boldest generation of investors yet.
😨 Evaluating the Millennial Debt Crisis
Creeping Debt Levels
Millennials are accumulating debt at an alarming rate, including credit card debt, auto loans, and student loan debt.
According to Federal Reserve data, Millennials accumulated nearly $4 trillion in debt during the 4th quarter of 2022. This hike is a 27% increase from 2019 — marking the largest debt accumulation period since the financial crisis in 2008.
What is behind this debt? Millennials aren't overspending on luxuries. In fact, since graduating college, most Millennials would have faced a combination of economic challenges. From student loan debt, housing unaffordability, and the rising cost of living — these hurdles over the course of their lives have made it difficult for Millennials to think of building a net worth.
One reason the generation born between 1981 and 1996 is facing financial difficulty is the lack of affordable housing.
For most Americans, buying a home is the first step in wealth building. Replacing a monthly rent check, homeowners can pay down a mortgage, and build equity over time. For Millennials, however, homeownership has remained elusive.
Millennials were one of the first generations to graduate college with large amounts of student loans. The debt here is much higher than generations before them. When the average student graduated in the mid-2000s, they had accumulated between $30,000-$35,000 in student loan debt. This debt burden has made it harder for 33% of Millennials to buy a home. Instead of saving the $30,000 needed for a down payment, Millennials have had to save $30,000 to set off the student loans they began with. (Not to mention accumulating interest.)
Stepping out with an expensive education, most Millennials entered the job market in the midst of the 2008 financial crisis. For many years after, high-paying jobs and mortgages were very short in supply.
Millennial Money Moves
Financially, Millennials might feel like they’re behind the 8-ball. Yet, the laws of wealth-building have changed very little over the generations.
To build wealth, it’s critical to reduce debt, spend less than earned, and finally, purchase assets when possible.
To reduce debt, it’s best to pay off high-interest loans first, including credit cards, and student loans. Debt consolidation companies may offer some leeway here: By taking out a single, low-interest loan, multiple high-interest amounts can be paid off.
Spending less than earned is the golden rule — one that may not be as easy as it sounds — but pays off in the long run. The practice frees up monthly cash flow, creating an opening for investing.
These golden rules of finance may have worked for generations before — but for Millennials, starting in the back with debt — an added push may be necessary.
In this case, starting a part-time business, also known as a “side hustle” can work wonders. From driving an Uber on the weekend, to commercializing a pastime on Etsy, or Instagram, there are many options to consider. Launching a business will create a second, separate line of scalable income.
Millennials may be starting from below the bottom, but they may very well be the generation that shows the way out of the debt cycle.
Sales of disaster kits are spiking as natural disasters become increasingly common. These kits typically include first aid bags, car jump-starter gear, and backpacks with other essentials.
Lithium supplies are expected to fall short of demand by 2025. This precious metal is crucial for the production of rechargeable batteries, specifically for EVs.
After being relatively cold over the past few months, the tech IPO market is about to heat back up. Prominent private tech companies like Arm, Klaviyo, and Instacart have all filed paperwork to go public.
Only 28% of remote workers feel connected to their company’s mission, a record low. However, 34% of all US workers feel engaged at work, which is up 2% from last year.
The IRS has delayed the new 401(k) catch-up contribution rules for high earners. If you are at least 50 and earned $145,000 last year then can make catch-up contributions to your employer-sponsored 401(k), as long as you use after-tax money.
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