Updated January 16, 2024
Adam Damko, CFA
The Piggy Bank
📈 Tech stocks help send the S&P 500 to a fresh weekly high close.
The producer price index, a gauge of wholesale prices, fell 0.1% for the month and ended 2023 up 1% from a year ago, according to the Labor Department. This is an unexpectedly good sign for inflation and will likely be factored into the Federal Reserve’s stance moving forward. Read more in our Inflation Update below.
👀 What to Be on the Lookout for This Week
Here are the main economic announcements to look out for:
Wednesday: Retail Sales, 30-Year Mortgage Rate, Export/Import Prices
Thursday: Building Permits, Housing Starts, Initial Jobless Claims
Friday: Existing Home Sales
Additionally, here are the biggest earnings reports to keep an eye on:
Tuesday: PNC Bank, Goldman Sachs, Morgan Stanley
Wednesday: Charles Schwab, Discover Financial
Thursday: JB Hunt Transport, M&T Bank, Truist Financial Corp (formerly Suntrust)
Friday: Ally Financial, Fifth Third Bancorp, Regions Financial, State Street
📰 In Other News
Contractors Or Employees? The gig economy is facing a new challenge. The US Labor Department just issued a new rule about how companies can classify their employees. Under this rule, a company must treat a worker as an employee rather than an independent contractor, so long as that person is economically dependent on the company.
The new law could threaten many companies that rely on gig workers by significantly raising their employee costs. Many expect the legislation to receive legal pushback from business groups.
Biden Ramps Up EV Charging. The Biden administration also handed out a fresh $623 million in grants this past week to help the US build out its EV charging infrastructure. These grants will fund 47 charging stations and similar projects in 22 states and Puerto Rico.
The plan is expected to create 7,500 charging ports to help advance the electrification of America’s roads and propel the industry toward the White House’s goal to have EVs comprise 50% of all new vehicle sales by 2030.
Boeing’s Big Blowout. Boeing is facing increasing scrutiny after the door to one of its 737 Max 9 planes blew off during an Alaska Airlines flight. Fortunately, there were no serious injuries as the accident happened when the plane was still ascending. Had the door blown off at cruising altitude, the accident could have been catastrophic.
The Federal Aviation Administration (FAA) announced that it will increase oversight into the production of Boeing’s 737 Max 9 planes to ensure that the company and its suppliers are adhering to the necessary quality control practices.
OpenAI’s Licensing Plan. OpenAI is currently in talks with Fox, TIME, and CNN to license their content for use with its generative AI tools. From OpenAI’s perspective, access to relevant news and video clips will be critical in ensuring that its tools are more accurate, relevant, and up-to-date.
However, the generative AI startup is already in hot water for allegedly training its algorithms on content that it doesn’t own. OpenAI is currently facing a trio of lawsuits from writers, artists, and The New York Times for its alleged unauthorized use of copyrighted works to train its ChatGPT tool.
🔼 Inflation Ticks Back Up in December
The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) for December increased by 3.4% annually and 0.3% monthly.
An increase in housing costs (+0.5%) was the main factor driving inflation upwards, contributing to half of all monthly increases. Other increases in the CPI included energy (+0.4%) and food (+0.2%).
December’s 3.4% Consumer Price Index reading marked the fastest increase in inflation seen in three months. This sudden turnaround could potentially incentivize the Federal Reserve to delay interest rate cuts, which the market widely anticipates will occur early this year.
However, when looking at core CPI — which excludes volatile food and energy prices — inflation fell to an annual rate of 3.9% from 4.0%. Core inflation is the metric that is watched more closely by the Fed when it comes to making policy decisions.
Since the beginning of 2022, the Federal Reserve has been trying to lower inflation without triggering a US recession. In particular, the Fed aims to achieve a “soft landing”, in which inflation recedes to 2% without causing an economic downturn. Once they reach their goal of 2%, the Fed may start cutting rates, which would bring down the cost of borrowing for businesses and consumers.
So far, the Fed has been successful in achieving this goal. They’ve enjoyed several sustained months of consistently lower inflation. After hitting a peak of 9.1% in June 2022 on an annual basis, inflation has been consistently decreasing for most of 2023. In August and September, inflation briefly increased to 3.7%. But it continued its downward trend in October and November, hitting 3.2% and 3.1%, respectively.
This month’s reading of 3.4% is a slight increase, but considering the progress made since 2022, it’s not an overly alarming jump.
Looking forward, the latest economic projections show that officials are still projecting three rate cuts in 2024, with the first reduction expected in March. According to the latest estimates, markets are currently pricing in a 70% chance that the Fed cuts interest rates that month.
However, if the trend seen in December persists, inflation readings for January and February could certainly alter this timeline.
The Fed's rate cuts will have a widespread impact on the economy as it will make it much cheaper to borrow money, potentially spurring economic investment from companies, and making it more affordable for individuals to buy a home or car and make other large purchases.
❤️ Love & Money
Money’s Role in Relationships Is Growing
Younger generations are placing an increasingly growing emphasis on money in a relationship, according to Northwestern Mutual’s Progress & Planning Report.
Nearly 50% of Gen Z now consider financial compatibility more important than physical compatibility in a relationship. Millennials were close behind at 40%, while the numbers came in at 35% for Gen Xers and 30% for baby boomers. This increasing emphasis on financial compatibility in a relationship starts to make more sense when considering the circumstances of each generation’s upbringing.
Many millennials came of age or entered the workforce during the 2008 Financial Crisis, one of the most significant recessions in recent history. They faced financial hardship as they began their careers, seeking employment and starting families amid an economic meltdown. A little over a decade later, Gen Z began entering the workforce just as the pandemic brought the economy to a standstill.
Experiencing dramatic economic downturns during their formative years could be a reason why these generations prioritize financial compatibility in relationships.
Finding Financial Compatibility
Finding financially compatible partners is especially warranted in today's high-cost era. The pandemic was followed by some of the highest inflation seen in decades. This surge has affected all aspects of life, including dating. From flowers to a night out, younger generations have had to be more cognizant of how much it can cost to start and build a relationship.
That said, the results of the survey don't necessarily suggest younger generations value wealth above all else. The same survey showed that Gen Z values spiritual compatibility as much as physical compatibility (49%). It simply means they seem to be more conscious of the role money plays in both functional relationships and overall well-being.
Maintaining Financial Compatibility
Relationship experts and financial advisors alike observe that financial issues can significantly strain relationships. For this reason, couples often avoid having the “money talk” with their significant other.
However, most experts would recommend not to postpone the talk. In fact, it may be best to have it sooner than you’d think, a sentiment echoed by the one-third of Gen Zers and millennials who consider the money talk a prerequisite to a serious relationship.
Here are three tips for getting on the same financial page as your partner:
Discuss income and expenses. To start, experts suggest conducting a comprehensive review of both partners' earnings, expenditures, and any assets or debts. While you may have a feel for each partner's situation, it’s hard to see the full picture without getting into the nitty-gritty details.
Establish a joint spending (and saving) plan. Once you understand each other’s finances, it’s time to develop a shared understanding of how they come together. Some couples opt for separate spending accounts, while others prefer a joint account. Alternatively, a joint bill-paying account can be established while maintaining separate accounts for personal expenses.
Establish long and short-term financial priorities. Financially compatible couples tend to have a clear outline of their financial goals for the future. Are you planning to purchase a home? Move to a larger apartment? Buy a new car? Save for travel? Experts suggest making sure both parties are on the same page about these objectives, then devising a plan to save for and achieve them.
Another crucial aspect of financial compatibility is consistency. Advisors recommend relationships schedule a monthly or quarterly “money date” to review budgets, assess successes and failures, and make necessary adjustments. Consistency also reduces the potential awkwardness of the money talk, allowing couples to stay on the same page while adapting to economic changes.
🎬 America’s Streaming Exodus
The Surge of Sub-Cutting
“Cord cutting” is a term commonly used to describe the act of shifting away from multichannel cable television packages toward streaming. But now the streaming industry appears to have reached a similar moment, as viewers en masse are unsubscribing from their services.
According to data from subscription-analytics provider Antenna, roughly 25% of Americans who subscribe to major streaming services such as Apple TV+, Disney+, Hulu, Max, Netflix, Paramount+, and Peacock have canceled at least three of those services in the past two years. This percentage is up from 15% two years ago, indicating that an increasing number of Americans are opting to cut the cord — or, rather, subscription — from streamers.
Americans likely feel comfortable canceling their streaming services for two reasons:
Rising Prices. Streaming prices have consistently risen each year. For instance, Netflix’s streaming-only package cost just $8 when it was introduced in 2011. Today, its standard plan costs $15.49, with the premium plan starting at $22.99, and prices have consistently risen around $1 each year.
Oversupply. Back when there were only a few streaming services in the market, a monthly subscription to access hundreds of hours of content might have been a no-brainer. But today, viewers have seemingly endless streaming platforms to choose from, leading subscribers to strategically switch between services to access their favorite shows and movies, rather than remain loyal to a single platform.
As a result, America's largest streaming companies are finding it increasingly challenging to retain their customers.
With competition on the upswing, streamers are leaning on three different strategies to attract viewers and retain subscriptions:
Ad-Supported Tiers. Netflix introduced a more affordable ad-supported plan that costs just $6.99 per month, less than half the price of its standard plan. This helps lower the cost for consumers, and the advertising revenue helps compensate for the loss in subscription revenue for Netflix. Predictably, other streamers have begun to follow suit.
Extending Free Trials. Many streaming services provide increasingly attractive free trials to encourage viewers to sign up, get hooked on binge-watching shows, and retain their subscriptions. Some will even offer a month or more for free if subscribers begin the cancellation process.
Bundled Deals. Many rival streaming services have taken the notable step of partnering to offer streaming bundles to customers, aiming to deliver more value at a lower price.
To a certain degree, these strategies appear to be working. Last November, over one-third of new US Netflix subscribers signed up for its ad-supported tier. Disney+ reported similar numbers, with nearly 60% of their first-time customers in November choosing that tier.
Avoiding Cost Creep
Although most streaming services have struggled to reach profitability, there’s one main reason why even major entertainment companies like Disney and Paramount Global have embraced them: Subscriptions.
Unlike, say, paying for a movie ticket, subscriptions generate recurring revenue each month. Essentially, streaming companies only need to convince a customer to sign up once, then enjoy consistent monthly income. However, while this benefits the companies, it can strain the subscriber’s finances, particularly if they’re overpaying or signing up for multiple streaming services — as subscribers have evidently noticed.
If you haven’t yet taken a closer look at your subscriptions, it’s worth noting that paying for unused streaming services could add up to hundreds more dollars spent each year. Fortunately, by conducting a quick review of bank statements or credit card bills, it's easy to identify any unnecessary subscriptions.
Also, consider the fact that, as platforms embrace alternate strategies, the same streaming services may be available through better-priced bundling deals, including from vendors such as Instacart and phone companies like Verizon.
While streaming services have become a way of life, there are many ways to cut costs without stopping the show.
The amount of crypto stolen in 2023 was almost $2 billion, down 51% from 2022. Notably, hacks and scams were more prevalent during the week, from Tuesday to Friday.
Over 20% of Americans bought less car insurance than they wanted last year, due to high costs. Experts recommend comparing insurance offers from different providers to save money.
Hertz plans to sell off 20,000 electric vehicles. This comes just two years after the car rental giant announced plans to build the largest EV rental fleet, which it is now walking back due to the costs of charging and repairs.
Taxes on sugary drinks led to a direct decrease in sales. A sample study found that a 1% increase in price led to a 1% dip in purchases.
2024 might be the year that delivery drones become mainstream. With several regulatory hurdles cleared, vendors are aiming to expand the number of cities making drone deliveries this year, and major retailers like Walmart are planning to expand their drone services.
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