Updated October 9, 2023
Adam Damko, CFA
The Piggy Bank
📈 Stocks cool as interest rates surge on the back of a strong September jobs report.
Will mortgage rates hit 8%? The average rate on a 30-year fixed mortgage has continued to climb each month, reaching 7.49% as of October 5, 2023. Mortgage rates have not been this high in nearly two decades. Many prospective homebuyers have been holding out in hopes that rates would drop.
But the Federal Reserve has made it clear that it intends to keep rates elevated for longer than initially expected. This has led housing experts to predict that mortgage rates could hit 8% by the end of this year.
Additionally, the nation’s largest private payroll processor, ADP, recently reported that US employers added only an estimated 89,000 private-sector jobs in September. This figure falls well below the 153,000 new hires that economists had anticipated and may indicate a cooling job market. However, ADP’s report didn’t align with data from the Bureau of Labor Statistics. Its JOLTS report showed the number of open jobs climbing.
👀 What to Be on the Lookout for This Week
Here are the key economic reports to watch:
Tuesday: NFIB Small Business Optimism Index
Wednesday: FOMC Meeting Minutes, Producer Price Index
Thursday: CPI Inflation Data
Friday: Michigan Consumer Sentiment Index
Additionally, here are all of the companies that report earnings this week:
Wednesday: Delta Air Lines, Domino’s Pizza, Walgreens
Friday: Citigroup, JPMorgan Chase, Wells Fargo
📰 In Other News
Treasury Terror: Since March 2020, treasury bonds with a 10-year maturity have plummeted 46% in value, while 30-year bonds have crashed by 53%. These losses now parallel some of the worst market collapses in history, including the dot-com crash (-49%) and the 2008 financial crisis (-57%).
Steep Streaming: Over the past year, most major ad-free streaming services have increased prices by about 25%. This trend reflects streaming platforms’ efforts to increase profitability by encouraging customers to switch to more affordable and more lucrative ad-supported plans.
On the topic of paying more for services, Meta Platforms — owner of Facebook, Instagram, and WhatsApp — is testing a $14/month, ad-free subscription for European users of Instagram and Facebook. The move is in response to new EU privacy laws requiring user consent for targeted ads. It’s also a big test for Meta to see if users are willing to pay for a service that has always been free.
Luxury Brands Building Spree: The world’s luxury brands are not intimidated by the rise of eCommerce. In fact, many are doubling down with an increased brick-and-mortar presence. In the last year alone, luxury retailers have scooped up 650,000 square feet of space in the US. Among the noteworthy developments, Hermes launched a new flagship store spanning 20,500 square feet on Madison Avenue, Chanel doubled the size of its flagship location in Beverly Hills, and Gucci's rapid expansion has led to the opening of eight stores in Texas.
Closing on the topic of successful launches, the Las Vegas Sphere has officially opened for business. Lined with wall-to-wall video screens, the Sphere is one of the world’s most innovative venues. It hosted the first of many planned concerts and live events last weekend with back-to-back performances by U2, opening to massive acclaim.
🧑💻 The Job-Hopping Generation
Benefits of Job-Hopping
Gen Z is a generation of job-hoppers.
According to a survey by ResumeLab, 83% of Gen Z workers view themselves as job-hoppers. These young workers are embracing change, seeing it as a strategy to gain experience and expand their expertise. The generation born between 1995 and the early 2010s is entering the professional arena with a unique outlook, influenced by changing economic conditions and evolving societal expectations.
Job-hopping has its pros and cons. One of the most enticing benefits of switching jobs is that it leads to higher salaries. Still, financial experts caution that individuals need to be extra vigilant in managing their long-term savings, including 401(k) plans from previous employers.
Pros and Cons of Job-Hopping
Deliberately switching jobs every few years has its advantages:
Higher salary: Negotiating salaries and bonuses is often most successful when starting a new job. Frequent job changes provide more chances to negotiate a pay increase.
Increased flexibility: The US workforce now offers more flexibility than ever. Alongside higher pay, switching employers gives individuals an opportunity to negotiate a remote or hybrid work schedule that best fits their needs.
However, there are also some downsides to frequently changing employers:
Learning curve: Frequently accepting new roles entails a steep learning curve that comes with having to continually adapt to new systems and processes.
Leaving behind friends: There may be a salary boost that comes with a new job, but saying goodbye to workplace friendships and making new ones can be stressful. In fact, 65% of those polled stated they would quit their job if they could not get along with colleagues.
Retirement planning: Workers who stick with one company for decades can rely on a company-sponsored plan to help fund their golden years. But with more frequent job changes, the burden of managing and keeping track of the various funds falls on the worker.
Preparing for Retirement
In fact, the biggest downside of job-hopping may be its long-term impact on retirement preparation. While most companies still offer 401(k) plans, it has become increasingly rare for employees to stay with the same company for an extended period.
Financial experts advise the job-hopping generation to monitor their retirement accounts even after leaving a position. When joining a new company, employers typically open a retirement account automatically. While HR will sometimes help employees that are leaving a company roll over their retirement accounts, the responsibility falls on the worker to take a proactive approach.
Several options are available when dealing with existing 401(k) accounts. Usually, it is possible to roll over the 401(k) into the new company's plan. However, not all companies offer 401(k)s, or accept rollovers. In such cases, employees are given the option to cash out the plan, although this may result in a 10% early withdrawal fee.
Financial experts often recommend an individual retirement account as a smart choice for younger workers. The old 401(k) can be transferred into an IRA, such as a Roth IRA. While taxes may be owed to convert pre tax funds to a Roth IRA, younger workers are typically in a lower tax bracket than they would be in retirement, making it an ideal time to make the transition.
😎 FOMO Is Driving the American Economy
Unfazed by Inflation
Over the past year, America has experienced some of the highest inflation in decades, leading to a significantly higher cost of living.
Generally, a higher cost of living would prompt people to cut back on discretionary spending on expenses such as vacations, dinners out, and concerts. But this year, household spending has continued to be the primary driver of economic growth.
In August, consumer spending was up 5.8% from the previous year. Most notably, the experience economy boomed over the summer with Ticketmaster selling 295 million event tickets halfway through 2023, marking an 18% year-over-year increase.
In other words, despite the surging cost of living, Americans are still casting caution aside and booking trips, hotel stays, and concert tickets.
Spending Over Saving?
In the past, people were motivated to save money so that they could afford big purchases, like a home. But now, several different factors are eroding this incentive.
First, today’s housing market has become increasingly unaffordable, causing most consumers to give up on the idea of homeownership altogether. As of June 2023, the National Association of Realtors estimated the median price of a new home to be $410,200. To mortgage with a 5% down payment, a homebuyer still has to come up with $20,510. If the bank demands a 20% down payment, that amount increases to over $80,000. These sums are already beyond the reach of a large portion of the population.
In addition, the COVID-19 pandemic showed Americans how quickly an experience — like a trip to a foreign country, or even a national park — could be stripped away.
Moreover, many people are prioritizing experiences over long-term financial security, with climate change concerns driving the desire to see places before they potentially disappear. In consumers’ minds, it makes sense to spend months' savings for a trip to, for instance, visit the Alaskan polar ice caps — because, in a few decades, it may not be there.
A Balancing Act
With all this in mind, consumers are deliberately splurging on once-in-a-lifetime experiences.
But, while fear of missing out (FOMO) might be driving the American economy, wealth managers suggest financial goals should not be completely neglected. In fact, experts say that this may be a good time to do just the opposite.
In recent years, consumers witnessed just how volatile the economy can be, highlighting the importance of having a solid financial foundation. The pandemic served as evidence that even a reliable job can be unexpectedly disrupted.
Ultimately, it may all come down to striking a balance between indulging in enjoyable experiences and saving to secure a financially sound future.
Sales of heavy winter coats and sweaters are down thanks to an unseasonably warm Autumn. Some major retailers are already slashing prices to avoid excess inventory.
“Invoicing” is one area where Gen Z entrepreneurs could use a lot of help. This lack of familiarity with invoicing is mainly due to Gen Z’s limited exposure to the workplace.
Taylor Swift has become more than a pop star — she’s an American sensation. Swift’s influence has recently infiltrated the NFL, where her new relationship with Travis Kelce helped viewership and ratings soar.
Energy consumption is set to “increase dramatically” thanks to AI. One study shows that hundreds of millions of queries on ChatGPT can use the equivalent energy consumed by 33,000 US households.
Prices for raw, uncut diamonds are the lowest they’ve been in a year. This is partly because people are eating out, traveling, and spending on experiences over luxury goods.
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