Stocks
When it comes to managing our half billion dollar portfolio, we always talk about how it is a market of stocks and not a stock market. With that being said, it doesn’t mean we don’t have a clue what’s going on with the indexes. We continue to feel that the indexes will fall from the rapid upward climb this year. What do we base that on? With the S&P 500 index being up more than 17% year-to-date, people should realize that the seven stocks of Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla, which have a combined Market cap of $11 trillion, are responsible for 73% of that 17% year-to-date return. I don’t know what you think, but our thought at Wilsey Asset Management is that is not normal and it is a warning sign that the index could lose steam and begin to slide back down the hill.
Nasdaq
With the Nasdaq up over 34% this year and the S&P 500 up over 18% this year, would you be surprised to find out the Dow is actually closer to its all-time high even though it is up just over 6% this year? Many times people do not realize how hard it can be to recoup major losses like the Nasdaq saw last year when it fell more than 33%. From their respective highs, the Dow is down 4.7%, the S&P 500 is down 5.7%, and the Nasdaq is still down 12.4%. It’s important to remember that a 1% gain does not full offset a previously witnessed 1% loss, so for the Nasdaq to return to it’s all time high it would actually need a 14.2% gain. While investing in fancy growth names can be exciting it’s these potential major turns that keep me out of the growth stocks as it can take you years to recover.
Home Sales
Existing home sales in the month of June fell 18.9% compared to last year. This marked the slowest pace of home sales for June since 2009. Even with the decline in sales, the median price of $410,200 held up well falling just over 1% compared to last June’s record number. The reason for this is the inventory level has struggled immensely as it fell 13.6% to just 1.08 million homes available for sale. Affordability has really challenged the first-time home buyer as the group made up just 26% of sales. This is down from 30% last year and it is the lowest level on record since the Realtors began tracking this number. I continue to believe home prices will be in a go nowhere trend for the next couple years as affordability will limit upside potential and the lack of inventory will prevent a substantial decline.
Economy
While Retail sales grew just 0.2% in the month and were below expectations of 0.5%, the numbers continue to feed my belief that a soft landing in the economy is possible. The consumer is slowing, but it appears by not enough to create a hard landing. Looking year over year retail sales were up 1.5%, but a decline at gas stations of 22.7% weighed heavily on the report. In fact if gas stations were excluded, retail sales would have climbed 4.2% compared to last year. Grocery stores also had a much lower impact as they saw an increase of just 1.1% compared to last year and were actually down 0.7% compared to last month. The goods economy continues to get hit as furniture and home furnishing stores saw a decline of 4.6%, department stores were down 5.2%, and building material and garden equipment and supplies dealers were down 3.2%. For the first time that I can remember in many months, electronics and appliance stores saw an increase of 0.9%. I do believe many of these industries that produce goods could be near a bottom and as we lap easier comparisons they could return to growth. Areas that remained strong in the report included health and personal care stores (+6.3%), food services and drinking places (+8.4%), and nonstore retailers (+9.4%).
Electric Vehicles
Electric vehicles in China continue to be a hot item for domestic vehicle sales. In 2022, electric vehicles accounted for 48% of domestic vehicle sales. For 2023, that has risen approximately 10% with electric vehicles market share now hitting 54%.
U.S. Dollar
You may not have noticed, but the dollar has been dropping. So far in 2023, it has been trading between $101 to a high of $105. Last week the US dollar index dropped 2.3% to $99.89, a level not seen since April 2022. This will affect consumers in a couple different ways. If you’re planning to travel to Europe, the dollar will not go as far as it used to which means more money coming out of your wallet to pay for lodging, dining and entertainment. The other factor a weaker dollar has on all consumers is it causes the price of oil to increase. The dollar may remain under $100 for a while, which means oil could trade between $75 a barrel to $80 a barrel. This means consumers will be paying more at the pump, and it will also make inflation data going forward more difficult to see a decline from the recent CPI of 3%.
Debt
President Biden’s plan to cancel around $430 billion in debt was struck down by the supreme court. He is trying to find a way around it and they have now come out with a way to write off $39 billion in debt. The education department is also planning on reducing payments to 5% of discretionary income, which means someone earning $32,800 a year will not pay off a dime in student loans. Even someone making $50,000 that racked up $50,000 in debt would be paying less than $1000 per year, well below the $6000 they would be paying now. One thing comes to my mind, it appears to be like paying the minimum payment on your credit card and these loans will go on forever as the interest continues to build. My financial advice is work hard to pay off these loans quickly so people can begin to invest in their 401(k)s and build their net worth.
Music Industry
You may be thinking about going to Taylor Swift’s upcoming Eras tour, however; be prepared to shell out somewhere around $1600 for a ticket. I was curious what a ticket would cost since I saw that this tour will be the first one to end up grossing a record $1 billion. That surpasses Elton John’s farewell yellow brick road tour, which had a gross of $843 million and in third place would be Ed Sheeran. I have to admit I don’t know who that is, which means I’m probably not very knowledgeable in the music world because in 2017 through 2019 his tour “the divide” brought in $776 million. Maybe had I kept on playing the drums when I was in high school and became a rockstar I’d be earning more money than I am now managing a half billion dollar portfolio.
Chinese Economy
China was supposed to have a big rebound in their economy as they re-opened after shutting it down again for Covid. It seems that it’s not working as many thought it would. Part of the problem could be foreign investment in China. In the first quarter of this year it fell to just $20 billion, well off the $100 billion one year ago. That does contrast to the big gain in foreign investment that we are experiencing here in the US. The major decline in China investment is likely stemming from companies diversifying their supply chains and President Xi’s national security agenda. I’m glad to see the change in investment, how about you?