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July 28, 2024
SECOND QUARTER ECONOMIC GROWTH: According to the Bureau of Economic Analysis' "advance estimate," the U.S. economy grew at a 2.8% annual rate in the second quarter. In the first quarter, the advance estimate was 1.6%, which was later adjusted to 1.4%. Whether it stays at 2.8% or adjusts down a bit, this was higher than generally expected. Household spending, which grew at a 2.3% rate, was the main driver in the growth.
ANOTHER INFLATION MEASURE: Another inflation measure that the Fed watches closely is the Personal Consumption Expenditures price index (PCE), compiled by the Bureau of Economic Analysis. Last week, the PCE for June came in showing a 0.1% increase from the prior month and a 2.5% increase over 12-months. But the Fed also likes to see the PCE minus food and energy prices, and that index is up 2.6% year-over-year, unchanged from the month before.
TECH STOCKS STRUGGLE, THE REST DO OKAY: Investors continue to spread their money beyond the concentrated positions in the large tech companies. Stocks in general had a rocky week largely because of a tech sell off in the middle of the week. Disappointing earnings reports by Tesla and Alphabet initiated the mid-week tech selloff. While tech stocks did not recover, the broader market fared better. Small cap stocks enjoyed their third consecutive week of gains with the Russell 2000 rising 3.47% for the week. The Dow Jones Industrial Index also rose for the week.
LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.
THE SHIFT CONTINUES: Large U.S. stocks, and in particular the largest seven (the "Magnificent Seven"), have been leading the U.S. stock market for quite a while. In former editions of this email, we have shown how expensive these stocks had become compared to historic norms. On the other hand, small U.S. stocks had been obtaining muted returns, and their valuations had become inexpensive compared to historic norms. On July 10, that trend started to reverse, and has not yet stopped. Below is a graph showing the returns of the Magnificent Seven (purple line) from April of 2023 (the trend started before that) until July 10 of this year. As you can see, the Magnificent Seven outpaced the S&P 500 by over 60 percentage points and the Russell 2000 (smaller stocks) by nearly 90 percentage points.
BUT LOOK AT WHAT HAS HAPPENED SINCE JULY 10: Since July 10, small cap stocks have outperformed the Magnificent Seven by over 22%.
WHAT TO WATCH FOR THIS WEEK: The U.S. Fed will meet and will most likely not take any action. But the wording of any announcements it makes will be watched closely. Earnings reports from Apple, Amazon, Meta, Microsoft and Intel will come out this week.
ENERGY GENERATION: As the world moved from the 19th to the 20th century, about 60% of electricity generation came from fossil fuels. Back then, it was almost 100% coal. The only other electricity generation source was hydropower, which created the other 40%. Today, fossil fuels create 62% of our fuel. Coal is still the largest source of fossil fuel-generated electricity, but natural gas has taken over a very large chunk (about 20%). Hydropower still generates about 20% of worldwide electricity, with nuclear and solar and wind creating the rest. Coal has held steady at about 40% since 1970, but in the last few decades, solar, wind and natural gas have picked up. Nuclear peaked in the 1970s after the oil shock, but it appears to be getting set for growth again.
THE EDUCATIONAL RICH GET RICHER, WHILE...: I am on the board of a small college. I see the financial and other challenges that all similar institutions are facing. Unfortunately, many colleges are not making it. In the past month the following colleges have publicly announced they are closing:
Eastern Nazarene College in Massachusetts
City College in Florida
Clarks Summit University in Pennsylvania
Pittsburgh Technical College
University of the Arts in Philadelphia, Pennsylvania
Goddard College in Vermont
Delaware College of Art and Design
Eastern Gateway Community College in Ohio
On the other end of the spectrum, the largest University in the U.S. is the University of Texas. Last year, it enjoyed $31.4 billion in revenues with $27.1 billion in expenses. That gave it a "net position" (a way of valuing a non-profit) of $70.7 billion, up 80% from a decade ago. Harvard's net position is $61.5 billion. The University of California has a negative net position. A large reason for the University of Texas' largesse is a gift of property totaling 2.1 million acres in the late 1800s. The original intent of the gift was to provide income to the college through grazing revenue. It turns out that this land is on the most prolific oil and gas producing region in the world. That gift from the 1800s is producing about $6 million a day in revenue.
RUNNING: I am looking forward to the track and field events, and in particular the running events coming up later in the Olympics. One of the great things about running sports is that they are the ultimate meritocracy. As an athlete, you are running against the clock. You are fighting yourself to get another second per mile faster. It is uncomplicated. I coached all three of my children through a variety of team sports when they were young. When my one son decided to do cross country, it was refreshing. With team sports, there was always that subjective decision by the coach as to how much they would play. With cross country, my son knew that if he ran fast enough, he would be running for the team on race day. I love watching runners in long distance events dig deeper, pain on their face, as they fight to win the gold. I can't wait for the Olympic marathon!
It inspires me as I race against my watch, trying to gradually get a bit faster. I know many people who cannot run because of a knee or a hip or something, so I recognize that I am blessed, and I know it could end. I beat my goal for the day this morning, and so it is a good day!
CHRISTMAS IN JULY: This was what our offices looked like last week as we celebrated Christmas in July! Actually, the West Chester Chamber of Commerce used our lobby to hold a networking event on Wednesday. Seems a little odd to walk into the office from temperatures in the high 80s to a Christmas tree.
Have a great week!
Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.
Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
"Running is real. It's all joy and woe, hard as diamond. It makes you weary beyond comprehension, but it also makes you free." Jesse Owens
"Such is the end of all who go after ill-gotten gain; it takes away the lives of those who get it." Proverbs 1:19 (NIV)
SOURCES:
ENERGY GENERATION: https://www.pgim.com/megatrends/fueling-global-energy-future/tradeoffs
ANOTHER INFLATON MEASURE: https://www.bea.gov/news/2024/personal-income-and-outlays-june-2024
SECOND QUARTER ECONOMIC GROWTH: https://www.bea.gov/news/2024/gross-domestic-product-second-quarter-2024-advance-estimate
THE SHIFT CONTINUES: YCharts.com
THE EDUCATIONAL RICH GET RICHER, WHILE...: https://www.highereddive.com/topic/closures-and-mergers/ AND https://newsletter.doomberg.com/p/whats-a-university-worth?utm_campaign=email-post&r=s86er&utm_source=substack&utm_medium=email
(c) 2024 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.
Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.
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