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  • Writer's pictureDoug MacGray

Interest Rates, Conflicting Jobs Data, and a Vivid Memory

Updated: Jun 11

June 10, 2024


INTEREST RATES LOWERED...IN EUROPE:  The European Central Bank cut interest rates last week for the first time in five years. The ECB lowered its deposit rate by one quarter of one percent to 3.75% joining Sweden, Switzerland and Canada in starting to lower rates. The ECB gave no indication as to when it might lower rates again.


MEANWHILE THE FED...:  This coming week, the U.S. Federal Reserve Bank will hold its meetings (Tuesday and Wednesday). It is extremely unlikely that the Fed will lower rates, and so we will all be watching for indications as to when it might. Did the May jobs report shut down any possibility of a rate cut in July? The next three meetings are September, November and December. Will it wait until 2025? May's consumer price inflation data will be released Wednesday morning. What effect will this have on their deliberations?


ANOTHER STRONG WEEK FOR STOCKS: On Friday, stocks slipped as investors tried to parse what appeared to be a very strong labor report (see more on that below). Despite that slip, tech stocks once again led the major indices to new record highs last week topping out on Wednesday before stalling. Hewlett Packard and CrowdStrike (a cybersecurity company) reported strong earnings which helped continue tech stocks momentum last week.



LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  



CONFLICTING JOBS DATA:  Every month we get a report from the U.S. Bureau of Labor Statistics (BLS) called the "Employment Situation Summary" (ESS). This report announces the results of two surveys. One is a survey of payrolls, or jobs. It answers the question as to how many jobs there are in the economy, and how it has changed in the last month. It is a survey of employers. According to the payroll survey, the U.S. economy added 272,000 jobs in May (see chart below). That was a surprisingly strong outcome. The ESS also announces the results of a household survey which surveys individuals to see if they have a job. According to that survey, more people didn't have jobs than the month before. The unemployment rate increased from 3.9% to 4.0%. What is going on here? On any given month, there is little reason to be concerned about the divergence as it is a small sample size and because you are surveying two different groups. But this particular anomaly, the divergence between the employer survey and the employee survey, has now been going on for too long to be a short-term anomaly. It is causing economists and statisticians to dig deeper. If the number of new jobs keeps improving and the unemployment rate flatlines or gets worse, there has to be an explanation. Below are two of the possible explanations:

  1. According to Anna Wong, chief economist at Bloomberg, the BLS practice of estimating a large number of new jobs based on a model it used to estimate business births and deaths, is incorrect, and are inflating the number. According to her, despite what the graph tells you below, the underlying pace of growth of new jobs in the economy is "likely less than 100,000 per month."

  2. The BLS headline employment report does not delineate between full time and part time jobs. According to the BLS, the U.S. economy has added 2.76 million jobs in the past year. But the BLS states that in May 2024 the U.S economy had 133.3 million full time jobs. In May 2023, the BLS states that the U.S. economy had 134.4 million full time jobs. This indicates that all of the gains in jobs in the past year have been in part time jobs because the number of full time jobs has decreased in the past year.

You can be sure that the Fed sees all this data and will take it into account as it decides what to do with interest rates going forward.



USED CAR PRICES COMING BACK DOWN TO EARTH:  The price for a used car decreased by 0.6% last month. Year-over-year, prices are down 12.1%.


LUMBER PRICES FALLING:  The price of lumber is down by about 4% from a year ago.


COMPETITION?:  A group of very large investors are joining forces to create a new stock market in Texas to challenge the New York Stock Exchange and the NASDAQ. The Texas Stock Exchange (TXSE) has raised $120 million and plans to file registration documents with the SEC. The TXSE will seek to attract companies seeking lower compliance costs. It plans on being a fully electronic exchange. It plans to start trading next year.  


INVESTING FOR RETURNS AND TO DO GOOD?:  In both public and private equity markets, we have been following entities trying to use investment dollars to both make money for their investors and do good. Here is one example: There is a private equity venture fund we have been following for a while and started using for some interested clients. One of the companies this firm has invested in is DejaVuAI. One true story illustrates what DejaVuAI does. Two girls were missing and known to have been trafficked here in the U.S. The police found the girls being marketed in an online advertisement, but they had no idea where they were being held. They took the image from the advertisement to DejaVuAI. In 22 minutes, it provided the police with the girls location, and they were rescued a few hours later. DejaVuAI had scraped the web for images of hotel rooms that matched the curtains and bedspread in the advertisement. Traffickers yield revenues of approximately $236 billion annually victimizing over 50 million worldwide. One million of those victims are estimated to be in the U.S. Investors in this for-profit company are seeking to both make money with their investment dollars and change the world for the better. 


"KNOWN BUT TO GOD":  I guess it was because last Thursday was the 80th anniversary of D-Day that a memory seemed more poignant this year. When I was a 20-year-old college student, I had the great privilege to participate in a summer semester called "European Seminar." We travelled to nine countries in eight weeks, a wonderful trip. We usually had some sort of lecture in the morning at a historic site, maybe a tour, and then free exploration time. One of our stops was Normandy. Below is a picture of me (taken with my Kodak camera) on that trip at the Point Du Hoc memorial. 



I was exploring Omaha Beach and its environs with my buddies Scott, Garth, Bruce, Chip and others. We had a blast all throughout Europe being typical college guys, with typical college guy humor. We enjoyed seeing the beaches and the gun emplacements and bunkers and other remnants of the D-Day battle. When we got to the crest of the hill, we saw this:



A picture does not come near giving you the true impact of what it was like. It is just so much more vast than it looks in pictures. While we were all engaging in our normal chatter, as soon as we saw this site we all got sober and quiet. We wandered through the crosses (and some stars of David) and read the names. I still remember seeing the first cross that said, "Known But to God" instead of an actual name, and feeling that lump in my throat and the moisture in my eyes. Here, all around me, lay guys, the same age as Doug, Scott, Garth, Bruce and Chip. Instead of spending the prior two or three years in college, they prepared for this. Instead of a bright future, it all ended for them right here, many of them not even making it to their 20th or 21st birthdays. Here they were, and there they still are. Doug, Scott, Garth, Bruce and Chip all made it home from that trip to Omaha Beach, and got married, and had children and grandchildren. I am so grateful to those young men who came here in June 1944.


A PRIVILEGE:  It has been a while since I sat through one of these. My granddaughter had her dance recital, and she did an awesome job. She put her heart and soul into it, and she was beaming with pride when it was all over. There were 29 different performances, and hers was number nine, so there was a lot of dance to watch just to see sweet Lydia, but it was worth it.




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


"At the core, the American citizen soldiers knew the difference between right and wrong, and they didn't want to live in a world in which wrong prevailed. So they fought and won, and we, all of us, living and yet to be born, must be forever profoundly grateful." Stephen Ambrose


"Greater love has no one than this, that he lay down his life for his friends." John 15:13 (NIV)


SOURCES:

INVESTING FOR RETURNS AND TO DO GOOD?: EagleVentureFund.com


(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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