437: News of the Week 06/12/24

Thoughts on Sunday podcast on internet business investing: Seems like a platform really suited for people with e-commerce expertise I wouldn’t know how to evaluate or run an Internet business Investing under a manager who knows what they’re doing might make sense, but we’d need to see the track record I tend to think this is an area where you need to have operating expertise to be successful, even as a passive investor Latest on the economy and markets: When we spoke last week, we had just received the latest job openings report which showed some continued slowdown in the job market with decreasing (but still positive) job openings. Since then, another labor market statistic, came in a bit hotter than expected in terms of payrolls added in the month of May So we’re seeing some mixed data on the labor front as well as mixed data on various inflation measures Generally speaking the economy, inflation and labor markets are cooling. But it's not a necessarily smooth ride; there’s volatility as can be expected Implications:Chairman Powell will do a press conference WednesdayThe focus will all be on his messaging related to outlook as we head into the 2nd half of 2024Most economists have been assuming 2 or 3 rate cuts in 2024; so there will be a focus on Powell’s messaging The FED is likely to keep steady on the Fed Funds Rate in the months ahead The FED is currently in its two-day FOMC meeting which is being held over Tues and Wed of this week Overall, the trading markets have been stable over the past week: Equity markets are up 1%-2% since last week depending on which indices you look at, S&P, Nasdaq, Dow… The 10-year bond yield ticked up about 10 basis points in that time Gold and Bitcoin are down a bit off their highs One thing to note about the performance of the stock market this year is that strong positive performance has been very narrowBut if we look at which type of companies have fueled that gain, it’s all based on the very large cap stocks like Apple, Alphabet, Microsoft, Amazon, NVIDIA, META-  the companies with market capitalization in excess of $1 TrillionIn fact, those companies have gained about 40% in price YTD, while all other companies together (that are below $1 trillion market cap) have pretty much traded flat on the year. The real end game with AI is unleashing productivity for companies and therefore driving profitability For example, the S&P 500 is up about 13% year to date in 2024 On the one hand, this is not reassuring since it’s so concentrated and it seems most companies are not doing all that well On the other hand, it could be the case that the $1 Trillion companies are benefiting most right now from AI-driven earnings growth and that will spread across a much broader universe of companies in the coming months and years What I continue to like in this investment environment is real estate Buyers are able to negotiate better purchase prices, especially in situations where the seller is distressed If inflation gets to a point where the Fed starts cutting rates, real estate prices will go up If inflation remains an issue, well you want to own hard assets with leverage I am optimistic about the equity markets over the longer term, because I think the US economy will continue to grow and we have the potential for AI to ...