Winging It
Mike Zaccardi | Aug 22, 2022
ARE YOU READY FOR some football? Autumn is just around the corner and, if you’re like me, you can’t wait for those lazy Sunday afternoons kicking back and watching the gridiron. What about some munchies as you enjoy the on-field action? While the cost of everything food-related seems to be skyrocketing, there’s encouraging news for one popular football snack. According to data from Bloomberg, wholesale chicken wing prices are down some 60% from a year ago. It’ll take a while before that price drop trickles through to the supermarket and our favorite barbecue joints, but it’s a promising sign. It seems some relief from food inflation is on its way. Even for non-football fans and those less keen on meat, there’s good news. Oat prices are down about 25% from their peak in late 2021. Similarly, following an ill-timed bird flu outbreak, wholesale egg prices are now falling fast. For many families, the relief offered by lighter grocery bills, smaller restaurant checks and lower gas prices can’t come soon enough. After benefitting from several fiscal stimulus packages during the pandemic, there are growing signs that the bottom and middle-income groups are financially strained. The excess savings built up during the pandemic are starting to slip away, while credit card debt is on the rise. Along with easing inflation, there’s another encouraging sign: We still have a strong labor market, one where the lowest wage workers are garnering the highest raises. We’ll get a fresh look at the jobs situation on Sept. 2—just before the NFL season kicks off.
Read more » Not Too Late
Mike Zaccardi | Nov 6, 2021
HEALTH SAVINGS accounts are frequently praised on HumbleDollar—with good reason. A lesser-known benefit: Health savings accounts, or HSAs, can be a boon for new employees, thanks to the last-month rule. What’s that? If you have a qualifying high deductible health plan (HDHP) as of Dec. 1, you’re eligible to make a full-year HSA contribution, even if you only just bought an HDHP. On top of that, if you continue HDHP coverage, you can make a full HSA contribution for the following year. The downside: You have to keep qualifying coverage for the next year or you could trigger taxes and penalties on the HSA contributions made under the last-month rule. I took advantage of the last-month rule when I swapped from a contract job to a permanent role in 2013. Since then, I’ve made it a goal to always contribute up to the annual HSA maximum. With some decent stock market returns, my HSA has swelled to more than $50,000. My plan is to let the account grow over the decades and then reimburse myself when I’m a healthy old man (knock on wood). Since first opening an HSA, the only major health-related expense I’ve incurred was an elective $3,300 Lasik procedure in 2018. I planned ahead and paid with a 2% cashback credit card, while leaving my HSA untapped. Fear not: I paid off my hefty credit card balance in full later that month. Another tip: If you can, it’s best to contribute to an HSA through your employer’s payroll system. That way, you can avoid that pesky 7.65% payroll tax. An added bonus: Many employers match an employee’s HSA contributions.
Read more » No Stagflation
Mike Zaccardi | Oct 27, 2021
WE SPEND TOO MUCH time worrying about stagflation. The term describes a period of high inflation with stagnant growth—a disastrous economic condition. It was seen at times during the worst of the mid-1970s recession, and again when inflation spiked in the early 1980s. Do we see it today? No way. Everyone over 60 surely recalls how difficult it was decades ago. Consumer prices were out of control. The unemployment rate jumped. Real wages were on the decline, while stock and bond prices were also dropping. Blogger and investment expert Michael Batnick notes that the S&P 500 fell 51.8%—including dividends, but after inflation—from January 1973 to September 1974. At the same time, long-term Treasurys experienced a real bear market of their own, losing 21.1%. Real gross domestic product (GDP) contracted 2% in 1974. The Misery Index, which adds together the unemployment and inflation rates, soared to 20 that year. It was the worst of times, part I. The early 1980s brought part II. The Misery Index again spiked above 20. The inflation rate peaked just shy of 15%, while the jobless rate climbed to 7% in 1982. Real GDP growth was barely above zero from 1979 through 1982. That was stagflation. Today’s economic landscape doesn’t compare. Sure, a lot can change, as fellow HumbleDollar writer John Lim recently noted. But core inflation looks to top out early next year at around 5%, according to Bank of America analysts. Meanwhile the Federal Reserve’s GDP growth estimate eases from 5.9% in 2021 to a still-robust 3.8% in 2022. Next year, the unemployment rate might even dip under 4%, or so says the Federal Reserve. As we head into the holiday season, let’s put away this nonsense that stagflation is gripping the U.S. economy. We could conceivably get there. But we aren’t anywhere close right…
Read more » Cooling Off
Mike Zaccardi | Jan 9, 2023
LAST FRIDAY’S U.S. JOBS report was just what the doctor ordered. While much attention gets paid to the headline change in employment—which was a solid 223,000 gain in December—the bullish news was in the report’s details. Average hourly earnings, a key measure of wage growth, were up 4.6% from a year ago, significantly less than the 5% consensus expectation. Weekly hours worked were also a smidgen less than forecasted—another “cool” reading on the inflation front. The unemployment rate, meanwhile, fell to its lowest level since 1969. Stocks initially rose on the news Friday morning, but then fell flat shortly after the market opened. So, what caused the S&P 500 to soar on Friday? The Institute for Supply Management (ISM) issues a manufacturing index and services index each month. While the manufacturing gauge has been indicating economic contraction for some time, the December services report released on Friday showed an unexpected dip below 50—the demarcation line between expansion and contraction. It was the biggest negative surprise for the services index since 2008. Within the ISM Services report, the employment, prices paid and new orders subindexes all deteriorated from the previous month. That disappointing data will be welcome news at the Federal Reserve. The Fed’s policymakers remain fixated on taming inflation. After some “hot” employment readings earlier in the week, the soft wage growth data in December’s jobs report and the big services slowdown may allow the Fed to ease off the economic brake pedal in coming months—and that’s why investors bid up share prices on Friday. But will the Fed scale back its inflation-fighting efforts? Next Thursday’s CPI report could be the final arbiter on whether a gentler 25-basis-point interest rate increase happens at the Federal Reserve meeting on Feb. 1—or whether a half-point rate hike is still in the cards.
Read more » Keep On Keepin’ On
Mike Zaccardi | Feb 19, 2020
A NATIVE CHICAGOAN, I bailed out and am now a Southerner. Or at least a Florida Man. So I attend church each Sunday. If you attend church in the south, you will inevitably hear someone respond to a “how are ya?” with “well, I just keep on keepin’ on.” With all the fanfare about this bull market, and especially large-cap technology stocks, it can be tough to keep on keepin’ on and stick to your long-term plan. Multiple financial news networks, finance Twitter and your neighbor Ted can, if you aren’t careful, trigger regret and cause fear of missing out, otherwise known as FOMO. U.S. stocks had a stellar 2019, no question about it. But if an investor looks beyond U.S. large caps, returns haven't been nearly as strong. U.S. small caps have underperformed their large and mega-cap counterparts for more than a decade. Consider two exchange-traded index funds, Vanguard Mega Cap ETF and Vanguard Small Cap ETF. Over the past five years, the mega-cap fund is up a cumulative 80%, while the small-cap ETF is up “just” 52%. U.S. value, historically a popular stock market tilt for those who pay attention to academic research, has lagged behind its growth counterpart over the same five-year stretch. Vanguard Growth ETF is up 93%, while Vanguard Value ETF is up a still respectable—but relatively disappointing—61%. Foreign stocks have seen perhaps the biggest underperformance. Vanguard Total Stock Market ETF, a darling of the FIRE movement (to which I partially subscribe) is up 73% since early 2015, while Vanguard Total International Stock ETF is up just 27%. Below are five-year annualized returns from Morningstar illustrating these sharp return differences. For grins, I included iShares U.S. Large Cap Growth and iShares U.S. Small Cap Value (and also to show I’m not playing favorites among ETF…
Read more » Motion Sickness
Mike Zaccardi | Feb 7, 2022
JUST HOW CRAZY WERE some of last week’s market moves? The Wall Street Journal detailed how Amazon.com (symbol: AMZN) recorded the biggest-ever one-day market cap gain in stock market history. The largest company in the consumer discretionary sector was valued $191.3 billion higher after posting better-than-expected earnings Thursday evening. Amazon’s monster move came just a day after Meta Platforms (FB) notched the single-biggest market cap decrease in market history. More widely known as Facebook, the social media giant shed $232 billion in market cap after posting its first drop in daily users in its 18-year history. These unsettling shifts among the world’s most valuable companies had their impact on the Bloomberg Billionaires Index. Jeff Bezos, founder of Amazon and owner of 10% of outstanding shares, surged to the No. 2 spot on the list, behind Tesla’s Elon Musk. Mark Zuckerberg has seen his net worth decline by more than $36 billion so far this year. The Meta CEO barely hangs on to his place among the top 10, with a net worth now under (gasp) $90 billion. Amazon and Meta shares weren't the only ones moving and shaking last week. Post-earnings stock price volatility occurred among other large tech-related firms, including PayPal (-25%), Spotify (-17%), Alphabet (-8%) and Snap (+59%). Day traders were surely downing a few drinks after a stressful week. More earnings are on tap over the balance of the month. Index fund investors and those focused on the long term are resting easier. Last week, the S&P 500 was up nearly 2%, while ex-U.S. markets again fared well. Developed nations slightly outpaced the U.S., while emerging markets rallied almost 3%. Looking ahead, earnings continue to roll in, but the focus will undoubtedly be on the Consumer Price Index report on Thursday morning. Some experts are betting that this month…
Read more »
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