WEEKLY WELL-TH NOTES

Data-driven insights on the markets and economy.

Fourth Week of May 2023

1. Ceiling Feelings

Stocks rose last week on optimism that legislators would resolve the impending debt ceiling, then took a step back on Friday as negotiations stalled. All in all, the S&P 500 gained 1.71% during the week, bringing its year-to-date (ytd) return to a sizeable 9.91%. The tech-heavy Nasdaq Composite gained 3.08% during the week, bringing its ytd return to a remarkable 21.37%.[i]

2. Pause and Effect

Federal Reserve Chair Jerome Powell suggested on Friday that he is open to pausing rate hikes at the central bank’s June meeting.[ii] This didn’t do much to change market expectations, likely in part because more restrictive lending standards may already be effectively acting like tighter monetary policy. One estimate suggests that increased borrowing costs since the Silicon Valley Bank collapse correspond to a permanent Fed hike of 2% and 0.5% for regional and large banks, respectively.[iii]

3. Small Problem

In April, 77% of small business owners reported concerns about their ability to access capital, a dramatic reversal from one year ago when 77% said they were confident in their ability to access capital. 61% of those who had applied for a business loan in the past three months (17%) found it difficult to access affordable capital, and 60% said rising interest rates are impacting their ability to service existing debt.[iv]

4. Cash Stash

U.S. households accumulated excess savings at an unprecedented speed following the onset of the pandemic. As of mid-2022, households in the lowest quarter of the income distribution had 41% more in their checking accounts compared to mid-2019 levels, while those in the highest income group had 29% more. Economists expect that the roughly $500 billion of this excess savings that remains in the economy ― despite recent rapid drawdowns — should continue to support consumer spending in 2023.[v]

5. Just Browsing

E-commerce sales rose about 8% year-over-year as of the end of March,[vi] whereas retail sales excluding e-commerce were up only 2.9%.[vii] With this gain, e-commerce accounted for the largest share of retail spending (15.1%) on record, except for during the second quarter of 2020 during pandemic lockdowns (16.5%).[viii]

6. Home Advantage

New permits to construct single-family homes rose for the third month in April, increasing 14% from their January low (they fell -40% in 2022).[ix] This recovery was likely partly boosted by a lack of competition from existing homes as current homeowners opt to maintain their low mortgage rates; from January 2020 through October 2022, increases in home prices and mortgage rates more than doubled the monthly mortgage payment on a newly purchased home.[x]

7. Should You Stay or Should You Go

Median wage growth for those staying in their current job fell slightly to 5.6% y/y in April, from 5.7% in March ― the highest on record since the beginning of the data series in 1998. Wage growth for job switchers also fell slightly to 7.6% y/y in April from 7.7% in March ― also the highest on record since 1998.[xi]

8. Shaky Financials

Only 43% of Americans can answer three simple questions about interest rates, inflation and risk diversification correctly. Only 29% of women answer all three questions correctly, versus 48% of men; however, women are much more likely than men to respond that they do not know or decline to answer at least one of the questions, suggesting this gap is at least partly driven by a lack of self-confidence.[xii]

9. Rise of the Pinheads

After fading almost into oblivion by 2000, sales of new pinball machines have grown by 15-20% every year since 2008. And the International Flipper Pinball Association approved 8,300 “official” pinball tournaments in 2022, a four-fold increase from 2014.[xiii]

10. Bitcoin Pizza Day

Monday, May 22 was Bitcoin Pizza Day — the day in 2010 when Bitcoin was used to purchase two Papa John’s pizzas in what was widely viewed as the first commercial Bitcoin transaction. The pizza fetched 10,000 Bitcoins, which today would be worth about $270 million.[xiv]

[i] FactSet total returns as of May 19, 2023.

[ii] Timiraos, Nick, “Jerome Powell Keeps June Interest-Rate Pause in Play,” The Wall Street Journal, May 19, 2023.

[iii] Slok, Tortsen, “Quantifying the Negative Effects of the Banking Crisis on the Economy,” The Daily Spark, Apollo Global Management, May 14, 2023.

[iv] Goldman Sachs, “Credit Crunch: Small Business Owners Worry About Accessing Capital as Washington Scrambles to Avert Default on National Debt,” May 4, 2023, https://www.goldmansachs.com/citizenship/10000-small-businesses/US/voices/news/may-04-2023-press-release.html. Accessed May 23, 2023.

[v] Abdelrahman, Hamza and Luiz E. Oliveira, “The Rise and Fall of Pandemic Excess Savings,” The Federal Reserve Bank of San Francisco, Economic Letter, 2023-11, May 8, 2023, https://www.frbsf.org/economic-research/publications/economic-letter/2023/may/rise-and-fall-of-pandemic-excess-savings/. Accessed May 23, 2023.

[vi] U.S. Census Bureau, E-Commerce Retail Sales [ECOMSA], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/ECOMSA. Accessed May 23, 2023.

[vii] Lahart, Justin, “Online Shopping Is Getting Old,” The Wall Street Journal, May 19, 2023.

[viii] U.S. Census Bureau, E-Commerce Retail Sales as a Percent of Total Sales [ECOMPCTSA], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/ECOMPCTSA. Accessed May 23, 2023.

[ix] U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Single-Family Units [PERMIT1], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/PERMIT1. Accessed May 23, 2023.

[x] Rappaport, Jordan, “Home Prices Are Overvalued but Will Decline Only Gradually,” Federal Reserve Bank of Kansas City, February 17, 2023, https://www.kansascityfed.org/research/economic-bulletin/home-prices-are-overvalued-but-will-decline-only-gradually/. Accessed May 23, 2023.

[xi] Federal Reserve Bank of Atlanta, Wage Growth Tracker, https://www.atlantafed.org/chcs/wage-growth-tracker?panel=5. Accessed May 23, 2023.

[xii] Lusardi, Annamaria and Olivia S. Mitchell, “The Importance of Financial Literacy: Opening a New Field,” National Bureau of Economic Analysis, working paper 31145, April 2023, https://www.nber.org/papers/w31145. Accessed May 23, 2023.

[xiii] The Economist, “Wizardry,” May 20, 2023.

[xiv] Kaloudis, George, “Celebrating Bitcoin Pizza Day: the Time a Bitcoin User Bought 2 Pizzas for 10,000 BTC,” CoinDesk, May 22, 2023, https://www.coindesk.com/consensus-magazine/2023/05/22/celebrating-bitcoin-pizza-day-the-time-a-bitcoin-user-bought-2-pizzas-for-10000-btc/. Accessed May 23, 2023.