Ep 57: Stock Market MakeHER Update: 10.14.24 (New AI Series)

You're listening to Market MakeHer, the investing education podcast for all levels of self-directed investors. We teach you complex financial concepts in a relatable way from her perspective. Welcome to your weekly stock market update. This episode is designed to help you understand what happened in the market last week and what you need to focus on this week. We talk about economic events. We talk about the major headlines. And of course, we break them down Market MakeHer style.

Now this episode is entirely produced by artificial intelligence, which means the voices you are about to hear are not ours, but in fact, artificial intelligence. It's amazing. All sourced by our weekly stock market newsletter. If you haven't checked it out, link is in the show notes. Without further ado, let's get you prepared for this week in the stock market. All right. So we're diving into earnings season this week. We're talking about the overall health of the stock market and how it's not just about, you know, those big tech giants carrying the whole thing.

Yeah, you're absolutely right. There's way more to it than those headlines we keep seeing about like Apple and Amazon propping up the entire market. It's like trying to survive on like to just coffee and a donut. Really, eventually you're going to crash. Exactly. You need a balanced breakfast, a balanced portfolio, a balanced market. And that's where this whole idea of market broadening comes in. It's about making sure growth is happening across different sectors, not just concentrated in a few big players. I like that market broadening.

So instead of just relying on those, what do they call them, the Magnificent Seven, you know, those tech giants, we want to see the rest of the market pulling its weight too, right? Exactly. And to really understand what's going on, we need to look back a bit. mean, those Magnificent Seven, their past performance has been incredible. Like in Q2 2023, their earnings growth rate was a massive 31%. Wow, 31%. That's huge. It is huge. And it gets even crazier if you look at the previous quarters. We're talking

55%, 62%, even a whopping 69 % growth at one point. But for Q3 2024, projections show a bit of a slowdown with an expected growth rate of around 19%. OK, so still good, but not quite as magnificent as before. Exactly. So does that mean the rest of the market, like the other 493 companies in the S &P 500, are they stepping up to fill the gap? That's the million dollar question. And the exciting thing is, yeah, they actually are.

Last quarter, they collectively saw an 8 % earnings growth rate. 8%. Now that's what I call a comeback, especially after what was it like five consecutive quarters of negative growth? Five quarters, yep. So this turnaround is a pretty big deal. So does this mean, would you say, that the market is actually becoming more balanced, more diverse in terms of where the growth is coming from? Absolutely. That's exactly what it means. It's market broadening in action. It's diversifying your investment portfolio, but on a massive scale. And for someone who's

you know, not a Wall Street whiz, why should they care about this whole market broadening thing? Because a more diversified market is a stronger market. Think about it like this. When one sector takes a hit, others can cushion the blow. Right. So don't put all your eggs in one basket, or in this case, one sector. Exactly. So let's talk about like earning surprises. Are companies actually meeting, exceeding, or falling short of those initial predictions this quarter?

What are we seeing? They're smashing them. I mean, it's pretty incredible, actually. A full 79 % of S &P 500 companies have reported positive earnings per share surprises. That means their profits are coming in higher than everyone expected. Wow, 79%. That's like a real vote of confidence. Is it just profits, though? Or are we seeing revenue exceeding expectations, too? Revenue is looking good, too. We're seeing about 60 % of companies reporting positive revenue surprises.

That means strong sales performance, which is always a good sign. So companies are making more money, bringing in more revenue. But how does that translate to overall market growth? What's the big picture here? Well, right now, the S &P 500 is reflecting an earnings growth rate of 4.1 percent for Q3 2024. In simple terms, companies are generating about 4.1 percent more profit than they were a year ago. That's pretty remarkable, especially with all the economic uncertainty that's been looming around. It really is.

And here's the kicker, that growth rate could actually climb even higher. Often, as earnings season progresses, we see companies continuing to outperform those initial expectations. So the final numbers could be even better than what we're seeing right now. Precisely. Like a bonus at the end of the year. Exactly. For example, imagine a company is projected to earn, say, $1.05 per share, but then they end up earning $1.10. That extra dollars or or five profit might seem small.

But multiply that across all the companies in the S &P 500 and it really adds up. Yeah, it all adds up. So potentially a rosier picture for the market than initially thought. It's definitely possible. And this isn't just a one time thing either. Looking back, companies have consistently surpassed earnings forecasts in 37 out of the last 40 quarters. Wow. 37 out of 40.

like almost a decade of beating expectations. is. The only exceptions were during those really tough times, like the beginning of the pandemic back in 2020 and that rough patch in late 2022. It's pretty amazing the market's resilience, you know, in the face of some pretty big challenges. But it can't be all sunshine and rainbows, right? Yeah. Are there any sectors that are surprising to the upside or maybe not doing as well as expected? You're right. It's definitely not a uniform landscape.

One sector that's really stood out is the financial sector, especially banks and investment firms. They've had some really significant positive surprises, which is a big reason why the index's overall growth is so strong. Interesting. So the financial sector is killing it. What about the flip side? Any sectors that are, well, not quite as impressive? Yeah, the energy sector, specifically oil and gas companies, has seen some downward revisions. Their profits haven't quite lived up to those initial expectations. Interesting. So while overall,

the market seems to be exceeding expectations. There are always variations within different sectors. It's like a good reminder that things are always changing and it's important to stay informed. Absolutely. Speaking of staying informed, let's switch gears a bit from earnings to another critical aspect, economic data. It's like learning a whole new language, right? Trying to decode all those economic indicators, but don't worry.

We're here to be your translators. Exactly. We'll help you crack the code. So which economic indicators are like the heavy hitters, the ones we should really be paying attention to right now? Well, one that's been getting a lot of buzz lately is PCE inflation. Yeah, PCE inflation. I've seen that term thrown around. Sounds kind of scary. Can you break it down for us? What is that exactly? Sure. So PCE stands for personal consumption expenditures. Basically, it measures how much prices are changing for all the things we buy regularly.

groceries, gas, clothes, you name it. Okay, so it's like a measure of how much more expensive everyday stuff is getting. Exactly, and this is the inflation measure that the Federal Reserve, the ones who set interest rates, they really keep a close eye on this one. Gotcha. So the Fed is watching PCE inflation very closely. Why is that? What's the connection? Well, the Fed's goal is to keep inflation in check, ideally around 2 % annually, and they use interest rates as their main tool to do that. Right, so if inflation gets too high,

They might raise interest rates to try to cool things down. And if inflation is low, they might lower interest rates to encourage more spending and growth. so it's like they're trying to find that sweet spot, that Goldilocks zone for the economy. Not too hot, not too cold. Exactly. So we've been seeing PCE inflation pick up a bit recently. Should we be hitting the panic button? Not necessarily. While there has been an uptick, analysts believe it might be temporary rather than a sign of

you know, runaway inflation. For example, goods prices. So the cost of things like clothing, electronics, they've gone up lately, but this is probably a short term blip, not a long term trend. just a bump in the road. Exactly. It's like when those new sneakers come out that everyone wants, the price might jump initially because of the high demand, but then it'll level off. OK, so don't freak out about the new sneaker price hike. Got it. Exactly. Another example is airfare prices, which are always up and down.

They tend to fluctuate a lot depending on the season demand, fuel costs. Yeah, airline tickets, they're like a roller coaster. Up, down, loop to loop. You never know what you're going to get. Right. So that recent spike in airfare might not necessarily reflect overall inflation trends. So basically, don't just look at one data point in isolation. Look at the bigger picture. Exactly. And when we do that, when we look at the bigger picture, experts are actually anticipating that core PCE, which excludes those more volatile food and energy prices,

will likely settle at a more moderate increase each month, around 0.2 % for the rest of the year. OK, so that sounds a little less scary, a more manageable pace of price increases. Exactly. Good news all around. Good, good. Now, what about the job market? What economic indicator gives us a glimpse into how that's doing? So jobless claims are a big one. This is a weekly report that tells us how many people filed for unemployment benefits the previous week. It gives us a sense of the,

the temperature of the job market. It's like taking the pulse of the job market or things heating up or cooling down. Exactly. So if we see a big jump in jobless claims, that could be a cause for concern, potentially indicating a wave of layoffs, which could point to a weakening economy. So we want to see those jobless claims numbers stay low and steady. Exactly. Low and steady. That's the goal. OK, good. What else? What about consumer spending? That's got to be a big factor, right? Huge factor. And that's where retail sales come in.

This indicator tracks how much consumers are spending in stores, restaurants, online, that kind of thing. So it's like a giant cash register ringing up the economy sales for the week. I like that. That's a great way to put it. So if retail sales are strong, that generally means that people feel good about the economy. They're confident. They're opening up their wallets. But if retail sales are weak, it could suggest some underlying concerns. Maybe people are feeling uncertain about the future, so they're not spending as much. Makes sense.

Confidence in spending, they go hand in hand. Okay, last but not least, let's talk about the housing market. With mortgage rates still all over the place, everyone wants to know what's next for housing. Yeah, it's a hot topic. And there are a couple of economic indicators we can look at to get some clues about where things might be headed. Those are housing starts and building permits. Housing starts and building permits. Okay, so break those down for me. What exactly are housing starts?

So Housing Starts track the number of new residential construction projects that have actually broken ground. It tells us how many new homes are being built, which gives us a sense of builder confidence. If builders are confident about the future of the market, they'll start new projects because they believe people will buy those homes. That makes sense. Builders aren't going to waste their time and money if they don't think anyone's going to buy, right? Exactly. And then you have building permits, which track the number of permits issued to start new housing projects.

So that's like getting the green light before you can even start digging. Exactly. So an increase in building permits usually means we can expect to see more new homes being built in the coming months, even if they haven't broken ground yet. So building permits are like a sneak peek into the future of the housing market. Exactly. And why does all of this matter? Because construction activity has a domino effect on the rest of the economy. yeah, of course. It creates jobs, right? Tons of them. Construction workers, material suppliers, electricians, plumbers, you name it.

And then you have the increased demand for appliances, furniture, landscaping. It's a ripple effect. So both housing starts and building permits are important indicators, not just for the housing market, but for the overall health of the economy. Wow. It's amazing how interconnected everything is, right? Earnings, economic indicators, consumer confidence. It's like this giant complex web. So we've covered a lot of ground here from those earnings surprises.

to all those economic indicators. It's like we're putting together a giant puzzle, right? It is a bit like a puzzle. And we can't forget about that big question that's looming over everything. Can the Fed, the Federal Reserve, can they pull off a soft landing? Right, the soft landing. Everyone keeps saying that, but what does it actually mean? So imagine a plane coming in for a landing. Yeah. A soft landing.

is when the economy slows down just enough to bring inflation under control but avoids crashing into a recession. Okay, so no nose diving into a recession, got Exactly. And the Fed is trying to achieve this by very carefully adjusting those interest rates, like a pilot making small adjustments to the plane's controls. So they're walking a tightrope, trying to find that perfect balance. Exactly. And all those economic indicators we've been talking about, they're giving us clues about whether they're on the right track.

Are we seeing healthy, sustainable growth or are things contracting? That's what we need to watch. It's like those indicators are sending us signals and we're trying to decipher the message. Right. So how does the stock market fit into all of this? That's the million dollar question because the stock market and the overall economy, they're like dance partners, you know, sometimes they move together and sometimes they do their own thing. OK, I like that dance partners. So if the economy is doing well, that

generally means good things for the stock market. Most of the time, yes. When the economy is strong, companies tend to do better. They make more money, hire more people, and investors get excited about their future prospects. So rising tide lifts all boats. Exactly. But here's where it gets interesting. The stock market is also forward looking. It's not just reacting to what's happening right now. It's trying to anticipate the future. So it's like the stock market has a crystal ball. In a way, yes.

For example, if investors believe that the economy will improve in the coming months, even if the current economic data is a bit shaky, you might still see the market go up. Because they're betting on that future growth. Exactly. But of course, like any bet, it's not guaranteed. The market can sometimes get ahead of itself. Right, like getting caught up in the excitement. Exactly. Which is why it's so important to, you know, to stay informed and not just follow the hype. Absolutely. Don't just rely on the crystal ball. Look at all the factors.

Now before we wrap up, any advice for our listeners on how to keep up with all of this economic data? can be a lot to process, right? Definitely. If you're looking for a fun and engaging way to boost your economic IQ, I highly recommend checking out Econ with Sarah on TikTok. Wait, TikTok for economics? That sounds interesting. It's amazing. She has a PhD in health economics and breaks down complex topics in such a clear and entertaining way. That's what we like. Making learning fun.

And healthcare economics is definitely a hot topic these days. For sure. And she does a great job of connecting the dots between healthcare and the broader economy. Definitely worth checking out. Perfect. So listeners, there's your homework. Ecom with Sarah on TikTok. Go give her a follow. As we wrap up this deep dive into earnings season and all those economic signals, I think the big takeaway here is that we're seeing a real shift in market dynamics. It's not just about those big tech companies carrying the weight anymore.

We're seeing growth across a wider range of sectors, which is a really positive sign. while understanding economic data can seem daunting, even intimidating sometimes, it's really about recognizing those key indicators and what they tell us about the direction the economy might be headed. Exactly. Knowledge is power, right? And that knowledge can help you navigate the market with more confidence. Absolutely. Well, that's all the time we have for today. This earnings season has been full of surprises, and it's clear that things are changing. The big question is,

Are you prepared for what's next? Until next time, keep learning, keep exploring, and happy investing.

Any information provided by Market Maker on our website or podcast is not intended to be a substitute for professional financial advice. Market MakeHer is not liable for any investment decisions made based on our content.

‍