Welcome back, everybody, to the deep dive. It's
great to be back. Yeah. We've got a lot to cover
today. A lot of material. We do, you know, as
always, we're taking sort of too disparate. sources
and trying to figure out how they relate to one
another and what the major takeaways are for
listeners. Absolutely. We've got some really
interesting ones this time. We do. This is a
late March market analysis that we're looking
at. Kind of bumping up against an early April.
political rundown from electoral vote news. A
lot going on. A lot going on. And I think, you
know, the economy feels like it's at one of these
inflection points where it's, you know, we've
got persistent inflation that doesn't seem to
be abating. Right. But we've also got people
are making more money. Income growth is strong.
And, you know, corporations are reporting good
profits. Yeah. So there's a there's a few different
things going on here. It's not all bad news.
Not all bad news. It's not all good news. Right.
It's a little bit of a mixed bag. And we've got
to try to kind of untangle all of this and figure
out what matters most. It's interesting you say
inflection point, because looking at the economic
analysis and some of the political stuff, it
really does feel like we're at a turning point.
Yeah. And politically, things are as crazy as
ever. That is always plenty to talk about. Lots
to talk about. Let's dive right in to the economic
side first, and then we'll get to the political
stuff. Sounds good. As mentioned, this is a market
analysis from late March. OK. And one of the
things that really jumped out at me is they talk
a lot about the PCE data, the personal consumption
expenditures data, and headline PCE was up 0
.3 % month over month, 2 .5 % year over year.
As expected. As expected, right. There's no surprises
there. But core PCE, which is what the Fed really
looks at to gauge inflation because it excludes
those more volatile food and energy prices. Yeah.
And, you know, that's important because we saw
a lot of volatility in food and energy prices
last year. So taking those out gives us a better
sense of what's really going on with underlying
inflation. Absolutely. And that number came in
a bit hotter than anticipated. It did. 0 .4 percent
month over month, which is higher than than economists
were expecting. Right, and even though inflation
is starting to trend downwards, it's still...
Above the Fed's 2 % target. Above the Fed's 2
% target, and the report really drills down on
what's driving this persistent inflation that
we're seeing. The only thing that they highlight
is... durable goods, prices, things like cars
and appliances. Those prices have been going
up. Especially vehicles. They specifically call
out vehicles. Yeah. And that's partly due to
supply chain issues that we've been seeing, but
also this expectation of future tariffs. Yeah.
So there's a lot of talk about implementing tariffs
on certain goods, and that's already starting
to be priced in. Right. And that makes sense.
To the market. Because if businesses know that
tariffs are coming, They're gonna start raising
prices now right in anticipation of those tariffs
So so the market is sort of forward -looking
in that way. Absolutely and consumers are forward
-looking, too Yeah, the report suggests that
we might be seeing some accelerated buying of
durable goods particularly vehicles Because people
are trying to get ahead of those potential price
increases if those tariffs do come into effect,
right? So it's like by now by now. Before it
gets more expensive. Exactly. And we're starting
to see used car prices starting to come down
a little bit. Little bit. But new car prices
still seem to be pretty elevated. Yeah, they're
still high. And it's interesting because the
report also talks about how service sector costs.
Things like transportation, health care. Those
are sticky. They're not coming down much. Those
are stoopy. Those are really sticky. Yeah. So
that's kind of. creating a bit of a... A puzzle.
A puzzle, right? Because you would think that
as... As supply chains ease. Right, as demand
starts to cool off a little bit. We would start
to see those prices come down. Right, but we're
not seeing that as much in the service sector.
Right, and the report sort of speculates on why
that might be, and they... Well, part of it is
just that it takes longer for those prices to
adjust. Right. You know, you've got contracts
in place, you've got... Labor costs are high.
Labor costs are high, exactly. So it's not as
easy to just flip a switch and lower prices.
Right. And then you've got the fact that the
job market is still strong. Very strong. Very
strong. And so wages are continuing to increase.
And that's putting upward pressure on prices.
Right. So it's kind of this self -perpetuating
cycle, in a way. It can be. Where wages go up,
that puts pressure on businesses to raise prices,
and then And then workers demand higher wages.
Workers demand higher wages to keep up with the
cost of living. Right. And so it just keeps going.
And so it just keeps going, yeah. It's a spiral.
It's a spiral, yeah. But then you look at real
consumer spending. OK. which is only up 0 .1
% month over month. Which is much lower than
expected. Much lower than expected, yeah. And
that's kind of a head scratcher. It is. Because
at the same time, you've got personal income,
which was up 0 .8 % month over month. So people
are making more money. People are making more
money. But they're not spending it. But they're
not spending it as much. Right. So that's a little
bit. concerning. It is concerning. Because it
suggests that maybe consumers are starting to
get a little bit spooked. Yeah, maybe they're
worried about the future. Worried about the future,
worried about inflation. Worried about a recession.
Worried about a recession, and so they're kind
of holding back a little bit. Right, they're
saving more. Saving more, yeah. It's not necessarily
a bad thing. Not necessarily a bad thing, but
it does. It does slow down the economy. It does
slow down the economy, yeah. If people aren't
spending money, businesses aren't making as much
money. and that can lead to job losses and all
sorts of other problems. Right, so it's a delicate
balance. It is. You know, you want people to
be... Spending money. Spending money, but you
also don't want them to be overspending. Right,
and you don't want them to be racking up debt.
Right. And you want them to be spending within
their means. Right. And saving for the future.
Right. So it's a tough spot to be in. It is a
tough spot, yeah. And then you look at the GDP
numbers. OK, which, you know, initially sound
good for 2024 GDP was revised upwards to 2 .4
percent annualized, which is driven by corporate
profits and consumer spending. Right. So that's
the good news. That's the good news. The bad
news is that the outlook for Q1 2025 is not so
rosy. Not so rosy. Some forecasts are actually
predicting a contraction. A contraction. Yeah.
And the report kind of attributes this to a couple
things. One is those anticipated tariffs. Right.
We were talking about earlier. Which could lead
to a surge in imports. Right. So businesses are
trying to get ahead of those tariffs. Stock up.
Stock up. Before the prices go up. before the
prices go up, and so that's kind of artificially
inflating GDP in Q4. Right, it's pulling forward
demand. Pulling forward demand. From Q1. From
Q1, yeah. So we might see a bit of a hangover
effect in Q1. Right, and then the other thing
that the report talks about is just this general
uncertainty. Global trade uncertainty. Yeah,
surrounding global trade. You know, with the
war in Ukraine and tensions with China. Yeah.
Businesses are just hesitant to invest. Right.
They're hesitant to hire. They're kind of in
a wait and see mode. Exactly. They're waiting
to see how things play out. Yeah. And that's
that's understandable. It is. But it's not good
for the economy. It's not good for growth. Not
good for growth. If businesses aren't investing
in hiring, then the economy is not going to grow.
Right. So it's kind of this this vicious cycle
in a way. It can be. uncertainty breeds more
uncertainty uncertainty breeds more uncertainty
yeah and then you look at the housing market
okay which you know is always kind of a bellwether
a key indicator a key indicator for the economy
yeah because it's so tied to consumer confidence
absolutely and to interest rates right and to
the job market yeah so so many things are tied
to the housing market it's being part of the
economy it is a big part of the economy yeah
And it sounds like we saw a little bit of a rebound
in February. A modest rebound. A modest rebound.
New and pending home sales were both up. Yeah.
Driven primarily by the South. Yeah. Which, you
know, is interesting because the South has been
kind of a hot spot for growth. It has been. Over
the last few years. A lot of people moving to
the South. People moving to the South. Lower
cost of living. Lower cost of living. Yeah. Warmer
weather. Warmer weather. So it's not surprising
that the South is leading the way in terms of
the housing market recovery. Right. But the report
also cautions that, you know, there are still
some significant headwinds. Yeah, those elevated
mortgage rates. Yeah, mortgage rates are still
hovering around 6 .7%. Which is high. Which is
high. It makes it very expensive to buy a house.
It makes it very expensive to buy a house, yeah.
Especially for first time home buyers. Especially
for first time home buyers, yeah. Who are already
struggling with affordability. Right. You know,
they're trying to save up for down payment. Yeah.
They're trying to qualify for a mortgage. Yeah.
And then they're getting hit with these high
interest rates. It's tough. Yeah. It's tough.
And the report basically says that, you know,
we're not going to see... a significant recovery
in the housing market. Until mortgage rates come
down? Until mortgage rates come down closer to
that 5 % range. Yeah. Which is still high, historically.
It is. More manageable. More manageable. Yeah.
Than 6 .7%. Right. So that's kind of the state
of the housing market right now. It's in a holding
pattern. It's in a holding pattern, yeah. Waiting
for those interest rates to come down. Yeah.
And then one last thing on the economic front.
that really jumped out at me was this drop in
consumer confidence. Yeah, that was a big one.
The conference board's consumer confidence index
fell to 92 .9 in March, which is the lowest it's
been since early 2021. since early 2021. Yeah.
And that's a pretty significant drop. It is significant.
And the report attributes this decline directly
to concerns over inflation and tariffs and tariffs.
Yeah. So those two things are really weighing
on consumers minds. Yeah. And it makes sense.
And, you know, if you're worried about inflation,
if you're worried about the economy, you're going
to be less confident about the future. You'll
be less likely to spend money, less likely to
spend money, less likely to invest. Right. And
that's not good for the economy. No, it's not.
So so, yeah, that's that's kind of a A concerning
development. It is concerning. Yeah. So with
all of this swirling economic data, how did the
markets react? Not well. Not well. The week ending
March 28 saw declines across all the major domestic
equity indices. So the S &P 500, the NASDAQ Dow.
All down. All down. Even mid cap and small cap
stocks felt the pressure. Yeah. The Russell mid
cap. The Russell 2000? All down. All down. And
international markets also experienced losses.
Yeah, the MSCI EAFE, the MSCI EM. All down. All
down. So it was a pretty broad -based sell -off.
Yeah, it was a rough week for investors. It was.
And bond market... Were mixed. Were mixed. Some
bonds did well, some bonds didn't. Right, so
it wasn't a clear signal from the bond market?
No. But one thing that the report really pointed
out was this interesting divergence within the
S &P 500. Yeah, between the mega -cap tech stocks
and the broader market. Right. So the so -called
Mag -7. Mag -7 tech stocks. Apple, Amazon, Microsoft,
Google. Facebook. And Tesla, NVIDIA. Yeah, all
those big names that have really driven market
growth over the last few years, they are now
underperforming. The rest of the S &P 500? The
rest of the S &P 500. The other 493 companies.
Yeah. And the report kind of attributes this
to a couple of things. One is just this valuation
-driven shakeout. Yeah, investors are starting
to reassess those very high growth expectations.
Especially around AI. Especially around AI. And
other tech innovations. Right. You know, there's
been so much hype around AI lately. So much hype.
And I think investors are starting to realize
that maybe it's not going to be as transformative
as quickly. As some people were predicting. As
some people were predicting, yeah. And, you know,
you've also got increasing competition in the
tech space. Absolutely. You've got policy uncertainties.
Right. You know, the government is starting to
crack down on some of these big tech companies.
Yeah, there's a lot of talk about antitrust regulation.
Right. And then, you know, you've just got these
historically high valuations. Yeah, some of these
tech stocks are trading at price to earnings
ratios that are just astronomical. Right. And
so it's not surprising that we're starting to
see a little bit of a pullback. It's a natural
correction. Yeah, a natural correction. After
such a strong run -up. Right. So where does the
report suggest that investors might be looking
instead? Well, they highlight the relative strength
in more traditional sectors. Like industrials,
financials, utilities. Yeah, those sectors tend
to be more stable. Right. They're not as flashy
as tech. Right. but they offer more in terms
of dividends and other income generating characteristics.
And that's appealing to investors in a time of
uncertainty. Absolutely. You know, when the market
is volatile, people tend to flock to safety.
Right. They want to invest in companies that
are going to pay them a steady stream of income.
Right. And that's exactly what those sectors
offer. Exactly. So the report's basically saying,
you know, if you're overexposed to tech, Maybe
it's time to take some profit. Maybe it's time
to take some profit. And diversify into other
sectors. Diversify into other sectors. Especially
small and mid -cap stocks. Which might offer
more attractive valuations right now. Right.
They haven't run up as much as the large -cap
stocks. Right. So there's more room for growth,
potentially. Potentially. Yeah. So as we look
ahead on the economic front, what are some of
the key data points that we should be paying
attention to? Well, the report emphasizes the
importance of the upcoming JOLTA's report. Which
stands for the Job Openings and Labor Turnover
Survey. Right. It gives us insights into the
labor market. How many jobs are open? How many
people are quitting their jobs? Right. It's a
good indicator of the health of the job market.
Yeah. And then we've got the ISM surveys. For
both manufacturing and services. Which give us
a snapshot of business activity. Right. Are businesses
expanding? Are they contracting? What are their
expectations for the future? Right. It's a good
way to gauge the overall sentiment in the business
community. Yeah. And then of course we've got
the trade balance figures. Which tell us how
much we're importing and exporting. Right. And
that's important because it gives us a sense
of the strength of the global economy. Right.
And then last but not least, we've got the monthly
jobs report. The big one. The big one. Everybody's
watching that one. Everybody's watching that.
Yeah. It tells us how many jobs were created.
What the unemployment rate is. What the unemployment
rate is. What wages are doing. Yeah. So it's
a really comprehensive look at the labor market.
And all of these data points are going to be
crucial in gauging the underlying strength of
the economy. Absolutely. And they're going to
heavily influence market expectations. regarding
future actions by the Federal Reserve. Right.
So if the data comes in strong, the Fed might
be more likely to raise interest rates, which
would be bad for the stock market. Generally
speaking, yes. But if the data comes in weak,
the Fed might be more likely to pause or even
cut interest rates, which would be good for the
stock market. Generally speaking, yes. So it's
a delicate balance. It is. And the Fed is trying
to walk this tightrope. Between controlling inflation.
And supporting economic growth. And it's not
an easy job. It is not an easy job, no. No. All
right, so let's switch gears now. OK. And talk
about the political landscape. Let's do it. Which,
as always, is very interesting. There's always
something going on. Always something going on,
yeah. This is a news rundown from early April.
OK. From Electoral Vote News. It covers a lot
of different topics. A lot of ground to cover.
A lot of ground to cover, yeah. But one of the
first things that they talk about is these election
results out of Wisconsin, which were held on
April 2nd. And the Democrats actually did pretty
well. They did. They won some key races. Yeah,
they won a seat on the state Supreme Court. Which
is a huge deal. It is a huge deal. Because it
flips the balance of the court. From conservative
to liberal. From conservative to liberal. Which
could have major implications for a lot of different
issues. Yeah, things like abortion rights. Voting
rights. Districting. All sorts of things. All
sorts of things, yeah. And the candidate who
won. Susan Crawford. Susan Crawford. She defeated
the Republican candidate. Brad Schimel. Brad
Schimel by a pretty comfortable margin. 55 %
to 45%. 55 % to 45%. Yeah, and this race was
really interesting because it attracted A lot
of attention. And a lot of money. And a lot of
money. Over $90 million was spent on this race.
$90 million? That's a lot of money. It is a lot
of money. For a state Supreme Court race. Especially
for a state Supreme Court race. Yeah. And a lot
of that money came from outside groups. Yeah.
Including Elon Musk. Elon Musk, yeah. He was
a big supporter of Brad Shimmel. He was. And
so the fact that Crawford won, despite all of
that outside spending, Is significant. And significant.
It suggests that money isn't always everything
in politics. Right. Sometimes voters just don't
like the candidate. Right, or they don't like
the message. Right. Or they're just not persuaded.
By all the advertising. By all the advertising,
yeah. And this race also had really high turnout.
Which is unusual for a spring election. It is
unusual. Yeah, people are usually not that engaged
in politics. In the spring. In the spring. But
this race was clearly important to a lot of people.
It was. And they turned out to vote. They turned
out to vote, yeah. The report kind of speculates
on why that might be. Well, part of it is just
that the stakes were so high. Right. This is
a really important race. With implications for
the 2024 presidential election. Exactly. Wisconsin
is a swing state. It is. And so the outcome of
this race could have a big impact on who wins
the state in 2024. Absolutely. And then the other
thing that the report talks about is the sort
of backlash against Donald Trump. Yeah, there's
a sense that some voters are just tired of Trump.
Tired of the trauma. Tired of the chaos. Tired
of the negativity. Right. And they're looking
for something different. They're looking for...
A return to normalcy. Yeah, a return to normalcy.
And so they're voting for Democrats. Right. Because
they see Democrats as the party of normalcy.
The party of stability. The party of sanity.
Yeah. At least in comparison to Trump. At least
in comparison to Trump, yeah. So that's kind
of the theory. Yeah, and it's an interesting
theory. It is. And it'll be interesting to see
if it holds up in other elections. In other states.
In other states, yeah. 2024. In 2024, yeah. So
beyond the Supreme Court race, The Democrats
also won the election for state superintendent.
Jill Underly was re -elected. Jill Underly was
re -elected. She defeated her Republican challenger
by a smaller margin. 53 % to 47%. 53 % to 47%.
Yeah, so it was a closer race. It was. But still
a win for the Democrats. Still a win. Yeah. Now,
the Republicans did secure one statewide victory
in Wisconsin. They did. But it wasn't for a candidate.
It was for a ballot measure. A constitutional
amendment. Constitutional amendment regarding
voter ID requirements. Right. And that passed
by a pretty substantial margin. 63 % to 37%.
63 % to 37%. Yeah. So there's clearly a lot of
support for voter ID loss. Yeah. And the report
points out that this support extends beyond just
registered Republicans. Right. You know, a lot
of Democrats and independents also support voter
ID laws. We do. But the report also raises an
interesting question about whether the evolving
demographics of the two major parties might eventually
lead Republicans to reconsider their heavy emphasis
on voter ID laws. Yeah, it's an interesting point.
You know, the Republican Party is becoming increasingly
white. And older. And older. While the Democratic
Party is becoming increasingly diverse. And younger.
And so the report kind of speculates that, you
know, at some point the Republican Party is going
to have to appeal to a broader range of voters.
If they want to win elections. If they want to
win elections, yeah. And they're not going to
be able to do that if they're alienating minority
voters with voter ID laws. With voter ID laws,
yeah. So it's something to keep an eye on. It
is something to keep an eye on. Yeah. Yeah. We
also saw some interesting results at the local
level in Wisconsin. Right. Democrats won some
key county executive races including an upset
in Winnebago County yeah the Democratic candidate
in Winnebago County defeated the Republican incumbent
who had been in office for 12 years 12 years
yeah so that was a big upset it was a big upset
and the report attributes this victory to a couple
of things. One is the unpopularity of the incumbent.
He had been embroiled in a number of scandals.
Right. And he was seen as being out of touch
with the needs of the community. Yeah. And then
the other thing is that the Democratic candidate
ran a really strong campaign. She focused on
issues like education and health care. Which
are important to voters in Winnebago County.
Absolutely. And she was able to mobilize a lot
of support from young people and minority voters.
Yeah. So it was a really impressive victory.
It was a really impressive victory. Yeah, and
it suggests that Democrats are making inroads
in rural areas. Which is traditionally Republican
territory. So that's a good sign for Democrats.
It is. Yeah. The other interesting local race
in Wisconsin was in Dane County. Which is the
most populous county in the state. And the home
of Madison. The state capital. The state capital,
yeah. And the Democratic candidate for county
executive won by a landslide. She got over 70
% of the vote. Yeah, which is just a huge margin
of victory. It is huge. Yeah. And that's not
surprising given that Dane County is a very liberal
county. It is. But it does suggest that Democrats
are energized. And motivated. And motivated.
To vote in 2024. Absolutely. Yeah. So the overarching
interpretation from the report seems to be that
these results in Wisconsin could be early signals
of how voters might be reacting to a potential
second Trump presidency. Yeah, there's a sense
that voters are looking for an alternative to
Trump. They want someone who's more stable, more
predictable, more experienced. Right. And they
see Democrats as offering that alternative. So
it'll be interesting to see if this trend continues.
In other states. In other states. 2024. In 2024.
Yeah. All right, let's move on to Florida now.
OK. Where we saw some special elections for House
seats. Right. And the picture there is a little
bit more mixed. A little bit. Republicans won
both of the races. They did. But their margins
of victory were much smaller. Than they were
in the general election. In the general election.
In November. In November, yeah. So that's raising
some questions. About whether voters are starting
to sour on Trump. Or on the Republican Party.
Or on the Republican Party in general. Right.
The first race was in Florida's first congressional
district, which is a very conservative district.
And the Republican candidate won. But he underperformed
by 18 points. Compared to the Republican candidate
in the general election. So that's a pretty significant
drop off. It is. And it suggests that maybe some
Republican voters are staying home. Or maybe
they're voting for Democrats. Or maybe they're
voting for Democrats, yeah. It's hard to say
for sure. It's hard to say for sure. Yeah, but
it's definitely something to keep an eye on it
is something to keep an eye on Yeah, because
if this trend continues it could spell trouble
for Republicans in 2024 in 2024 Yeah, especially
in swing states, especially in swing states.
Yeah where every vote count where every vote
counts. Absolutely The other race in Florida
was in the sixth congressional district. Okay
which is a more moderate district. And the Republican
candidate won that race as well. But she underperformed
by 19 points. Compared to the Republican candidate
in the general election. So again, a pretty significant
drop off. And again, it raises questions about
whether voters are starting to turn away from
the Republican Party. Yeah, maybe they're not
happy with the direction of the party. Maybe
they're not happy with Trump. Maybe they're just
looking for something different. Yeah, something
different. Yeah. So it'll be interesting to see
how these trends play out in 2024. It will be
very interesting. Yeah. We also saw a few mayoral
races across the country. Okay. In Aurora, Illinois.
Which is the suburb of Chicago. The suburb of
Chicago, yeah. The Democratic candidate won.
Defeating the Republican incumbent. Who was aligned
with Trump. Who was aligned with Trump, yeah.
So that's a good sign for Democrats. It is. It
suggests that they're...