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  • Writer's pictureRealFacts Editorial Team

Slower GDP Growth, Higher Inflation, Bad News


A hundred dollar bill folded like an arrow.

This week’s GDP report came in with two levels of bad news, higher-than-expected inflation and slower-than-expected first quarter GDP growth. In terms of consumer spending, Jeffry Bartash of MarketWatch wrote, “Household spending rose at a 2.5% clip, down from 3.3% and 3.1% in the prior two quarters. Anything above 2% is considered better than average. Americans actually increased spending on services such as travel and recreation. Service spending rose at a 4% pace to mark the fastest increase since the recovery from the pandemic in 2021.” This increase in consumer spending while prices remain high does not bode well for inflation. This data indicates that inflation could remain higher for longer, the market isn’t going to price this in well. Olu Sonola, head of U.S economic research at Fitch’s said “The hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach," 


Graph of the GDP growth.

 

The prospect of interest rates have been the top issue for many market participants this year. Traders came into the year expecting 3-6 rate cuts, it then fell to 2-3, then to 1, and now it may seem as if a 2024 rate cut won’t be happening at all. Megan Leonhardt of Barron’s wrote, “So far this year, policymakers have pointed to strong economic data as a reason to hold interest rates high as they wait for signs that inflation is sustainably edging back to their 2% target. Thursday’s slower-than-expected growth could signal that the U.S. economy isn't as strong as previously thought, meaning it may be more vulnerable to shocks in the current environment of high interest rates.”

 

Barron’s Advice For Investing In A Volatile Market


Recent market action has been making many market participants rather nervous, weak action in tech, high inflation, and tension in the Middle East have made it hard to track investor sentiment to start 2024. In his article, “Investors Are Growing Wary. 6 Rules for a Nervous Stock Market”, Steven M. Sears of Barron’s breaks down the current market situation and then gives 6 rules that he believes will help investors navigate the current market conditions. The rules are as follows:

 

  1. Conviction is the master ingredient of investing.

  2. Don’t trade options just because volatility is high and premiums are juicy.

  3. No one really knows what is happening.

  4. Be incremental when you act.

  5. Monitor VIX  futures, which determine VIX option prices.

  6. Remember: Bad investors think of ways to make money. Good investors think of ways not to lose money.

 

The central theme of all of these rules is caution, he wants investors to protect their capital first and foremost. He talks a lot in the article about how bad investors make poor decisions due to the cycle of fear and greed, and as this is a time of fear, it's important to stick to your convictions and protect your capital.

 

Inflation Continues To Crush Americans’ Savings


Megan Leonhardt of Barron’s wrote, “During the first quarter, the personal saving rate within the U.S.—savings as a percentage of disposable personal income—was 3.6%, according to the Bureau of Economic Analysis. That is down from 4% in the fourth quarter and well below the pre pandemic level of 6.9% logged at the end of 2019.” the average American is putting less and less into savings accounts and have been spending more and more, the current economic situation is depleting the wealth of the everyday American. Jeffrey Roach, LPL Financial’s chief economist said, “Savings rates are falling as sticky inflation puts greater pressure on the consumer. The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge.”

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