UPDATE

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Read time: 6 minutes

WEEK IN REVIEW

📑 A Quick Recap

Diver and Sea Fan by Des Paroz, via Flickr

In our previous issue, Should We Brace For A Soft Landing?, we talked about how inflation is the buzzword at the forefront of most investors’ decision-making. To understand why that is, we want to give you a brief analogy:

• Think of inflation like a weight pulling you down as you swim to the surface of a pool or lake. You (in your diving suit) represent economic growth, and if you had no extra weight holding you back, you could swim relatively fast to the surface. 

• But with a weight or anchor pulling you down, the speed at which you can swim up is seriously limited. Even though you can still swim up, it’ll be very slow. Add enough weight and you might stop trying to swim up altogether because it would be far too exerting.

This is how many investors think about the economy with high inflation around. A higher rate means the cost of money is higher, and the real value of your cash is less. The weight of inflation is pulling down the value of money in the economy. If it got to be high enough, the economy could stop growing altogether.

📈 Market Performance

S&P 500 (5-day), via Google Finance

So how does this all relate to the S&P 500? If we were to reverse our analogy above (and decrease weight from your diving suit) you might find yourself able to swim a little faster. That’s similar to what happened to the market last week as April Core CPI* data was released.

Investor’s Business Daily writes that several forecasts for inflation data coming out of April projected around 0.35%. This means that analysts predicted that the inflation increase from March to April would rise 0.35%, and sit at around 3.4%. Instead, April's CPI was reported at 0.3%, which seems like a small difference, but this good news was well reflected in the S&P above.

• To fit with our analogy, you as the diver thought more weight would be added to your suit, and that anticipation caused you to preemptively slow down. When less weight was added than you expected, you pushed yourself a little harder.

Inflation is still increasing, even if it might be less than many expected, but the Fed wants the rate to drop down to 2% total. What’s unclear is how long this reversal will take, as the growth of inflation needs to slow before the actual rate can reverse.

In conversation: Tune into this CNBC analysis of the inflation news and the changes we’ve seen in the economy relative to last year and 2022.

*Core CPI is a measure of inflation that excludes highly volatile commodities like food and energy.

🎓 How The Job Market Affects Recent Grads

Graduation Ceremony, via PickPik

For many seniors at American colleges and universities, it’s that time of year when finals are over, grades are out, and you’re walking the stage in front of friends and family.

• For many, it’s common to take some time off during the summer and travel before starting work. Others head right into internships or accept full-time offers from companies that they previously interned with. Regardless of the approach graduates take before beginning their professional lives, the job market is a big factor in students’ lives.

NBC discusses how the job market is shifting heading into summer, and how trends can affect those on the job hunt. In this article, NBC mentions that the Bureau of Labor Statistics (BLS) reported that a lower number of jobs were added to the economy than expected (175,000 in April vs. 240,000 expected).

Now this news is only one month’s snapshot in time, and total unemployment sits at 3.9% (perfectly within the desired 3-5% range). What’s more applicable to graduates, however, is the number of resignations and the hiring of new workers to fill these positions already within companies. According to NBC, these numbers don’t seem to be changing drastically.

• Guy Berger at The Burning Glass Institute research group calls this trend “the Great Stay” where workers are more likely to keep their positions and settle down. Compare this to the “Great Resignation” that we saw shortly after 2020. In other words, there isn’t high turnover to take advantage of.

Ultimately, these trends in the market are subject to change, and could even shift by the fall. What’s more, as graduates leave college with highly sought-after skills, they may defy the trends we observe in other workers. 

If you graduated this year, take pride in your accomplishment! We leave you with this message from the Xavier University commencement speech:

In conversation: Read about why experts deem 3-5% the ideal unemployment range on Investopedia.

ENERGY & COMMODITIES

⛽️ California Gas Tax Hike

PG&E Pipeline in Yolo County, California, via Wikimedia Commons

The California Air Resources Board (CARB) seeks to lead the way to a clean transportation future. The board’s goal is to put the state of California on track to exclusively sell Zero Emission Vehicles by 2035, an ambitious goal. As with many lofty goals of this nature, there has to be a transition process to get to the finish line.

• In terms of EV exclusivity, part of this transition involves decreasing the reliance of Californians on gas. The way that’s done, however, can often be painful.

KTLA writes that come July 1, California is set to have a gas tax hike of around 2 cents per gallon. With AAA Gas Prices showing that California has the highest gas price per gallon at $5.26, this hike pushes the state further in that direction.

With the CARB reporting that 1.8M EVs have been sold so far, it’s clear there is a degree of appeal in the state for the electric side of the car market.

BRAIN TEASERS

🔎 Word Search

ONE MORE THING

🤝 Keep in Touch

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Thanks again for reading!

Nothing MARK IT. publishes constitutes professional and/or financial advice, nor does any information published by MARK IT. constitute a comprehensive or complete statement of the matters discussed.