🎙️ Good News Is Good!

“The next time someone asks you about AI, you can tell them that it’s not just a tech story.” Words from a Goldman equity analyst.

Why? Because industrial companies, particularly those that manufacture or cool the data centers underpinning AI’s computing power, have been big winners.

And 32% of industrial stocks mentioned AI in their 4th-quarter earnings reports.

Our Chart of the Day shows more.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Why good news is good news again

• What’s wrong with this economy?

This, and more, in just 5 minutes to read.

Chart of the Day

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In The News

🎉 Why Good News Is Good News + Buybacks Boom

“Good news is good news!” again.

That’s Bloomberg’s Joe Weisenthal commenting on how Friday’s blowout jobs report spurred an upward swing in stocks. This is, of course, in contrast to the “good news is bad news” narrative that occasionally grips markets, where investors root for modestly bad economic news, which may push the Fed to keep rates low or cut interest rates.

Financial Valuation 101: That’s because Interest rates are a key input into the “discount rates” used to calculate stocks’ value — lower interest rates boost stocks’ projected value.

• The other big variable in valuing stocks is expected earnings growth, which comes more easily when the economy is doing well. So, investors can cycle between prioritizing low-interest rates — when good economic news is bad news for stocks — and earnings growth, cheering for economic expansion (good news is good news).
  

• Markets can, uh, be confusing, to say the least.

Blowout jobs report, you said? Yes, blowout. To the tune of nearly 100k more new jobs than expected in March (303,000 vs 214,000). Our Signal Report for We Study Markets Pro subscribers promptly covered the data.

Readers of Too Big To Fail will recognize this name — Federal Reserve official Neel Kashkari teased the possibility of no interest rate cuts this year if inflation progress stalls, especially if the economy remains strong.

• Those comments came Thursday before Friday’s jobs report. Did he have a sneak peek at the latest jobs report? Maybe. Regardless, resilient economic data is changing the outlook for interest rate cuts, increasing the odds that there may be none in 2024.

Even just a few months ago, that news would’ve been a wet blanket for any stock rally, leaning into the good news is bad news market narrative. But today, an economy that just. won’t. quit. is feeding into a greed cycle where investors’ concerns about higher rates fail to offset optimism about how a strong economy will support growing corporate profits.

Why it matters:

Today’s market response is a testament to its current mood, where one narrative is taking precedence over another (strong economy/earnings growth versus concerns over high interest rates).

Give us back our stock: Another factor less subject to interpretation than economic data releases is also supporting markets: buybacks. Goldman Sachs projects that S&P 500 companies will buy back $925 billion worth of their own stock in 2024, up from previous estimates of $840 billion.

• The Magnificent 7 are leading the way, driving 26% of the S&P’s buybacks in 2023 and already approving repurchases of their own stock at a 30% higher rate than this time last year.
  

• Goldman expects even more share buybacks in 2025, eclipsing $1 trillion.
  

• At a company level, whether share buybacks are the best use of corporate resources is controversial, but at a market-level perspective, these repurchases boost demand for stocks while reducing supply, supporting short-term gains.

Between strong economic data and persistent buybacks, investors are finding no shortage of reasons to be bullish.

Read more

More Headlines

💬 Google may start charging for AI-powered search results

🌅 How the solar eclipse is a business boost for hotels, Airbnbs, and car rentals

🏭 China is producing too much stuff — the West is worried

🏠 It’s cheaper to rent than buy a starter home in the top 50 U.S. metros

🏀 It’ll cost more to see Caitlin Clark play than a men’s Final Four game

🌀 Forecasters: Extremely active Atlantic hurricane season ahead

🤔 What’s Wrong With This Economy? It’s You, Not the Data

Often, the headlines do make things seem worse than they are. 

News flash: Many Americans believe that the economy and their finances are worse than they really are, per The Wall Street Journal’s Greg Ip.

Is this an inflation nation? The Journal recently conducted a poll in swing states. It found that 74% of respondents believe inflation has worsened over the past year, yet that perception contradicts actual economic data. 

• According to the consumer-price index, inflation decreased from 6% to 3.2% in the 12 months through February — the rate of change has slowed, but that’s little comfort as prices nevertheless continue moving higher. Other measures, when considering different timeframes or excluding food and energy prices, also show a deceleration in inflation.
  

• Though some individuals, like new homeowners, experienced higher inflation, the average person faced a decrease in year-over-year inflation rates. Despite the positive economic data, there's a disconnect between public perception and factual information. 

Furthermore: A Brookings Institution study revealed that many people misunderstand inflation, often confusing it with high prices or price gouging. The misunderstanding alone doesn't explain the discrepancy between public perception and economic reality.

• Take the stock market, which is sitting at record highs. Home values have soared, giving many Americans more equity. And interest on savings has increased. Retirement accounts and regular savings accounts have swelled: Vanguard reported a 19% growth in the average customer retirement account last year.

Glass half empty: Not everything is rosy, but things could be worse. A lot worse. Yet the Journal's poll showed that 47% of respondents believed their investments or retirement savings declined over the past year, and 56% thought the economy worsened over two years. This pessimism persists even when data shows robust employment growth, near historically low unemployment rates, and accelerating GDP growth.

• Americans are spending more (on groceries and dining out than in 2019, so glean what you wish. And while public opinion on the national economy is negative, folks generally view their state's economy positively, similar to how voters often disapprove of Congress but approve of their own representatives.

Why it matters:

One: It’s an election year. But there are other things at play. 

Referred pain: The negative perceptions about inflation and the economy stem from deeper pessimism about the country, described as "referred pain." People feel that inflation unfairly benefits the rich, leading to broader feelings of injustice. Public pessimism may also contribute to a cycle where negative economic views reinforce one another, and the cycle doesn’t end. 

Negative news: The media’s negative portrayal of economic news may exacerbate public pessimism. Follow the incentives, right? A recent study of online news in Nature found that each negative word in a headline increases the click-through rate by 2.3%.

• Big cable news networks and publications alike know that negative, fear-oriented headlines drive more engagement and, thus, more revenue. 
  

• As Morgan Housel says, “Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.”

Read more

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Quick Poll

Yesterday, we asked: Americans are seeking smaller homes. What’s your ideal home size? (In square feet).

—Most respondents believe bigger is better. “I don’t need it, but not quite ready to give up the square footage,” one wrote. “We have a good-size family in a 2,600 square foot home, and would love to have a proper office to replace our current cloffice.” Said another: “I need different spaces for visioning, different modes of being, practical use, and inspiration. Space is very important for a long-term founder and CEO.”

—On the smaller end, a reader noted that between 1,500 - 1,999 square feet is “enough to enjoy, but not so much it’s absurd.”

See you next time!

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