Consumer Spending Data Flashes Warning Signs

What’s on the Menu 🍴

Sometimes the economy gives us warning signs of something big on the horizon…

Another times, it’s just noise.

So today we’re digging into data that we think is worth paying attention to.

Let’s get it!

• Crypto Corner: What You Need to Know ₿

• A Warning Sign For Stock Investors? 🚧

• Recent BoA Consumer Spending Data Flashes Warning Signs ⚠️

Today’s newsletter is a 5 minute read.

Crypto Corner: What You Need to Know ₿

Here’s a quick dive into the top five headlines you need to know:

1. Ether ETFs on the Horizon By September, we could see full approval for Ether ETFs, according to SEC Chair Gary Gensler. This move is anticipated to provide a significant boost to Ethereum's market presence, making it easier for traditional investors to gain exposure.

Why it matters: ETF approvals can lead to increased liquidity and more mainstream acceptance of crypto assets.

2. $12 Billion Net Inflows into Crypto JPMorgan reports that the crypto market has seen $12 billion in net inflows this year. This influx of capital indicates growing confidence among investors, signaling that the crypto winter might be thawing.

Key takeaway: Such large inflows often precede bull runs, making this a potential turning point for market sentiment.

3. Massive Bitcoin Rally Imminent? Bitcoin has been consolidating for 92 days, a period that historically precedes major price movements. Analysts suggest that this consolidation could lead to a massive rally, potentially pushing prices to new highs.

Watch out: Keep an eye on Bitcoin’s price action; a breakout could mean significant gains.

4. Do Kwon’s $4.5 Billion Settlement Terraform Labs' Do Kwon has reached a $4.5 billion settlement with the SEC. This marks a significant development in one of the most high-profile cases in the crypto space, highlighting ongoing regulatory scrutiny. Implications:

Such settlements often set precedents and can influence regulatory approaches toward other crypto entities.

5. Taiwan’s New Crypto Association Taiwan has launched the Virtual Asset Service Provider Association, aiming to create a more structured and supportive environment for crypto businesses.

This initiative is part of a broader effort to foster innovation while ensuring compliance with international standards. Importance: This move could make Taiwan a new hub for crypto development and investment.

Stay tuned and keep your portfolios ready—crypto is cooking, and it’s looking delicious!

A Warning Sign For Stock Investors? 🚧

The S&P 500 index hit a fresh all time high on Wednesday as the CPI inflation report came in cooler than expected.

Yet the sentiment among many stock investors seems to be less than bullish:

Why is that?

One major driving factor seems to be that breadth is very narrow; there are many stocks that haven’t been participating in the gains lately.

In fact, there are a large number of stocks that are well below key moving averages on both short and medium term timeframes:

Meanwhile two of the largest public stocks in the world, Apple and Nvidia, have ripped higher in recent weeks.

NVDA is up a staggering 43% in the past month alone!

The S&P 500 index is market cap weighted, and the top 10 stocks in the index now make up a record percentage of the index’s value:

The ultra large market cap stocks are tied to strong companies, but valuations can’t keep expanding forever.

There have been periods where large cap tech stocks drastically underperform the rest of the market, such as 1973-1974 and 2000-2002.

So as this trends keeps progressing, we should probably become more cautious about the market’s dependence on just a handful of mega cap stocks.

There’s also a strong argument that investors should be doing more bargain hunting in small and medium cap stocks right now:

The bad news is that the major indices may be due for a big correction.

But the good news is that there’s a lot of cheap areas of the market that could offer compelling value and potential for big gains in the future!

Recent BoA Consumer Spending Data Flashes Warning Signs ⚠️

Bank of America released their latest Consumer Checkpoint report and it brings us insight into where the economy is now, and where it may be heading.

Bank of America has been reporting consumer deposit trends in their earnings releases, and how they have compared to pre-pandemic levels.

Consumer deposits have been slowly declining quarter by quarter, however, they still remain far above pre-pandemic levels which is good.

The title of the report sums it up pretty well: “The kids are alright (for now).”

We’re seeing pretty flat spending growth year over year, down from 15% in 2022.

The trend here aligns with what we’ve seen in other data: services spending has outpaced retail spending (which everyone gorged on during 2020).

But, the weakness across the board is apparent. Or… shall we call it more of a normalization?

When looking at historical retail sales data, it went through a wild whipsaw of exuberance to reality.

I would say consumers STILL have to recalibrate back to normal here all things equal (and assuming no recession).

Another interesting point from the report comes from spending across generations.

Gen X actually saw negative spending growth, and Baby Boomers (the ones who seem to have all of the wealth), are not whipping out their pocketbooks as much anymore.

Millennials and Gen Z make up for 30% of spending, Gen X at 33% and Baby Boomers contribute 36% of spending.

So Baby Boomers make up the largest share of spending, but, they are the “responsible spenders” (see consumer discretionary trends below).

One thing I can’t help but think about is how younger generations could be hurting themselves by spending so much in consumer discretionary categories.

This chart really shows the stunning fact that as we get older, discretionary spending isn’t as important or necessary.

What’s even more interesting is the continuing spending trends of Gen X (the generation that often gets “forgotten”). They contribute to a large percentage of overall spending, but, their spending growth declining and their low discretionary spending is an interesting note.

It appears more wealth (generally, as Gen X & Boomers are the wealthier generations) doesn’t mean more discretionary spending!

So, putting it all together, the younger generations are doing more discretionary spending (even if spending growth is declining overall)… however, they’re struggling with repaying their credit cards:

All in all, it’s clear spending is taking a backseat overall and challenges are arising with younger generations.

However, I wouldn’t scream recession just yet.

The most concerning data is truly credit card delinquency rates, so we will be watching that very closely throughout this year to see if it stabilizes.

Inflation has taking a bite out of every generation and the Fed has a big job to do with balancing interest rates, and avoiding a recession.

The key driver here without a doubt will be the labor market. If the unemployment rate holds steady, we may just skirt a recession even with the spending data showing weakness.

The declines here speak to the overall yellow light I think this report gives us.

Food For Thought 🧠

“Economics is extremely useful as a form of employment for economists.”
- John Kenneth Galbraith

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