🚀 Had Enough With Price Hikes?

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What’s on the Menu 🍴

Big shifts are happening in the economy…

And financial markets.

Let’s get it:

• How To Learn The Art of Being Wealthy 🎨

• Will The Great Rotation Continue? 🔮

• Consumers Have Had Enough With Price Hikes 🚀

Today’s newsletter is a 5 minute read.

How To Learn The Art of Being Wealthy 🎨

There’s a ton of advice out there on how to GET rich, but almost nothing on how to BE rich.

That's a problem because wealth often fails to deliver the dream life people expected. Here’s the scoop on how to actually enjoy your life when you "make it":

1. Decide Your Number: The first step is knowing when enough is enough. Decide your magic number—the point at which you allow yourself to step off the hamster wheel. It’s easy to get caught up in the endless chase for more, but knowing when to stop is crucial for your sanity and happiness.

2. Gift or Loan Money Thoughtfully: Money changes relationships. Decide upfront if, how, and when you’ll gift or loan money to friends and family. Clear boundaries and open communication can prevent misunderstandings and resentment.

3. Find a Non-Work Hobby: You need something that isn’t about making more money. Find at least one non-work-related hobby to occupy your time. Whether it’s painting, gardening, or mountain biking, having a passion project can keep you grounded and fulfilled.

4. Compare to Your Past Self: It’s tempting to compare your wealth to those who have more, but it’s a recipe for dissatisfaction. Instead, compare yourself to where you started. This perspective can foster gratitude and a sense of accomplishment.

5. Address Fear-Based Narratives: Many people are driven by fear when they’re broke—fear of failure, fear of scarcity. These narratives can linger even after achieving wealth. Address and reframe these fears to align with your new reality. You’ve made it, and it’s time to act like it.

6. Define Your Wealth Game: Everyone’s wealth journey is unique. Define what your wealth game looks like and then enjoy the hell out of it. Whether it’s traveling the world, starting a charity, or simply enjoying more leisure time, make sure it’s something that genuinely excites you.

Being rich isn’t just about having money; it’s about living a life that money enables.

By setting clear boundaries, finding fulfilling activities, and focusing on personal growth, you can enjoy your wealth without the stress and anxiety that often accompanies it.

Will The Great Rotation Continue? 🔮

Just three weeks ago, the large cap Nasdaq-100 index was up 23% year to date while the small cap Russell 200 index was up a measly 1%…

That has flipped in a hurry however, with a surge in the Russell and a selloff in the Nasdaq:

Small caps are now up about the same as the Nasdaq on a year-to-date basis, and are showing greater momentum thrust as well.

What’s caused this and will it go further?

Here are a few reasons small caps have surged while large caps have lagged:

1. Large caps were getting to extreme levels of index concentration AND valuation relative to small caps

2. Small cap indexes contain economically sensitive businesses such as banks & homebuilders that benefit directly from the recent drop in interest rates (in anticipation of Fed cuts in the fall)

3. Momentum funds and CTAs will automatically buy what’s been going up recently and sell what’s been going down. This magnifies price moves in both directions. It helped stocks like NVDA on the way up, but is magnifying selling on down moves

4. There’s growing concern that big tech companies such as Google, Microsoft, & Meta are overspending on AI which will cause slower earnings growth (and eventually a slowdown for NVDA too)

So far in Q2 earnings season we’ve also seen weak stock price reactions from NFLX, TSLA, GOOG, and MSFT.

We’d go so far to say that Microsoft and Google earnings reports looked solid (16% and 21% operating income growth respectively!), but the stock reactions show how high the bar has gotten.

So could this get worse for big tech stocks?

It certainly could…

Meta, Apple, and Amazon still have to report their Q2 results this week, so any massive earnings miss could add fuel to the selloff.

However, we don’t think there’s any cause for panic.

Other than Tesla, all the “Mega 8” companies are growing earnings per share at a healthy clip this year.

They were all overdue for a pullback, and now valuation multiples can return to healthier levels.

Another 10-15% pullback would put their P/E ratios in the mid 20’s range, in line with where they’ve traded at various times over the past seven years:

Other stocks catching bids actually increases market breadth and helps improve overall active investor sentiment as well.

So in our opinion, these are healthy developments for the market, even if the headlines from financial media make the QQQ correction seem like doomsday!

Consumers Have Had
Enough With Price Hikes 🚀

It’s official, consumers have had enough with higher prices.

Corporations have survived pretty well through inflationary times at their customers expense.

It hasn’t been a huge issue for a few years as popular fast food chains like McDonalds and Chipotle benefited from stimulus and the consumer having a healthier pocketbook.

Those times are coming to an end though as the consumer pulls back on spending.

Even companies like Walmart and Target have made major efforts this year to “roll back” prices in light of a price discriminating consumer.

McDonalds (MCD) and Chipotle (CMG) are two of the greats.

It’s clear that while all of the inflation has pinched customers, it has actually led to expanding operating profit margins for both companies.

Other metrics like net income and free cash flow also show that they’ve been able to financially thrive while passing these costs on:

In the latest McDonalds earnings report, management was clear that consumers are changing buying habits:

Chipotle management mentioned that they plan to get through the rest of the year without anymore price hikes:

So, is it corporate greed?

It does seem like things got a little out of hand across industries with price increases. It became very normal and “expected”.

However, the tables are turning and corporations are left now having to tread carefully and thread the needle between profitability and value for consumers.

If anything, corporations slowing down on price increases should help the disinflation trend continue lower. A very welcomed trend after persistently higher inflation.

Food For Thought 🧠

"Fortune favors the prepared mind."
- Louis Pasteur

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.