💰 5 Fact Friday: GDP Disappoints & Tech Titans Deliver

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Hey Money Maniacs,

Welcome back to another edition of 5 Fact Friday! Here are this week’s biggest stories in the world of money:

1. U.S. GDP Disappoints 😟

The U.S. just dropped the kind of GDP report that only a mother could love.

In the first quarter, the U.S. economy grew at a measly 1.6% annual rate—the slowest in nearly two years. But here’s the kicker: consumer prices didn’t seem to notice, soaring at a rate of 3.4%.

The markets expected a sunnier 2.4% GDP growth, and an inflation level closer to 3%. For those of you keeping score, that’s a painful 0 for 2.

As a result, the markets digested the possibility of mild stagflation—where slow growth meets persistent high inflation.

In turn, this led to the disappointing conclusion that Fed rate cuts may be even less likely in the short term. Traders are now pricing in just one rate cut in 2024—after starting the year expecting six.

This news, yet again, reinforces the narrative that interest rates may stay “higher for longer.”

What does this mean for your stock portfolio and home-buying dreams?

Get ready for some turbulence.

Stocks took a nosedive as investors winced at the one-two-three punch combo of sluggish growth, persistent inflation, and increasingly attractive alternatives (like bonds). This sentiment sent all major stock indices down between 0.5% and 1% yesterday.

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2. Treasurys Jump To 5-Month High 📈

The wealth-building-hopefuls among us might not have much to celebrate, but the savers can certainly smile.

Why?

Not only are rate cuts (likely) getting pushed back, but U.S. Treasury yields are roaring back too. After hitting rock bottom last December, Treasury yields have been climbing all year.

The latest GDP figures have only added fuel to the fire. With hotter-than-expected inflation, both the 2-year and 10-year Treasury yields have shot up to their highest levels since peaking last November.

This upswing is a textbook case of supply and demand.

In 2023, bond investors were banking on rate cuts to drop yields and bump up bond prices. Now, as those rate-cut prospects dim, many are dumping bonds, pushing prices down and yields back up.

Why should you care?

Well, rising yields set the baseline for mortgage rates and other fixed-rate debts, increasing borrowing costs across the board—from corporate investments to personal home loans.

As a result, this uptick keeps things unaffordable, effectively cooling the economy and aiding the Fed’s fight against inflation.

Plus, as yields climb, they become increasingly appealing compared to the roller coaster rides of stocks and crypto. This allure can start diverting funds away from those riskier assets. In fact, this shift may have already contributed to last week’s sell-off in tech stocks.

For the cautious investor or the retiree, this environment means high-yield savings accounts, money markets, and CDs remain viable safe-havens. These options offer a low-risk way to safeguard your capital and snag a modest real return, even after the bite of inflation.

3. USD Surges Despite Challenges 💵

Today, we're hitting the trifecta of macroeconomic trends: slowing GDP growth, climbing Treasury yields, and the strengthening U.S. dollar.

Here’s the situation:

The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, has surged more than 4% over the past year.

Why does this matter? It's all about relative strength. After all, if you don’t want your assets denominated in USD, you have to choose another currency instead.

Now, we’re all familiar with the many challenges facing the U.S.:

• Soaring government debt

• Widening deficits

• Pre-election drama

• And more…

But in the grand currency casino, the USD is still viewed as the safest bet. Plus, it offers access to attractive yields and the world's leading stock market.

So, what effects does a strong dollar have?

• Imports Cost Less: Cheaper imports are great for consumers but tough on domestic producers.

• Exports Priced Out: U.S. goods become more expensive overseas and less competitive at home.

• Trade Deficit Widens: A stronger dollar buys more but also means we could be selling less abroad. This, in turn, can drag down GDP.

And there's one more silver lining for you globetrotters—your dollars now stretch even further on foreign soil!

Maybe that’s why U.S. airlines are expecting a record summer travel season.

4. New Homes Steal The Spotlight 🏡

The March real estate figures are out, and new homes? They’re the clear crowd favorite.

Sales of newly built single-family homes jumped by nearly 9%—with a staggering 28% increase in the Northeast alone. Unfortunately, these homes represent only 10% of the market.

On the other hand, sales of existing homes plunged by 4.3%, marking the steepest decline in over a year.

This drastic difference raises the question: Is there a growing "new home premium"?

If buyers continue to prioritize newness, this may eventually shift values, effectively discounting used homes, and slowing the equity buildup in new properties.

In this situation, buyers who pay “tens of thousands extra” for a new build may actually lose value the day they move in, and the instant that newness is gone.

Though it's too soon to say if this trend will influence broader market dynamics, it serves as a reminder: the best value often comes from a contrarian view.

And with home prices up 4.8% over the past year and nearly 30% above pre-pandemic levels, finding value in residential real estate is becoming increasingly difficult.

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5. Big Tech Earnings Rundown 💸

Let’s dive into this week’s tech titan earnings extravaganza. We’ve got the scoop on Tesla, Meta, Google, and Microsoft—four of the Magnificent 7 stocks.

Tesla’s Turbulent Times

Tesla's earnings tell a tale of challenges and price cuts, with revenues down 9% year-over-year and earnings falling short of estimates.

Despite this double-miss, the stock still surged 13% after-hours thanks to Musk’s salesmanship vision.

The EV giant is rolling out both more affordable and higher-margin models. Plus, the company is getting closer to full self-driving, at which point it can roll out its robo-taxi service.

Meta's Mixed Messages

Meta reported a revenue jump of 27% and an insane 100%+ increase in net income, beating estimates across the board. Yet revenue projections were weaker than the Street hoped, so the stock cratered.

Meta appears to be firing on all cylinders. However, the stock was priced to perfection (up 40% YTD before earnings) leaving little room for error. Tesla, on the other hand, was down 40% YTD setting the stage for a comeback.

Google’s Grand Slam

Alphabet knocked it out of the park with stellar earnings, driven by strong performances across ads, cloud, and YouTube. Revenue rose 15% and earnings came in 61% higher year-over-year.

The cherry on top? A sweet little dividend initiation of $0.20 per share. Oh, and a massive $70 billion stock buyback plan that shows they're not shy about returning cash to shareholders.

Microsoft’s AI Momentum

Microsoft continues to impress, beating analyst expectations on the top and bottom lines. The business enjoyed 17% revenue growth, largely thanks to its aggressive push into AI through Azure and new cloud services.

However, revenue guidance was a touch lower than expected, due in part to capacity constraints. Microsoft continues to invest aggressively in Nvidia chips to support its growing cloud business.

Next week, we look forward to earnings releases from Apple, Amazon, MicroStrategy, Berkshire Hathaway, and more. Stay tuned!

That’s all for today! For more insights, follow me on Instagram, Twitter, and at TheMoneyManiac.com.

Also, I’d love to hear your feedback. So please reply with comments – I read everything.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.