Who Motivates the Motivator?

For those of you who would prefer to listen:

The most widely anticipated recession never showed up in 2023. Not only that, the US Economy accelerated in the Summer and kept up a solid pace into year-end. The unemployment rate remains near 50-year lows. That has supported the American people’s grand spending habits.

Q4 GDP grew at an annualized 3.3% pace. That was well ahead of the 1.7% estimate. It marked the 6th straight quarter of growth for the US Economy. The strong growth keeps cooling fears of a recession. As a reminder, GDP measures all the goods and services produced in America.

Americans are still out and about and active. The economic strength was found in restaurants and hotels as well as health care. Spending on software ticked up too. Government spending, both at the Federal and local level, increased as well.

This economic strength could further cool hopes for a March rate cut. The Fed meets next week. No movement in rates is expected. March is now a coin flip. The Market was assigning a 70% probability at the start of the year. Consumers remain resilient. The better-than-expected retail sales report last week proved it. Consumer sentiment is the strongest it’s been in years. But political polls don’t reflect that same sentiment. America has become so political. America has become deeply divided.

There are limits. Higher interest rates are starting to take a toll on spending. Interest rates are the price of money. With 0% interest rates, money was nearly free for a decade. No more. The price of money spiked to 20-year highs. The personal savings rate fell further in Q4 to 4%. It rarely fell below 5% in the decade before the pandemic. Credit card debt cleared $1 Trillion. It’s never been higher. It also comes with 23% interest. Credit card is amongst the worst kind of debt.

The Market doesn’t seem to care. At least not yet. The S&P joined the Dow in hitting a fresh, all-time high. It was the first new record high in over 500 trading days. That is the 6th longest streak in history. That tends to be bullish. After similar long stretches, the S&P was higher the following year 13 out of 14 times. It’s been meaningful too. The average gain was 14% with a median of 13.4%. There’s been some consistency there.

Microsoft is now the second company to reach the $3 Trillion milestone. Apple did it last Summer. They are America’s largest companies. The rest aren’t even close. These are massive companies, both in size and influence. Their stocks reflect that strength.

The Tech Titans took the wheel again to start the year. They have dominated the Stock Market rally. Artificial Intelligence is the theme. The initial winners keep winning. It’s still very early days for this innovative advancement. That said, the narrow leadership again shows there is so much money chasing so few names.

It’s no secret this is an election year. November of 2024 has had a bullseye on it since 2020. It’s increasingly looking like a rematch, something polls indicate the vast majority of Americans do not want. What’s most important to voters? James Carville famously stated: “It’s the Economy stupid!”

The Economy keeps growing. US GDP is currently running at $27 Trillion. That’s the highest it’s ever been. The Stock Market is also the highest it’s ever been. The problem is, not everyone is benefitting. There is a major distinction from those in America that own assets, like properties and stocks, and those that rent. Inflation has hurt everyone. But it’s been an absolute crusher for renters. It helps explain why polls indicate our country is on the wrong path. This will increasingly be a theme on the campaign trail this Spring, Summer and Fall.

This week, I had the honor of speaking to students at Las Lomas High School in Walnut Creek. Financial literacy was the theme. It’s never too early to embrace smart money. I covered a range of topics, from the benefits of long-term investing and compounding interest to the pitfalls of excess debt. Of course, their interest and engagement really perked up with the topic of AI. The kids were thinking strategically.

It’s so refreshing to see these young minds filled with intellectual curiosity and aspirations for success ahead. They’re embracing this Digital Economy and want to learn and understand. It’s our opportunity, if not obligation, to help them grow. Teenagers are definitely not looking backwards. Their focus of vision is decisively forward.

Despite all the issues that plague Planet Earth, I walked away full of energy and optimism. A close friend recently asked me the age-old question, “Who motivates the motivator?” That stopped me in my tracks. I didn’t have an answer. This week, I found the answer. Bedell Frazier’s professional purpose is investing for a better tomorrow. Investing in the next generation is ground zero in that cause. It’s such a worthy cause. We’re committed.

Have a nice weekend. We’ll be back, dark and early on Monday.

Mike

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