Making Sense of the Stock Market, Real Estate, and Retailers

We try to tackle a lot on this episode with an overview of what exactly has been happening in the market and what the second half of 2022 might bring us. We also dive into what retailers are doing after some interesting earnings calls from Q1 and finally what rising mortgage rates are doing to the real estate market. 

Thanks for listening!

Transcript

Eddie Thomas: 0:02

What's up, guys? Welcome back to the life finance in between podcast. I'm your host, Eddie Thomas, this is brought to you by wealth management services in Hershey, PA. And it's been a little bit since I recorded one of these, but it's been a very eventful couple of weeks, both in the market and my life and everything else. So in the market itself, we've seen a continuation of the sell off that we've had. Not super surprising. I think once that the overall idea was people were scared and had a ton of fear that that soft might had like to continue. So we'll talk about that. We'll talk about earning season, and we'll talk about retailers today. been a minute since I've been on here, just busy working. Obviously, as you can imagine, with the market kind of selling off and a little bit of fear in the market. My job gets a little bit busier. But it's all good. It's all good things because this too shall pass. But we'll get into all that. So let's start with let's start with what's been going on in the market the past couple of weeks. And why exactly, I think we're seeing this sell off that we are, I hope you guys are well, since I've last recorded and put something out Hope everyone's happy Hope everyone's healthy. But let's dig into it. Let's dig into what's been going on. So as far as the market is concerned, and I'm like an eight week losing streak, after the years at 1920 and 21, where this feels like the end of the world. If you read any headlines, listen to some of the the people on finance media, traditional finance media. And you would turn the TV on or turn on your computer and you'd see 100 reasons why you should be negative, and not many why you should be optimistic, which I don't quite understand, I really don't understand at all we've seen and we know that this is something that happened the market from time to time, there's a little bit pullback, that's not uncommon. And every one every one to three years, the market goes down. But every two or three, the market goes up. And I'm not even I'm not saying the markets gonna be down this year. No one knows what's gonna happen today, tomorrow, next week, next month, or let alone six months from now. But even if you think back to the beginning of 2002, we didn't know Russia was going to invade Ukraine, we didn't know how high gas prices were going to yet we didn't know what inflation numbers were going to be. So to say we know what's going to be going on the next six months would be would be a little bit of a misstatement. But that's not to say that there isn't reasons to be positive going into the six months, given everything we've seen in the prior six. So let me just break down four quick reasons why as to why I think we could be positive going into the next six months, again, not knowing what's going to happen. But let's give some optimism into the, into the air here. I'm trying to go against most of the negativity that we normally see. But we are still seeing number one reason, in no particular order. But this is one reason. We're still seeing resilient demand for products. But now so more for services, which is good. I think during 20 and 21, we saw an unbelievable demand for people just buying things just products, whether it's phones, computers, tablet, furniture, cars, I mean, you name it house appliances, just you name it. And if it was a product that someone could buy, because of all the money pumped into the system because of how much much money we saved in 2020. Because we had no choice. People were buying it. And because of that the supply chain got put under some serious pressure. And that's when we saw us the stock of these items kind of declined, who was it was hard to find some things and it still is today because the supply chain is not 100% up and running. But but that doesn't mean we aren't getting into a better place. Because yes, while demand for products in the last two years was very strong. And the demand for services wasn't very strong. We're now starting to see that shift. And that's a positive shift. We saw Target and Walmart, both get crushed last week after earnings. I think target was down something like 25% I'm not sure what Walmart was down. But the reason they were down was because they were citing that people were spending less on products and more on services. And that's a good thing. That's a good thing that that means one of two things means one, people are finally out doing things again, and instead of going and buying some clothes or a phone or you name it from products wise, they're now turning and buying services so they're going out to eat more or they're staying in hotels or traveling and then they're taking those I have experiences. And that's good, because for the past two years, we couldn't do that. We couldn't spend money on our sound services we couldn't really go out to eat. We couldn't take trips, or at least not we can not everyone felt safe doing so. So it makes sense now that we're finally feels like we're at a place where COVID might be a little bit behind us, that people are starting to spend on those again. And of course, when they're spending on services, they're not going to buy all the products that they have been buying. But it's a good shift. The other reason why it's a positive is because it shows that the feds fight against inflation by raising interest rates is working means that people aren't going out and just spending ridiculous sums of money on things they don't need, like we've seen, or things that they think they need, like we've seen, and so they're making memories, but they're not spending the additional money that they would have on products as well. And that's a good thing, because one, it will bring down inflation, but also to, it'll ease the supply chain, so companies won't need as much on the shelves, they won't need order as much. And hopefully the little less demand in the supply chain will lead to positive things going forward for one having supply chain figure itself out and be like a fluid efficient process again, but also to just the idea that companies can take a breather, and just understand and realize what kind of cycle that we're in. So that's one thing to be positive about going into 2022 or a second half of 2022. The resilient demand for products, but mostly Services is a positive thing. Over the past two years, this is the second reason we have been able to save as consumers and companies have been able to do the same thing. So yes, we're in a market. So yes, we're in a downturn, yes, there's inflation. However, over the past two years, we've never been able to save as much as we have been. And companies have never made so much money like they have in the mail and been able to borrow very cheaply with very low rates. So if you take in the money that we've been able to save as consumers that we cannot put to use, even with higher prices, and the fact that companies locked in low interest rates on loans, and we're also able to make a ton of money and bank a ton of money, we're okay with a downturn, we're okay with a market downturn because of inflation. Because we can weather that storm. And it's not going to be forever, but we have the amount of cash and companies have the amount of cash on hand to weather something like that. So the past few years, we're saving, and putting everybody in a really good spot financially, or at least on the balance sheet is good, we're going to be okay, things won't last forever, inflation will always be a percent. And when it comes back down the wage inflation that we've seen over the past two years, those people that have experienced a wage increase, and I hope you listening, you're the one that got a raise as well. You you're starting, you're gonna see the fruits of that, that wage increase, because for now maybe feels like I got a 4% Raise, but inflation eight, so my wage increases than nothing. But again, inflation won't be eight forever. And at some point, that wage increase is going to come into play. And you're going to feel the effects of that in a positive way. Third thing to be positive about going back after 22. And this kind of piggybacks off the second, but companies have had unbelievable earnings the past couple of years, and because of that have been able to make investments into their own companies, to make them more efficient from an operation standpoint, whether that be technology, whether it be their ability to serve as customers, whatever it may be, work just work more efficiently and better towards the future. Because of those investments in the last two years. We're gonna see companies even though we're weathering this little bit of a sell off, even though there's inflation and companies are struggling supply chain long term are going to be just fine. Because companies have been able to make these investments in the past two years. And finally, the fourth reason that we could be positive going into 2022 is the low unemployment. And if you want to piggyback low unemployment with rising wages, you can do that too. But unemployment is what 3.5 3.6% think it's 3.6% as of April, that's very low. And it's very good. That means people are making money. That means people can spend money. That means companies still think we're in a place of growth. And because of that we'll offer jobs and hire people to do so to make sure they can perform efficiently to make sure they can meet market demand. That's a positive good thing. The really good thing, there's one point roughly 1.9 jobs for every available worker. So there's 5 million people looking for a job. There's roughly 11 to 12 million jobs open. How that math works out, I'm not quite sure. But the idea being that with unemployment so low, people still getting money in their pockets. P meet people being able to spend that money and companies still in hiring cycles, because I need to meet consumer demands. It's a very, very positive thing going forward, the consumer itself and the spending that we do, makes up About 70% of our economy, so we can keep the strong consumer. And we can keep spending spending our money on products and services, and supply chain figures itself out as China comes back online after their recent lock downs, we're going to be in a good spot, we're going to be in a very good spot. And if anything, this market sell off shook out some of the the access from the market. And we're going to be in a better spot because of that. So it's not all doom and gloom. It's really not all doom and gloom, and we're going to be okay, this too shall pass. And we have some positive optimistic data points going into the second half of the year. Now, I spoke a lot about shifting into the next topic, I spoke a lot about retailers and them having to kind of adapt to this new cycle that we're in, people won't be buying as many things they're gonna be buying services. That's a good thing, retailers have reacted after quarter one, and then their earnings calls have said, listen, we're still figuring out our supply chain, we're not, we're now realizing that consumers are changing their spending habits. And that's okay, because supply chain still has to come back on. And maybe they won't make as much money, maybe your targets and Walmart's Best Buys. And these companies won't make as much money. They won't have as many sales, but they're still going to make money, and they're still going to have sales. So a little slowdown isn't an issue, it's proving that inflation is going to come down. And it's also giving the supply chain a little bit less, a little bit more of a breather, like it needs, and it can catch back up and we'll be back online. Again, Target, Walmart got crushed last week for saying we were not quite sure what 2022 holds. I don't understand why it's good news for the market. It's good news for the economy. It's okay, if retailers have a rocky, quarter one, quarter two, quarter three, that's okay, they're still going to make money, they're still going to sell products, worse, consumers still gonna have the ability to go and buy things, were just gonna buy less things. And that's okay, long term that is okay, it's coming back down to a normal rate a normal behavior by both consumers and companies. So yes, you're gonna, we're gonna see some earning calls come out from retailers, and they're gonna say, Listen, we might not make as much money, we might as might not sell as much product, we're not sure what how much we need on the shelves, for consumers. So you might see some issues. That's all right. It's all okay, everything's still gonna be there. This too shall pass long term retailers are going to be in a better spot because of this. Whether that's investments into the company, for efficiency on their own end, or they realize how to work their supply chains and kind of figure out what they were spending too much on. So they work out their expense side of their business. So long term, they'll make more money, once they figure that out, whatever it may be, but they're going to be in a good spot. And so shifting into the next kind of topic, after I spoke briefly on retailers, and this is something that I spoke about in a prior podcast, I think a month or two ago, and it's about the real estate market and what rising mortgage rates might do and what we might see. And we're starting to see a little bit of what I've talked about. So if we take a look at the real estate market, and let's just talk about what exactly is happening now and what that might mean for the future. 2022 sales were roughly 6% lower than they were in April of 2021. So if you compare April 2022, sales 6% lower than April 2021. So a little bit of slowdown in buying, which is fine, because people were buying at an unbelievable rate the past two years because of low mortgage rates, because of lack of supply, so people wanted to get into houses now instead of waiting till later. However, if you take a look, if we dive deeper into what the sales looked like year over year, sales actually rose roughly 20% and houses price between 500k and 700k and 16% for sales of those homes $1 million or more. And what does that kind of tell me? It tells me that those are the people that aren't really worrying about mortgage rates as much. If you're in a space where you're buying a 700,000 home a million dollar home, million dollar home and up, you're probably not relying on a 30 year mortgage to do so. It's probably a lot of cash that you how you have from sale of investments are performed incredibly well over the past three years, or a sale from a home that you had already. And you didn't need so you sold it when everybody was selling at incredibly high numbers. So those increases of 20% in the 500 to 700k range and 16% and the $1 million or over. Those are people not really impacted by mortgage rates as much Now if we look at homes priced between 100k to 250k, we actually saw a decline of 29%. That's where that 6% Lower comes into play. And that's where the higher mortgage rates come into play. And if we remember back to the first podcast, I spoke about this, I spoke about less buying, because people won't be able to afford as much homes because they're just their debt that they have to cover as month a month is going to increase. Because if you go from a 2%, mortgage, to now 5.5% mortgage, your payment per month, more than doubles. So people in the 100 to 250k range aren't buying as much cash, the mortgage itself is a major way that they can afford these houses. And they put a lot of it on the mortgage, whether it's 3%, down or 20%, that you're putting a lot a lot on the mortgage. And because of that, when the mortgage are more expensive, you're not going to buy that house, you might wait. You might wait until prices start to come down a little bit more, because I still think where we are, as we saw median price per home was 391,000. That's up nearly 15% year over year from April 21. to Now, I think the reason we're seeing is because we're seeing more sales of homes 500k And up. And also for those between 102 150k. We haven't seen prices come down to too much yet. Because the more the interest in the impact that the higher mortgage rate has, is still working its way out through the market. So people still buying now might just have that cash on hand, they've been looking for a house for a while, and something's finally there. So they're still buying. But as we keep moving into higher interest rates for mortgages, and we keep moving into that environment, and they stay there, around longer, we're gonna start seeing prices come down, because we're gonna get to a point where if you wanted to move you already did. And if you want to move, now, you're going to be in a spot where you're potentially going to wait because of that high interest rate on the mortgage, or you're gonna wait to see if prices come down, so you're not having as high of payments. That's kind of where we're at. And that's kind of what we spoke about last time, the mortgage rate drives a lot of the real estate market. Unfortunately, prices can still remain pretty high for a little bit because the supply of houses are so low, and the building costs for houses is so high because of supply chain issues. So we're not going to see houses get put up very quickly. And we're not going to see be able to people being able to buy plots of land and put up houses very quickly. So in turn, people selling their house, that's already a standing structure that's already established as a good home can still afford to charge a little bit of a premium because they're still almost like the only game in town. But that can't last forever. We're starting to see supply for houses increase, we're starting to see longer times until the next house gets sold. So they're on Zillow for more than three hours or on Zillow for 20 to 30 days before they're bought now, which is still quick, but it's going to come down, prices will come down the time and supply will increase for houses. And people are worried about like a 2008 scenario where the housing market crashes and price prices plummet. I don't think we're in any sort of situation like that at all. We'll see prices come down, but we'll see them come down at a normal rate not just a plummet. And the reason I say that is because we're sitting on so much cash as consumers because of the last two years of savings, that even if your costs go up a little bit from inflation, you could still weather that and their mortgages. And then the other side of it is the lending market was much more strict after 2008 of who they're giving loans to. So they were much more prudent on who got a loan who didn't. So we didn't have these unbelievably bad mortgage products being given the people that are just setting them up for failure, it was more of a picky process where they felt confident that over time, you're gonna be able to pay your loans back or your mortgage back, which is good for the housing market, because that's what we need. And then additionally, a lot of homebuyers rebuttal lock in really low prices over the past two years. So I mean, really low interest rates on very high prices, but because of a low interest rate, their monthly debt that they have to service is pretty low. So because of those three things between consumers having more cash and other mortgage lenders being more prudent the past 14 years than they were leading up to 2008 and people having low mortgage rates over the past two years and taking those into the next 30 years. We're going to be in a decent spot from the real estate market so it's going to be in a healthy spot after prices come down and supply increases so there's really nothing to worry about there at all on Matter of things, but we're starting to see what higher mortgages and their impact they have on the market overall. So we'll see, we'll see but kind of wrapping up this episode again, the market is seeing a decline this too shall pass there's reasons to be optimistic going forward. There's reasons to believe in companies that are down 20 30% like Apple's down 20% microsoft 22% amazon 30 40% These companies aren't going anywhere. They're gonna be just fine. It's just a lot of people selling because of a lot of fears out there but things are gonna be okay. It's really not it's really nothing that's not going to pass through this happens we're going to be fine. Retailers are going to be able to react like I said, they're going to make adjustments and also as consumers will make adjustments as well. And the real estate market or if you're looking for a house might went away because house prices are still pretty high but but they'll start to come down as mortgage rates stay higher. So that's really it. That's really it guys sorry. It's been a little bit since I've been on but work got busy life got busy. You guys know how that goes. But hopefully I can be a bit more consistent going forward. So like I said earlier, I hope everyone's happy. Hope everyone's healthy. Stay happy, stay healthy if you are, and I'll catch you guys on the next one. Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at anytime based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.