Marketplace - “The granddaddy of all stock indices”

Episode Date: May 17, 2024

The Dow Jones Industrial Average closed above 40,000 for the first time on Friday. As we say regularly on this show, the stock market is not the economy. But it can still be a good indicator of how some folks are feeling about the state of the economy. Also in this episode: Competition for small-business spending heats up, EV sales take a dip, and purchasing power for all income levels rises. Marketplace is behind for this budget year — that means listeners like you can make a critical difference by investing in our journalism today.

Traditional revenue sources for public media and media at large are declining this year, and we at Marketplace are not immune to those trends. We're currently tracking behind target for this budget year. We're tightening up our expenses, yes, but the need for trusted, grounded, fact-based reporting is as pressing as ever, and we simply cannot cut back on our mission. So we're turning to the listeners like you. Please step up now and invest in Marketplace. If you haven't given yet,

now's the time, go to marketplace.org slash donate. On the program today, our usual Friday offering, what happened this week and why. From American public media, this is Marketplace. In Los Angeles, I'm Kyle Rizdal. It is Friday today.

This one is the 17th of May. Good as always to have you along, everybody. All right, so look, there was economic data this week that was mostly good there was geopolitical news of this economy this week that was Interesting and there were various and sundry other items worth a mention which we will do with Anna Swanson at the New York Times And let it open Lynette Lopez. Sorry Lynette at Business Insider. Hey you two Hey guy. All right, Lynette. Let me start with you after mangling your name Inflation came in this week, the CPI at 3.4%, which was down just a touch and generally good.

Retail sales were flat, also generally good. Do you take heart from this week and this economy? We're not doing badly, but it's still not great news. In the world of Wall Street and probabilities, no bad news is better than no bad news. No bad news is good news. Everybody's getting super excited in the stock market again. Yeah. We're going to get to the market in a minute, but Ana, I want to touch on the

inflation number for a minute. We had Austin Goolsbee from the Chicago Fed on this week, and he and I went round and round a little bit on this use of the word bumpy. Janet Yellen used it with me last week. Austin used it with me this week. Powell says it all the time that the road down to 2% on inflation is going to be bumpy My question to us Austin which which he didn't Really answer was look does bumpy mean, you know a little bump here and there or is it one of those things? Where you hit the giant speed bump in your car and your teeth rattle. What's your sense of what bumpy actually means? Yeah, it's been a little more like the teeth rattling this year. So inflation readings

last year kind of came down significantly. And then this year we had three solid months where inflation came in stronger than expected. And then one positive reading this month that things were moving in the right direction. So it was sort of like as if we were coming in for the landing and then the plane took back off again for another big circle around the airport. So I think that this one positive reading, even though markets are pretty excited about it, the Fed obviously is going to want to see more evidence that we're on the right track. And I think they generally think that higher interest rates will work. They just need to be patient, but they're definitely also in guard for other scenarios.

Yeah. Okay, Lynette, the market's Wall Street. Ana mentioned it there for a second. You talked about it a minute ago. Here's what I wanna know. Why does Wall Street so badly want a rate cut, and why do they take such great heart every time there's an indicator that says,

yeah, you know, rate cuts might be coming sooner rather than later. What's the deal? Rate cuts are the sign that we are getting to this soft... Like the sooner we get a rate cut, the sooner the Fed is confident that inflation is going away. And if we don't have a hard landing before that happens, like the economy doesn't slow down significantly and we already get to the rate cuts, that means the landing is going to be softer and it might not create an interruption in corporate earnings or like we won't see

a major fall in retail sales. Basically, it all means that the probability of the economy having a soft landing is greater than if we just keep rates higher for longer. That means the possibility of a hard landing is still on the table. Okay, let me stick with you, Lynette, actually, because you're closer to the markets than Ana is, and Ana and I got a bunch of China stuff

that I want to talk to you about in a second. But look, has Wall Street gotten greedy, Lynette, do you think? Gotten? Come on, guys. That's so funny. As soon as the word was out of my mouth, about in a second, but look, has Wall Street gotten greedy, Lynette, do you think? Gotten? Come on, guys. That's so funny. As soon as the word was out of my mouth,

I was like, she's gonna jump on me for that one. Gotten greedy, no, there is no bottomless pit to the greed. There is never enough good news. There is never enough, there are never more earnings down to the moon, 5,000, no. What Wall Street wants is a market that doesn't necessarily change very much. When you keep interest rates at a higher rate,

decisions that are made by companies and by individuals change. And that changes the shape of the economy. It changes how Wall Street has to think about their investment portfolios. It creates volatility and more work for all these dudes who just want to spend the summer in the Hamptons. think about their investment portfolios, it creates volatility and more work for all these due to just wanting to spend the summer in the Hamptons.

Fair point. Okay, Ana Swanson, who's covered Shani extensively, lived and worked there, international trade is your thing. Talk to me first of all about the Biden announcement on tariffs this week. He's not only officially blessing the Trump era tariffs, but adding more of his own on EVs and solar cells and those sorts of things. What do you make of that?

Yeah, well, I felt like the most notable part about it for me was what Biden did not do. So he didn't roll back any of the tariffs that Trump had imposed, including on consumer products. And that's something that Biden officials had discussed for a long time, you know, easing some of the tariffs that hit consumers particularly hard. Apparently they didn't feel like they wanted to give concessions to China. You know, they feel like Chinese trade practices have not improved, but they also apparently didn't feel

like they wanted to give concessions and relief to American consumers, you know, who are what, you know, the people who economists say pay for most of the tariffs. And so I think that for me is just a sign of how much opinion has swung toward, you know, putting more importance on domestic manufacturing than consumers and how much tariffs and trade protections

are kind of the new normal now. Right, and left unsaid is the political impact of this stuff, right, which is very real in this season. Right. Definitely. Yeah. The news out of China this morning about them coming to the rescue, in essence, of their much, much troubled property sector, that is a very big deal, right?

That's been a huge drag on that economy. It has. Yeah. big deal, right? That's been a huge drag on that economy. It has, yeah, yeah, and there's a huge and kind of very slow-moving problem there. And, you know, China knows that it needs to switch away from its reliance on investment to power its economy, that, you know, high-speed trains and new apartment buildings are great, but China has a lot of those. But in the interim, it's also even relying more on exports to power growth than it has.

And so that also brings it more into tension with countries like the United States and leads to these issues with tariffs that we were just talking about. Right. And that is the overcapacity thing that Secretary Yellen's been talking about for a while. That's Anna Swanson at The New York Times and Lynette Lopez at, god I messed up your name both sides, Lynette Lopez. Hi, come on. I'm really sorry.

I've only been doing this for a decade. I know, I'm just going to get out of here now. You guys have a great weekend, alright? Thank you. Alright, bye. Wall Street on this Friday, so I'll tell you what, hang on for like 20 seconds, Kristin Schwab is on it All right, one has five digits, starting with the number four as of today. It's got 30 component parts and is, to be completely clear, not the economy.

If you said the Dow Jones Industrial Average, go straight to the head of the class. The blue chips closed above 40K for the first time today. Again, not the economy, but it can tell us something about how people feel about this economy. Marketplace's Kristin Schwab takes it from there. Okay. So if the stock market is not the economy, then what is it? The stock market is approximately the market's expectation of the publicly traded firms within our economy. Kelly Xu is a finance professor at Yale. She says the Dow's performance means traders think the outlook for companies is good, or at least less risky. And sometimes, yes, that

means the outlook for the economy is less risky too. Here's how Ryan Dietrich, chief market strategist at Carson Group, explains the Dow and the economy. They rhyme. They're cousins. Related. Traders are happy about the slowing inflation numbers and advancements in AI. But the stock market and the economy can also have about as much in common as you have with your second cousin twice removed. Like back in May of 2020, we were living in a pre-vaccine pandemic, unemployment was over 13%. Meanwhile, markets were climbing. So let's regroup for a second.

Why then do we care about the Dow hitting 40,000? Here's Dietrich again. Listen, it's not honestly all that different than 39,999 technically, but it is a psychological level. Psychological because it's a nice round number. Psychological because the Dow is a decent indicator of how the markets are doing in general. Jim Angel is a finance professor at Georgetown. When I turn on marketplace, I hear, oh, the Dow has gone up 1%. Most other stocks have probably gone up somewhere in that vicinity.

So what does all this mean for you? Well, if you're not invested, nothing. And if you are, the Dow's performance itself still might not matter unless you own some pricey stocks. Just 30 legacy companies like Microsoft and UnitedHealthcare make up the Dow. Is the granddaddy of all stock indices. And just a slice of the market. I'm Kristin Schwab for Marketplace. There is a tendency in business and economic reportage, present company included, to dwell

a lot, perhaps too much, on the consumer. How much we're spending, how we're feeling, what we're buying or not buying. But we forget businesses in that equation at our peril, how they are feeling, what investments they are making, and how they are spending their money. American Express said the other day in its earnings call that business spending has been kind of slow and spending on its business credit cards by small and mid-sized businesses in particular was up just 1% compared to the same time a year ago. As Marketplace's Justin Ho reports, the competition for that slot in business owners' wallets

where their credit cards go has been heating up. Business credit cards work basically the same way as the ones you probably have in your wallet. You use them to buy things, rack up a balance, hopefully pay it off. That's what businesses do too, some of them a lot more than others. Sometimes the credit card spend is going, you know, upwards of $800,000 a month.

That's Jeff Kaley, the owner of Worldwide Cyclery, a mountain bike store in Newbury Park, California. He says he'll charge anything he possibly can to his store's Capital One credit card. Inventory, travel expenses, the internet bill, snacks for the lounge. That's because the card offers a little incentive. They give us 2% cash back unlimited on all purchases, and I have not found anything that's ever beat that. For a consumer, 2% cash back might mean a few bucks here and there.

But for worldwide cyclery, one month of spending might return upwards of $10,000. Kaylee says that can really take the edge off of the company's expenses. When you're operating a business, you're looking at your profit and loss statement sort of religiously, and if we can get some cash back on that credit card spend, that can go straight to the bottom line of the business,

which is really helpful. One reason Capital One can give him some cash back is that every time he buys new tires or spokes or suspension forks from one of his merchants. The merchant pays a fee in order to accept credit card transactions. That's tony the sanctus senior director of the consulting company cornerstone advisors he says credit card companies earn more of those fees from people doing their everyday shopping than they do from small businesses because because there are just a lot more consumer credit cards out there. Everybody who wants a credit card from a consumer perspective probably has one or maybe four, right? As opposed to in the small business space, less than half of small businesses are actually using credit cards on a regular basis.

And so credit card companies have leaned in to trying to win over the half that don't. Here at Once Upon a Farm, we chose the Capital One Venture X business card. When you start small, you need some big help, and Chase Inc. was that for me. The Amex business gold card. With flexible spending capacity that adapts with your business. While credit card companies have been advertising to small businesses on TV, their target market has been growing. Last year, the number of applications to start a new business hit a record, according to

the Census Bureau. So that in itself creates an opportunity. That's Andrew Davidson. He follows credit card marketing at the research company Compaire Media. He says it's not just banks that have been piling into the space with new products. Smaller fintech companies have been too. Some of them offer services like help with taxes or accounting. Davidson says business credit cards have also been getting more specialized.

Products targeting like influencers, for example. There's a company that's launched a small business card just for content creators. There's a card targeting small business owners that are needing to build up their credit history. The success of any of these cards will depend on whether business owners like Marcia St. Hilaire Finn feel comfortable using them. She owns Bright Start Early Care and Preschool in Washington, D.C.

and she's dialed back spending on her American Express business card because enrollment has stalled and the cost of supplies is still rising. We only buy most haves. We don't buy like want to have or love to have items. So we'll just cover what we need to provide our services. St. Hilaire Finn is hoping that by later this year, she'll be able to start spending on want to haves. And at least one love to have, one of those machines that makes foam for foam parties.

That would be really fun. And I'm like, we're going to get it. But we're like, just not right now. St. Hilaire Finn says she's expecting her enrollment and her spending to pick up when the next school year starts this fall. I'm Justin Ho from marketplace. Coming up. We've been able to happily provide our team members a livable wage, which is something that we're excited about.

Exciting for the team members too, I bet. First though, let's do the numbers. Dow Indulge Rows up 134 on this Friday. Three tenths percent closed at 40,003 by the hair on its chinny chin chin. The Nasdaq ticked down 12 points, about a tenth percent. 16,685. The S&P 500 up five points, about a tenth percent, 5303. There for the five days going by,

the Dow picked up one and a quarter percent. The NASDAQ added two and a tenth percent. The S&P 500 elevated itself one and a half percent. Justin Ho was telling us about small business credit card spending, so let's look at some of the big card companies, shall we? Visa charged up a tenth percent, Capital One pocketed about a half percent. JPMorgan Chase, the credit card company, big bank, rose one and a tenth

percent today. Bond prices went down, that means the yield went up. Benchmark 10-year T-notes increased to 4.42% on the yield. You're listening to Marketplace. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many black Americans. Listen now. Traditional revenue sources for public media and media at large are declining this year,

and we at Marketplace are not immune to those trends. We're currently tracking behind target for this budget year. We're tightening up our expenses, yes, but the need for trusted, grounded, fact-based reporting is as pressing as ever, and we simply cannot cut back on our mission. So we're turning to the listeners like you. Please step up now and invest in Marketplace. If you haven't given yet, now's the time. Go to marketplace.org slash donate.

This is Marketplace. I'm Kai Rizdal. As we have mentioned, well, you know, a lot this week and also today specifically, the latest batch of inflation data has been promising. Prices are still going up, but the rate at which that is happening has slowed. Disinflation is the word you're looking for. Another way to think about it, inflation that has, came from the Congressional Budget Office this week.

Purchasing power, how much your dollar gets you. The CBO says that if you look at the same basket of goods from the before times to 2023. On average, Americans need less of their income to buy the same set of stuff. Now, if that feels just a bit off to you, I get it. Marketplace is Kimberly Adams, looks at why that is. According to the Congressional Budget Office, purchasing power went up across all income groups because incomes grew faster than prices between 2019 and 2023.

That kind of goes against the common perception of what's going on is that people are losing purchasing power over the last few years. Vance Ginn is president of Ginn Economic Consulting and was a White House chief economist during the Trump administration. The CBO found, percentage-wise, that folks in the highest income bracket spent less of their income on common expenses, down 6.3%—thank you—stock market. Folks in the lower income brackets weren't so lucky. They saw only a 2% drop in how much they spent on basics, thanks to higher wages. But for people in the middle, it was even less noticeable.

And that's why I think they've been kind of not being able to be as prosperous as some of the others during this period. Plus, these numbers reflect averages, not people's individual experiences. And that's where narratives really come into play, especially in an election year. Michael Linden is a senior policy fellow at the Washington Center for Equitable Growth. We did go through a period of about 18 months of very elevated inflation, but it's also true that prices today are rising roughly in line with previous historical experience. And in campaign ads and stump speeches, we'll probably end up hearing versions of both inflation stories, amplified in whichever direction benefits the candidate talking.

And I think that the American people are going to have to decide when they hear about inflation, which of those two things is more important to them. And whose narrative about the economy you choose to believe. In Washington, I'm Kimberly Adams for Marketplace. The American car industry has kind of a love-hate thing going on with electric vehicles. Automakers know they're going to have to go electric, but gas-powered cars are still where most of the money is.

To be clear, EVs are selling pretty well. The Energy Information Administration said this week that EVs, hybrids, and plug-in hybrids were 18% of new vehicle sales in this country the first quarter of the year. But that was down ever so slightly from the previous quarter, and it is for sure not where car companies would like it to be. So we had Marketplace's Henry Epp look into what's been holding EVs back and what might make more consumers more interested in buying one. Both makers of EVs and their potential buyers face a similar conundrum. High upfront costs with delayed financial benefits.

For many car makers, their huge investments in battery plants and new supply chains so far are not paying off, says Gil Tal, director of the Electric Vehicle Research Center at UC Davis. Right now on every electric car they are selling, they are losing if they just divide the total investment by the number of cars. But if you will divide it by the next 10 or 15 or 20 years of selling electric cars, they will not lose money. But saying, just wait, we'll make money on this in a decade doesn't look great on a quarterly earnings report. And consumers also have to make a big upfront investment, says Leah Stokes, an associate

professor at UC Santa Barbara. I think a lot of people want to own EVs, but that slightly higher sticker price in terms of the upfront ownership costs, buying the car is a little more expensive. That's a really big variable. Stokes says that's deterring consumers, even if they'll save money on gas in the future. And they're worried about how far they can drive on a single charge. Price, reliability, ease of use, charging,

quickness of charging. These are all hurdles automakers will have to overcome to see more widespread EV adoption, says Brian Moody, senior editor at AutoTrader. But he thinks at some point in the near future, a car company will check all the necessary boxes. How will they do that? Seth Goldstein is an equity strategist with Morningstar. Once EVs reach cost parity and then once they're offered a long range and we see the availability of chargers,

at that point, we're likely to see mass market adoption. In other words, once we don't have to change our lifestyle or budget to drive an EV, we'll buy more of them. I'm Henry App for Marketplace. We were talking about small business spending earlier in that flat retail sales report for last month. Data, data, data, right? But sometimes you just want to hear things firsthand. So we gave one of our regulars a call.

Kalina Bruce runs Noir Lux Candle Bar in Seattle, Washington. And last time we heard from her, the year was starting kind of slow. Here's the update. We are still noticing a decline in sales from this time last year. So we're like 15% down from this time last year, but we have been doing some promos and we've had Mother's Day and some things that have kind of helped us with boosting sales a little bit. Mother's Day was great for us. We were fully booked both Saturday and Sunday, and we got a bunch of kind of last-minute Mother's Day orders. We had put together some bundles that

included candles and other self-care items. All of those bundles did really well. People appreciated being able to kind of get a one-stop gift and send it out to their loved ones. In terms of challenges, we're always looking at staffing, training, hiring, retaining staff, and rehiring. And then along with that, we're currently working on some larger orders. And so storage is always an issue for us. I've already started shipping supplies

and materials to my house. The challenge with that is that I have to load up and bring things to the shop, but we are navigating that and are excited to get those orders out the door. Our costs are really, they haven't changed much. We're finding that because we're continuing to order in bulk, we are hitting those price breaks,

which is nice. Labor costs haven't really changed. We have about 10 folks on staff right now. Four of them are college students. And then other folks that are part-time with us are also either working other jobs or in school or things like that. And so we've been able to happily provide our team members a livable wage, which is something that we're excited about. You know, we have had a lot of wins as a business. We came out the gates and it was kind of just up from there. And so navigating the ebbs and flows is a part of it.

The thing that keeps me going is being able to be a community hub, being able to build generational wealth, you know, having my teen on staff and her wanting to come in to work. Those are the things that keep me encouraged as a business owner. Colina Bruce, Noirlux Candle Bar is her business, Seattle, Washington is her city. This final note on the way out today in which GameStop maybe got a little bit greedy. You've heard of the new new meme stock thing, right? A return version of the frenzy around a couple of stocks that happened back in 2021, of which GameStop was first among equals. Anyway, GameStop shares, ticker

symbol GME if you're playing along at home, had a better than 200% bump last Friday to midweek this week. Then the company said, oh hey, we're going to sell 45 million new shares. And GME lost 20% just like that. Are they still up, those shares? Yes, they are. Is this the greater fool theory made real? Yes it is. Our theme music was composed by BJ Liediderman, Marketplace's executive producer is Nancy

Fargoli. Donna Tam is the executive editor. Neal Scarborough is vice president and general manager. I'm Kyle Rizal. Have a great weekend, everybody. We'll see you again on Monday, all right? This is APN. My name is Lee Hawkins.

I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now.