Would you invest on Friday the 13th?
August 13, 2021 by The Q.ai Team
Sliding into the weekend like (Source: Imgur)
In under 4 minutes, you will learn:
- Why you should not view the S&P 500 as an economic indicator
- 5 headlines that pretty much sum up the week
- When it’s realistic to return to the office
- Our rec of the week
Why the S&P 500 doesn’t actually represent our economy
Source: True Wealth
- Investors look at the S&P 500 as an indicator for how the economy at large is performing
- While often true, it’s not always the case. Performance of the index is skewed by a less than 10 large cap companies.
Reminder: the economy and stock market are not the same thing
Part of why so many individuals (understandably) believe that the markets and the economy are the same thing is a product of our history. Our comprehension of the stock market, from historical trends to its current state, guides our view on the economy – and much of the time, there is financial evidence to support this theory.
For many, the stock market is a proxy for how the economy at large performs. When stocks continuously rise, the economy is doing well right alongside them. When stocks plunge, it’s frequently in tandem with the economy tanking.
The correlations are there the vast majority of the time – until a recession hits, and the market still performs.
Case in point: this was the S&P 500 in 2020. If you need a refresher, unemployment was 11.2% last June
Source: New York Times
Why the S&P 500 doesn’t accurately represent our economy
The companies that make up the S&P 500 are massive corporations. They function on vastly different principles than small businesses, individual workers and even the cities and states that make up much of the economic web.
These giant companies hold massive liquid reserves – almost 40% of their revenue flows from outside our federal borders. Meanwhile, the average individual or even small business may never interact beyond the borders of their own state.
In 2015, 600,000 companies within the United States employed a minimum of 20 individuals. Only 3,600 of which (less than 1%) listed publicly on a stock exchange.
The share prices of the 1% of companies alone are enough to skew the market data in such a way that the markets improperly reflect the overlying economy.
The S&P 500 is weighted solely toward companies with deep pockets and deeper influences, and, yet, it’s still commonly used as an indicator of the health of the economy.
The market cap of these 6 companies = the bottom 369 of the S&P 500 (a/o December 2020)
Source: The Irrelevant Investor
The bottom line
In April 2020, Alphabet (Google), Amazon, Apple, Facebook, and Microsoft accounted for 20% of the market value of the index. At the same time, they each sat roughly 10% up for the year. The other 495 companies in the S&P 500? Down 13% across the board.
What does this all mean? It’s understandable to view the S&P 500 as an indicator for the U.S. economy, but it’s not the end all be all – and sometimes it’s flat out not an accurate representation of what’s actually going on with our economy.
Read the full Investing 101 article about the economy’s relationship with the stock market
This week, we released v1.10.0 of the Q.ai Invest app which debuted a major feature:
- NEW Limited Editions: we just dropped 4 short-term investments that grant you exposure to the following themes before anyone else: U.S. economy reopening (back to school, retail and restaurant, leisure and hospitality) and trending on Reddit (meme stocks).
- Research: we made learning more accessible within the app. Visit the ‘Research’ tab to begin exploring.
Five headlines that sum up the week
1. Airbnb’s Q2 revenue jumped 300% (299% to be exact)
Airbnb has benefited from the reopened economy in spades. It posted $1.3 billion in revenue for the quarter and expects the next quarter to break its record high of $1.65 billion. The surge in delta variant cases remain top of mind for management, who warned of the variables (vaccination, not having more variants take over) that could impact the performance in Q4. As a result, shares actually dropped by 4% following the earnings announcement.
2. Disneyland reports 45% higher revenue last quarter
With pandemic restrictions lifted, people are flocking to Disney’s theme parks. Its surge in theme park visitors has resulted in 300% more revenue compared to the previous year. The good news doesn’t end there. Sales for Q3 were $17 billion, adjusted profit was $918 million and Disney+ hit 116 million subscribers. Disney’s glow up has not gone unnoticed; its stock shot up following yesterday’s earnings announcement.
3. Moderna surpasses Merck in market capitalization
Why is this significant? Merck has been around since 1891. It’s the OG pharmaceutical company that has not wavered in the 100+ years. Moderna, a much younger company in comparison, is obviously known for the vaccine of its same name. Successfully developing a drug that utilizes mRNA technology has single handedly turned a company that once traded at $14 a share to $389.74. This company now worth nearly $200 million.
4. WeWork receives $150 investment for the upcoming SPAC deal
Source: Ergonomic Trends
WeWork’s new partnership with Cushman & Wakefield will combine its technology with the office spaces that Cushman and Wakefield manages. An interesting decision for both businesses, as work from home has become much more commonplace (and acceptable) for employers in the past year and a half. However, they’re looking to work in tandem with the likely future of work for the majority of Americans: hybrid work models. This investment comes before the SPAC merger with BowX Acquisition, a deal that intends to take the company public.
5. Softbank is no longer interested in investing in Chinese tech startups
Softbank’s $100 billion Vision Fund has made some solid bets on Chinese startups (think: Alibaba). However, in light of the crackdowns we’re seeing with tech, Softbank’s year-over-year new profit sank by 40% primarily due to the dropping valuations of Chinese tech startups. Softbank’s founder Masayoshi Son announced that they are backing away for at least a year or two, after the regulatory policies are more clear. Currently, 23% of the entire venture capital fund is comprised of Chinese startups.
ICYMI: Corporations are delaying return-to-office. Many are requiring employees to be vaccinated.
Last year, Google was among the first to push its office reopening date out an entire year. At the time, the target date was July 2021. That has since been delayed to October 18.
Many other large companies have followed suit:
- Facebook announced yesterday plans to fully reopen offices in January
- Amazon will return to office in January instead of September
- Apple told employees they should not expect to return to the office until at least October
- Lyft is now returning to the office in February
- Twitter actually opened its offices in New York and San Francisco last month before quickly pulling back 2 weeks later
In addition to delaying its return to office, McDonald’s, is also requiring all U.S. corporate employees to be fully vaccinated by September 27.
While vaccine requirements have been more common for government employees, this might become the new norm for companies. In fact, many companies are already doing it.
Companies that are requiring its employees to be fully vaccinated
Right now, it seems like everyone’s winging it and that is because they are.
For the most part, we’ve viewed these companies as a litmus test for when it makes sense to ask employees to come back to work. And now that is looking like the case for vaccines.
Without using everyone’s new favorite word “unprecedented,” it’s clear that Corporate America isn’t sure when to return to office – and that is totally understandable. After all, we’re all first timers to this dumpster fire of a pandemic.
Rent prices went up in July. Does it now make sense to buy a house?
Owning is obviously more ideal than renting, and if you can swing a down payment of a mortgage that is hopefully for a maximum of 15 years you’re better off paying rent to yourself than to someone else. If you’re considering buying a home, these are the questions you should ask yourself first.