👯‍♀️ Do as I do, not as I say

Hey hey, happy Monday.

Whew, big week of data last week. And dare I say it was…palatable. Not great, but not doomsday either. Phew.

Let’s run it back in today’s 4-minute post on why everybody is saying one thing and doing something totally different.

Also, heads up to my Chi-town friends! Join me and a few of my nerdy colleagues at the Chop Shop on June 3 for a live taping of The Compound and Friends. We’ll serve up the deep dish you actually want — what’s going on in markets, not that tomato pie you try to pass as pizza. Buy your tickets here and holler at me if you’ll be attending!

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100 capital efficient companies. 1 cost-efficient ETF.

One of the lamest phrases in the English language is “do as I say, not as I do”.

It’s what your mom said when she forbade you from going to a lawn party in high school (after you politely reminded her that she was 17 once). It’s what the doctor quipped outside the hospital after he snubbed out his cigarette. It’s what I have undoubtedly said at weak points over my life when you’ve backed me into the corner of an argument.

Nobody likes a hypocrite, and that’s why we cringe when people utter those eight piercing words. At best, those who say this genuinely don’t want you to follow in their footsteps. At worst, they’re malicious manipulators steering you away from something they don’t want you to see.

So why does it feel like the whole world is repeating this “do as I say, not as I do” mantra when it comes to money?

This week was our first look at economic data that was collected after the infamous Liberation Day. Wall Street saw these reports as a good gut check on how consumers and businesses processed all the tariff chaos.

Here’s what we learned:

People may feel terrible about the economy’s prospects, but they’re still relatively comfortable with their current finances, according to the Conference Board’s consumer confidence data.

Companies are getting nervous about the future – so much so that they’re pulling earnings forecasts in droves. Yet they’re still hiring people, according to earnings reports and government data on the job market.

Tariffs were a massive shock to the system, yet the economy kept chugging along. Americans cringed while they clicked the “confirm order” button on an $800 espresso machine. Businesses may have cried for help, but they haven’t exactly shored up their employee base for a tough year ahead.

The bang was actually a whimper, and in response, the stock market capped a nine-day streak of gains, its longest since 2004. Houdini’s law in action.

Market gains are all well and good, but it seems like we’re back in this weird economic purgatory where feelings and actions don’t totally align. Like 2022, when everything felt miserable, yet thousands of us felt OK enough to buy $1,500 nosebleed tickets to the Eras Tour. 

The past few years have taught us valuable investing lessons. One I keep coming back to is how we can’t judge the broader economy on vibes alone.

You have to watch what people and businesses actually do with their money to get a good read on the environment – and subsequently, how the stock market will react.

Do as I do, not as I say.

By the way, this has been the case for much of history. Let’s go back to that Conference Board chart.

Every recession since 1970 (as far back as Conference Board data goes) started with worries about the future, but not necessarily concerns about the present. 

In fact, future expectations have started falling an average of 12 months before confidence in present conditions started to slide.

So when do people actually start changing their spending habits?

When they lose their jobs.

What can I say? Spending money is America’s favorite pastime. We blow our paychecks better than anyone, and consumer spending makes up 70% of the economy.

When you feel the ground start to shift, you may feel compelled to spend less and save more. You may not splurge on that new car or that fancy fridge. But when you’re making money and easily affording life’s pleasures, it’s hard to feel like your wellbeing is under threat.

Job cuts also show that companies are at their wits’ end. They can’t absorb the pressure from lower demand and higher costs. 

This is what so many people missed in the 2022 inflation crisis. Yes, prices were soaring and the vibes sucked, but America’s workers – from the cubicles to the C-suite – were absolutely thriving.

Companies added an average of 380,000 jobs per month, the third-strongest year for hiring since the 1930s.

Unemployment reached a 54-year low of 3.4%. At one point, 80.9% of 25-54 year old Americans were employed, a 22-year high.

Of course, we were all huge hypocrites – complaining about airfare prices while booking first-class flights to Paris. And if you sold out of fear in 2022, you missed two straight annual gains of more than 20%.

Today is not 2022, though. Far from it, actually. Unemployment is climbing. Layoffs are picking up. Interest rates have been pounding our wallets for years now, from prominent executives to your feeble old neighbor across the street.

The economy is materially weaker than it was just a few years ago, which makes this tariff shock all the more frightening. We may not be able to spend our way out of this.

Or maybe we can? Americans are sitting on a pile of savings and home equity after a decade of ultra-low interest rates.

I, like you, feel like we are staring down the economic abyss.

But the distance between us and the edge may be wider than we think.

For now, mind the gap. Watch jobs data. Don’t get too dragged down by the vibes.

Because you – and everybody else – are apparently still keeping this economy afloat.

Thanks for reading!

Callie

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