The Markets
A trio of issues have caused investors to reassess their expectations for the year. Here’s what many were thinking about:
Prices rising at home. Recently, the Consumer Price Index showed prices had moved higher in March. Headline inflation was 3.5 percent year-over-year, up from 3.2 percent in February. Higher prices for gasoline and shelter were the primary drivers of the increase. Inflation, in tandem with a strong economy, made it tougher for the Federal Reserve to lower rates in the next meeting.
Tensions rising overseas. One of the drivers behind rising prices is geopolitics. Oil markets have been responding to the possibility of escalating tensions in the Middle East, as well as the damage done by drone strikes on Russian oil infrastructure. Equities have moved lower and gold moved higher.
Corporate earnings growth. . Banks began reporting on their performance during the first quarter of 2024. Some banks reported net interest income (the profit earned from lending money) that was lower than analysts anticipated. The gap in expectations was due, in part, to the fact that bank accountholders were seeking higher returns on their savings, reported Sridhar Natarajan of Bloomberg. Despite disappointment over bank’s interest income, earnings grew by 3.2% for the handful of S&P 500 companies that have already reported, according to John Butters at FactSet.
Following a strong first quarter in the stock market, financial markets in the short run have been volatile as investors adjust to U.S. economic strength and changing expectations for Fed rate cuts and geopolitical events.
TO PLAY OR NOT TO PLAY?
Whenever lottery jackpots swell, a wave of interest seems to roll across the United States. It happened in April. After the numbers were drawn, someone in Oregon had won $1.3 billion.
Prizes like that make lotteries tempting – and there are plenty of lotteries selling tickets. In the United States, government-operated lotteries are active in 45 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
The odds of winning a lottery, typically, are astronomically low. In April, the odds of winning were 1 in 292 million, according to Khristopher Brooks of CBS News. Despite the poor odds, people spend an enormous amount of money on lottery tickets. In 2023, people in the U.S. spent more than $110 billion on lottery tickets. The Economist reported:
“In the poorest 1% of zip codes that have lottery retailers, the average American adult spends around $600 a year, or nearly 5% of their income, on tickets. That compares with just $150, or 0.15%, for those in the richest 1% of zip codes. In other words, the poorest households spend roughly 30 times more on lotteries than richer ones, as a share of income.”
If people saved and invested instead of spending on lottery tickets, they could have more to show for it. For example, 30-year-olds who save:
- $150 a year might have about $35,000 at full retirement age, if they earned 8 percent on average each year.
- $600 a year might have about $142,000, at full retirement age, if they earned 8 percent on average each year.
The bottom line is that saving and investing is more likely to help people reach their financial goals than buying lottery tickets. No surprise about this set of data!
Focus – Think About It
“It isn’t where you came from, it’s where you’re going that counts.”
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