Business Rundown: A Split-Screen Moment For The US Economy
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I'm Taylor Riggs, and this is the Fox Business Rundown. ♪

Friday, October 18th, 2024. The Dow, S&P 500 and Nasdaq all trying to finish up for the sixth week in a row, regularly hitting record highs. But at the same time, consumer confidence has been falling lately as most Americans say they now feel worse off than they were four years ago. Can we have it both ways? So if inflation adjusts people's earnings, I think people really have the budget blue.

where they look at the money that they're bringing in, that's gone up and that's great, but what they have to spend with their pushing out the door, that's also gone up and unfortunately faster. Something of a split screen moment in the U.S. economy, the Consumer Confidence Index made its steepest drop last month, hitting its biggest decline since August 2021. Perhaps the Fed has been succeeding in their inflation battle, but Americans may still be feeling their wallets pinched

at the grocery store. That's where food prices have risen for the past few months, all according to the Department of Labor. But at the same time, we've seen major stock indices finish up now six weeks in a row. Investors on Wall Street are certainly enjoying this streak, where we've now seen sectors and stocks pushing the markets to records on a steady basis. Nearly all the big banks' earnings reports suggest that consumers are still spending, and yes, they're still borrowing on credit cards,

But how they are feeling may be a different story. A recent Gallup poll on the economy showed that 52% of Americans say they and their family are worse off today than they were four years ago. How do we square these two snapshots of our economy?

All right. I want to kick it off with you. You know, I spoke to the Amex CEO this morning, Steven Squarey, and they continue to talk about the high income consumer doing really well. He did mention, of course, this is a bifurcated market, right? Where high income does well and sort of the middle and the low income groups really feel, you know, inflation or some of these recessionary feels, you know, a lot more than a higher income consumer. But I still just cannot square that.

The pretty good data that we're getting versus how people feel, which people don't feel great, but it's not being reflected in the data. As sort of an economist, a participant in these markets, can you explain, is the data wrong or are we just analyzing the wrong things? Well,

Oh, well, that's a great question. I think that your conversation with the Amex CEO actually helps shed some light on why we do have this disconnect. Brian Jacobson is chief economist at Amex Wealth Management, and I'm pleased to say that he joins me now.

higher income consumers have been really doing the heavy lifting in terms of the spending. If you think about the trajectory since coming out of COVID, initially it was the lower income consumers spending a lot of stimulus money, but they very quickly spent down the stimulus largesse that they received. And lately it has been more the higher income consumer who does tend to be a little bit more insulated.

from inflationary pressures, maybe job insecurity that's been doing the heavy lifting. So I think it's just a matter that the economic data doesn't tend to be detailed enough to really kind of square the circle about what surveys like sentiment surveys, competent surveys are telling us versus what we're seeing in the hard data.

You know, it goes to the point, there's a Gallup poll that talks about 52% of Americans say that they're worse off now than they were four years ago. That's sort of that classic Reagan question, right? Are you better now than you were four years ago? But I have to say, I've been talking about this for about two years now.

And we're still talking about the economy's going and inflation rate of price increases are coming down. You know, the soft landing is here or the no landing. We're still just flying. Atlanta Fed GDP is above 3%.

Will the rubber ever hit the road or do you think we'll always feel this disconnect? Because at some point I feel like I'm crying wolf, right? I've been saying the consumer is struggling, but it's been two years and I feel a little crazy still talking about it.

Well, and it's not just you who's been saying it, right? And I've been saying it as well. I've been hearing it from people about the struggles that they have. And, you know, just for some perspective, you know, let's look at average weekly earnings since the beginning of 2021. So effectively, when President Biden took office, average weekly earnings are up about 16% from that point. That sounds good. But the

The CPI, the Consumer Price Index, that overall basket of goods, those prices are up 20%. So if you inflation adjust people's earnings, I think people really have the budget blues where they look at the money that they're bringing in. That's going up and that's great. But what they have to spend with their pushing out the door, that's also gone up and unfortunately faster. And some of it is a lot of these really visible items.

food at home, those prices ever since January 2021 are up about 22%. Gasoline prices are up

about 32%. So, you know, people do have these budget blues, where if you are a higher income consumer, you are better off, perhaps, but then they have to think about, well, what about going forward? Because if we do eventually need to do something about the national debt deficits, who's going to pay the price. And so for some people, it's about, you know, they've got the blues, or

over where they are right now and looking back. And others, they have the blues about what might come in the not-so-distant future in terms of tax increases. Let's talk about that. One of the best things I love about you, you're in Wisconsin. You're in a swing state. You can get me out of my crazy New York City bubble, the elites on the East Coast and the West Coast who have no idea what is going on in the heartland.

What do your neighbors, people in line with you at the grocery store, what is top of mind? What are they talking about? What are they worried about?

No, I think that here in Wisconsin, so if you look at the makeup of our economy, it is a little bit more manufacturing heavy than the nation as a whole, right? And so the struggles of the manufacturing sector are felt a little bit more in this area. And I think that that message around how do we create good middle class jobs, manufacturing, even though manufacturing is maybe only

20% of Wisconsin employment versus 10% nationally, it's still a significant issue. So I think that's one of the big issues that I'm hearing from my neighbors and across clients as well. And they just really want to know what is the path

forward as far as competitiveness for the united states and then also a big chunk of it is around financing costs right if you think about mortgage rates right more drape it felt like we were on a track towards getting those like the 30-year fixed rate mortgage maybe it can get down to below six percent maybe five percent well now all of a sudden over the last few weeks it's back up towards closer to seven percent so it just feels like you can't catch a break you mentioned competitiveness

do you talk about tariffs does that solve the competitive problem you know and terrorists do come up in a lot of our client conversations as far as our perspective and i think that's where the challenge is around is that the right tool for that job or are there other tools available and it's also a matter of time frame if you think about okay if we impose

higher tariffs or threatened to impose higher tariffs. How long does it take for a new factory to be built or for those jobs to come back? And so is there a long-term gain, but then is there some short-term pain as far as are we going to have to deal now with higher prices as a result of this? And so there is that disconnect a little bit as far as is it the right tool for the right job? And then is it some short-term pain?

and perhaps for some longer term gain that people are really questioning.

If anyone else is sitting at home and feeling like me, I am done with politics. So Brian, we're halfway through this interview. The good news is we get to pivot. Let's talk about the economy. Let's talk about the stock market. Let's talk about ways that people can invest financially.

feel like they're participating in those great American companies and make money. I mentioned, of course, American Express this morning, a company of whom I spoke with the CEO about reporting earnings. Procter & Gamble reported earnings this morning, right? All across the gamut. It's not just big tech anymore, although we got great results from Netflix. When you think about sort of this earnings season, what do you like? What do you not like? What are some of the signals that you're getting so far?

Yeah, it started off, I thought, on a very positive note as far as some of the big banks reporting. Now, a lot of their profit growth was driven by trading activity. But what I always like to listen to is what's going on with Main Street as far as the quality of the loans, probability of default, how are households and small businesses feeling? And one of the things that I saw in their report was that it's still a pretty

decent economy in terms of they're not worried about a massive increase in defaults. We have seen credit card default rates increase, auto loan default rates increase, but more back towards historical averages and not necessarily really rocketing above those.

And so I liked hearing that. And then when we get into some of the other companies, when I'm listening in, like, for example, the Procter & Gamble report, when I found it very fascinating that some of the weakness was with like luxury skincare products, but that's a really hot item in China.

And so the extent to which some of these great American companies that they don't just sell into the United States, some of the weakness that they're experiencing is more in the foreign markets and especially tied to China. Which doesn't matter, except that if China's slowdown impacts our economy. Do you see that? Or if China's slowdown can sort of be sectioned off, siphoned off, and we're still humming along okay? Yeah.

Well, I think that we actually have been feeling the effects of that slowdown. Over time, we have been able to not completely decouple

from China, where if China sneezes, we catch a cold. But it has gotten a little bit better as far as diversification of supply chains. U.S. companies not so heavily dependent on really hitching their wagon to the growth story in China. They're trying to diversify more globally. There are still some concerns. It's an interconnected world.

But I think that really a lot of the worst of it is mostly behind us. We do have the government over there. Really, they need to now put their money where their mouth is in terms of the stimulus and the support. They recognize they have a big problem with the property sector, indebted local governments, and they also now need to improve consumer sentiment.

and maybe do something there in terms of a little bit of stimulus. So they've been jawboning a lot. Now they have to follow it through with some action. So back here in the U.S., what do you like? Should I be worried about the election? Should I just invest anyway? What sector do you like?

- Yeah, one of the things that we have noticed is that there are still some really good opportunities in the US markets, more in that small and mid cap space, we think, at least from that long-term valuation approach. Historically, a lot of people will point out that November and December in an election year,

The odds are in your favor of just riding through it almost no matter what the outcome is. And I think that's a good way of thinking about it is that the odds are in your favor of staying fully invested, but it doesn't mean that you have to be in everything. You could be a little bit more selective, maybe focusing on mid-cap quality. That's kind of an area that we like. Consumer staples, some industrials, even financials are beginning to catch a bit.

So, you know, in terms of that, you know, stay diversified, but you can be a little bit more selective about where those opportunities are. And those are some of our favorite areas. One thing I didn't hear is big tech. Now, I know that you are not saying don't be in big tech. I know that you're still very much in it. There's just other things that are also shiny and pretty and nice to look at.

Exactly. But how should I be feeling about big tech? You know, we've talked about record after I think Apple's at a record today. NVIDIA is pretty close. I think Netflix is at a record. If I'm not in it...

Can I still get in at records and be thinking about dollar cost averaging, just putting in 10 bucks every day? Or do I really want to be waiting for a bigger pullback to find a better entry point?

Yeah, this is where I think risk management really comes in to play. Dollar cost averaging is one of those techniques that people can use as far as, you know, let's kind of go in at a measured pace. You dip your toe in. It's like getting in a hot tub, right? You want to dip your toe in. You don't want to just dive in first. That's right. Or a cold plunge. That's right. Whatever your personal favorite is. But more often than not, the market does tend to go up. And

new highs oftentimes become old hat. I mean, that's just is the way that the market goes. Companies are incredibly adaptable. A lot of these big tech companies, the valuations that maybe looked off the charts a while ago,

they've been able to grow into those in terms of earnings and cash flow. But it doesn't mean that you have to go all in on them. Maybe have it be a smaller position, or as you suggest, dollar cost average in. So dollar cost averaging in, maybe it's not

optimal in terms of for the long term, but from a behavioral perspective, it makes it a lot more tolerable in order to get that exposure. But we believe firmly in being in it to win it in terms of across the sectors, but just control the size. I love that phrase. You can just control the sizing.

Another phrase that I love is it's time in the market, not timing the market, where if I try to time every little trade to be perfect, I'm pretty much going to lose. But as long as I can just be in it and have some skin in the game, then at least I have a fighting chance.

and not be so worried about beating, you know, the Goldman Sachs trader next door who's going to kick my butt on the trade every time, right? Or they will brag about doing it, but who knows if that's true or not. Yeah, well said. Okay, a minute or two left. I want to answer with a final question. The biggest question that you're getting from clients, the most frequently asked question,

question that you're getting, the most debated topic right now, what is it? So a big part of it is why even bother with international investing? The United States has done so well for so long. If you look at some of the charts as far as how the S&P 500 has done versus some of those like the MSCI EFI index that measures for Europe and outside of the United States, the U.S. has just trounced a lot of those

indices, and they want to know, is that going to continue? Why do I even bother with international in the portfolio? And that's where we have to take the step back and point out that that doesn't happen all the time. 2004 to 2006, non-US, outperformed US, you had other rate-cutting cycles. That tends to actually...

favor non-U.S. over U.S. It's not going to happen every time, but we are in the midst in the early parts of a rate cutting cycle by the Fed. And historically, that has tilted beyond a little bit more in favor of keeping that international exposure. So even though it hasn't exactly been all that additive to returns over the last 10 years, the next

10 months, or even the next three years could look very different than the last 10.

Well, I am just going to say on behalf of all of our viewers and definitely me included, I am so glad that the most asked question is about international and not about this darn election coming up in a few weeks and how to invest around it. I love that you're having substantive conversations about where to make money in the U.S. versus everywhere else. Brian Jacobson, a pleasure. Thank you. Thank you so much. Really appreciate it.

Jason in the House, the Jason Chaffetz podcast. Dive deeper than the headlines and the party lines as I take on American life, politics and entertainment. Subscribe now on Fox News podcast dot com or wherever you download podcasts.