PCE: Fed's Inflation Crystal Ball

1. Hottest News This Week

FED’S FAVORITE INFLATION INDICATOR

📣 PCE Released On Friday

This week, all eyes are on the Personal Consumption Expenditures (PCE) report, which will be released on Friday. As the Federal Reserve's preferred inflation gauge, the PCE index provides critical insights into consumers' spending habits and the overall price changes in the economy. Unlike the Consumer Price Index (CPI), the PCE captures a broader range of expenditures and adjusts for changes in consumer behavior, making it a more comprehensive measure of inflation.

📣 Costco Earnings

Costco Wholesale will report its earnings after the closing bell on Thursday, May 30. This is the first report with the new CFO after Richard Galanti's departure in March. Analysts expect a 7.9% revenue increase to $57.89 billion and a 25% rise in net income to $1.63 billion.

Despite a sharp drop in the stock price after disappointing second-quarter sales, Costco's stock has rebounded to record levels. The company’s membership fees might see a hike soon. Memberships are expected to rise slightly to 73.55 million.

📣 Possible Putin Ceasefire

Russian President Vladimir Putin is willing to stop the war in Ukraine with a ceasefire that accepts the current battlefield lines, according to four Russian sources who spoke with Reuters. They say he will continue fighting if Kyiv and the West do not respond. Please note that this is from Reuters’ sources and not Putin directly.

2. Matt Allen’s Corner

MINI-GUIDE TO ETFs

Hi Everyone! This week, let’s look at one of our latest investing articles from GRIT VIP’s Member Hub! A mini-guide to ETFs.

Exchange-traded funds, or ETFs, are investment funds that trade on stock exchanges, much like individual stocks. An ETF holds a collection of assets, such as stocks, bonds, or commodities, which are designed to track the performance of a specific index or sector. 

For example, an ETF might track the S&P 500, exposing investors to the 500 largest companies in the U.S. or focusing on a specific industry, like technology or healthcare.

ETFs combine the diversification benefits of mutual funds with the flexibility of trading like stocks. This means you can buy and sell ETF shares throughout the trading day at market prices, unlike mutual funds, which are only traded at the end of the day at their net asset value (NAV).

There are several types of ETFs, including:

• Equity ETFs: These invest in stocks and can track a broad market index, like the S&P 500, or a specific sector, like technology or healthcare. For example, the SPDR S&P 500 ETF (SPY) tracks the S&P 500 index.

• Bond ETFs: These invest in bonds, providing exposure to different types, such as government, corporate, or municipal bonds. The iShares Core U.S. Aggregate Bond ETF (AGG) is an example that tracks the Bloomberg Barclays U.S. Aggregate Bond Index.

• Commodity ETFs invest in commodities like gold, oil, or agricultural products. The SPDR Gold Shares ETF (GLD) is an example that tracks the price of gold.

• International ETFs invest in stocks or bonds outside your home country, providing exposure to global markets. The Vanguard FTSE Emerging Markets ETF (VWO) is an example that focuses on stocks in emerging markets.

ETFs are popular among investors because they offer a low-cost, diversified way to invest in a wide range of assets. They are also transparent, as their holdings are typically disclosed daily and provide the flexibility to trade throughout the day.

Advantages and Disadvantages of ETFs

Advantages of ETFs:

1. Diversification: ETFs hold various assets, reducing risk by spreading investments across many companies. For example, the SPDR S&P 500 ETF (SPY) includes 500 companies.

2. Lower Costs: ETFs often have lower fees than mutual funds. For instance, Vanguard S&P 500 ETF (VOO) has a low expense ratio of 0.03%.

3. Flexibility: Like stocks, you can buy and sell ETFs throughout the trading day.

4. Transparency: ETFs usually disclose their holdings daily, so you know exactly what you invest in.

5. Tax Efficiency: ETFs are generally more tax-efficient than mutual funds due to their unique structure.

Disadvantages of ETFs:

1. Trading Costs: Buying and selling ETFs can incur brokerage fees, especially with frequent trading.

2. Market Risk: Like all investments, ETFs can lose value if the market declines.

3. Tracking Error: Sometimes ETFs don't perfectly match the performance of their index.

4. Complexity: Some ETFs use complex strategies that may be difficult to understand.

5. Liquidity Issues: Some niche ETFs may have lower trading volumes, making them harder to buy and sell.

Expense Ratios

Expense ratios are a crucial factor to consider when choosing ETFs. This annual fee, expressed as a percentage of the average assets under management, impacts how much of your money is invested versus how much goes to fees.

For example, the Vanguard S&P 500 ETF (VOO) has a low expense ratio of 0.03%. This means that for every $1,000 you invest, you only pay $0.30 per year in fees. Low-cost ETFs like VOO are popular because they minimize fees, allowing more of your money to grow.

To read the full article, please click here.

Cheers,

Matt Allen

PS: I was a guest on Audiocraic, a podcast hosted by Barstool Sport’s Billy Football. Please check it out here!

3. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: Memorial Day

Tuesday: Bank of Nova Scotia, Cava

Wednesday: Dick’s Sporting Goods, Salesforce

Thursday: Costco, Dell

Friday: N/A

📈 Major Economic Events:

Monday: Memorial Day

Tuesday: Consumer confidence

Wednesday: Fed Beige Book

Thursday: Initial Jobless Claims, GDP (first revision)

Friday: PCE

The author of this newsletter owns ETF’s (exchange traded funds) that may hold ownership interests in the companies discussed in this newsletter as of the published date of this newsletter.