Happy weekend! It’s May 3, 2024. We have three great stories to wrap up the past few weeks in markets, business, and the economy for you and your family.

Here are the highlights:

• AI and advertising: The two words behind the continuing big tech boom.
• Big troubles for big chains. What Starbucks, McDonald’s, and Burger King are all saying.
• Consumer confidence hits two-year low. Here’s what’s going on in the economy.

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AI and Advertising Are Big Tech’s Two Magic Words

We’re now officially halfway done with the first-quarter earnings season — and no surprises, tech titans are cleaning up. In the last two weeks, reports from Meta, Amazon, and Google have demonstrated the staying power and strength of Big Tech, which has supercharged the market’s comeback since October. They also remained steadfast in their commitment to the two magical words making their billions possible: AI and advertising.

• What’s up with AI? While investors have been excited about the potential of AI, many investors don’t want to wait for it to start generating returns. Instead, they want to capitalize on the boom in other ways. This is one reaason why investors are turning away from more cyclical plays like semiconductors and energy — and embracing long-term bets on the growth of AI through tech giants who own big cloud businesses.
• Who owns the Cloud? Amazon (which owns Amazon Web Services), Microsoft (which owns Azure), and Google (which owns Google Cloud) all reported their best results ever, while crediting AI demand for some portion of their growth. Across those three companies, which own the most market share, quarterly cloud revenues neared $70 billion.
• What’s new with advertising? The digital advertising market continued to show up for tech giants like Meta (the parent company of Facebook and Instagram) and Alphabet (parent company of Google), which reported double-digit advertising revenue growth. And even Amazon, which only recently embraced the advertising business, demonstrated the strength of the market with its own double-digit performance.
• What does AI + advertising equal? Lots of profits. Over the last year, Big Tech companies turned away from growth — and settled for profits. For example, Google’s net income rose 57% year-over-year to $23.66 billion and Meta’s rose 201% year-over-year to $14.02 billion. As a result, both companies announced big buybacks — and declared their first-ever dividends for investors. And the rest of Big Tech also had big performances, too.

Why does it matter for EarlyBird families?

Big Tech continues to drive the market, but there is value in a diversified portfolio — which hedges against the downside, while capitalizing on the upside. This is what we build for families at EarlyBird, allowing them to catch the momentum in the market. It also makes sure that you’re positioned for the next big trend, whether that’s more growth in advertising or AI, or something completely new.

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Big Troubles for Big Restaraunt Chains

Americans spent like crazy through the pandemic — and the economy’s reopening. But after a banner few years of saving and spending, big food chains are warning that consumers are starting to pull back on their shaken espressos, large fries, and combo meals.

• What’s up with chains? In their first-quarter earnings, food giants like Yum Brands, McDonald’s, and Starbucks warned investors that economic pressures like inflation are beginning to weigh on consumers — which are spending less in turn.
• How bad are we talking? McDonald’s CEO Chris Kempczinski said that, “Consumers continue to be even more discriminating with every dollar that they spend,” while noting the impact on the industry — and company. McDonald’s same-store sales grew slower than inflation.
• But it could’ve been worse… Coffee giant Starbucks cut its entire 2024 forecast amid a 3% decline in same-store U.S. sales. Starbucks CEO Laxman Narasimhan echoed other industry leaders in saying that, “customers have been more exacting about where and how they choose to spend their money.”
• What’s the solution? Almost universally, companies are cutting business costs through layoffs and new internal practices. McDonald’s, which increased menu prices in recent years to keep up with inflation, reiterated that it needed to make changes to bring back lower-income customers — while Starbucks said it would respond with new products and an 24/7 pilot store.

Why does it matter for EarlyBird families?

Business leaders might use earnings calls to share anecdotes or insights about their industry — and in the food business, slowing spending is one of the recurring themes from this earnings season. Using these sorts of market insights could help you learn about happenings in the broader economy, or even teach your child about the market.

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Consumer Confidence Hits Two-Year Low

Since the pandemic, America has had the strongest and fiercest economy in the world. But despite  strong economic data and record highs on the stock market, Americans remain pessimistic about the economy. In fact, the most-popular marker for gauging how the U.S. feels about its own economy just registered its worst reading in nearly two years.

• What’s the deal? The Conference Board consumer confidence survey dropped to 97, its lowest point since July 2022. Back then, inflation had just peaked at 9.1% — causing the Fed to raise interest rates steeply. The latest reading comes as Americans are more worried about the jobs market, as well as the price of food and gas.
• Are Americans right to be pessimistic? Americans were pessimistic even while economic data such as GDP, job growth, and wage growth remained strong. However, this time, Americans’ impressions about the economy might be more correct — GDP growth was significantly below what was estimated by analysts, job gains were the lowest since Oct. 2023, and company earnings calls have become a regular venue for executives to air out concerns about the economy.
• But there’s a catch… While the Conference Board’s own marker remains authoritative among investors, it is not a one-size-fits-all solution to gauging how Americans feel. After all, it is a survey. Other markers have shown that Americans remain optimistic about the future, even while current conditions seem to be decaying. The Morning Consult’s Consumer Confidence Dashboard shows a chasm between current consumer conditions and future expectations — with the latter being significantly higher.

Why does it matter for EarlyBird families?

At the end of the day, data is a useful way to understand the economy — and maybe even predict future trends. It’s too early to say for sure if weaker economic data or company earnings could be a problem — or push the U.S. into a recession. The good news is that we aren’t close to a technical recession right now, even if the media warns we might be getting closer to one (they did this for most of the last three years, while the market and economy remained strong.)

Regardless, we’ve always stressed the importance of insuring against uncertainty. Most people struggle to think about the longer-term, but you can do your future self a favor: build an emergency fund of 6 to 12 months of expenses, invest as much as you can in retirement funds, and put money aside for your child’s future in the EarlyBird app. With these kinds of preparations, you can offer your family (and yourself) freedom from worrying about things you can’t control.

What else is up?

• Will it be a buyout or merger for entertainment giant Paramount? The owner of Paramount Pictures and CBS has been negotiating a merger with David Ellison’s Skydance, which has seen the ouster of its less-than-supportive CEO. However, a last-ditch $26 billion bid by Sony and Apollo could shake things up. Find out more about the deal.
• Retail investing is back: Recent data from broker-dealer giants Charles Schwab, E*TRADE and Robinhood show retail investors are once again toiling around in the market — with trading activity rising to levels not seen since early 2022. Read about the comeback.
• Tornado season is back… Americans in the midwest and southeast know it’s that time of year (northeasterners, please disregard.) Tornadoes are cropping up across the US, from Texas to Nebraska — and even in the Pacific Northwest. But this time, it’s costing Americans, even if they’re hundreds of miles from the storm — with insurers incurring $1 billion in losses in severe eather losses from April. See what that’s insurers are doing.