Happy Monday! It’s June 3rd, 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:

• Are Americans pulling back on spending? Some firms are worried, but others are rallying.
• Bad banking burns Americans. Americans lose access to funds after neobank outage.
• Compute is driving the stock market. Nvidia’s latest quarter is unlike anything else in history.

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Are Americans Pulling Back on Spending?

Capital One always asks consumers: “What’s in your wallet?” Recently, maybe they regret that they asked at all. For the last few years, Americans have demonstrated strength in the face of economic adversity — spending in spite of fears of a recession, higher unemployment, and higher interest rates. However, most Americans have spent their surplus COVID savings — and some have spent too much, taking on credit card debt to afford their lofty post-pandemic lifestyle. As a result, investors are worried that Americans are starting to be more reserved in their spending. That could be bad for many companies.

• Let’s look at the data: According to Barclays, non-essential spending growth hit an 18-month low in March, even as entertainment venues saw strong traffic. And last month, consumer spending rose just 0.2% in total. When factoring for inflation, which remained stubbornly high in the latest quarter, spending actually fell. This Thursday, Bank of America CEO Brian Moynihan leaned in, adding that the card payments, checks, and ATM withdrawals at America’s second-largest bank rose just 3.5% this year — a steep decline from last year’s 10% year-over-year growth.
• What are companies saying? Many companies which are sensitive to consumer spending have been penalized by investors, with wholesale giant Target facing its fourth consecutive quarter of declining sales. At the same time, automaker Tesla and athleisure company Lululemon were penalized investor for a steep slowdown in sales. However, earnings from retailers like Abercrombie & Fitch and Gap have shown that Americans are still open to discretionary spending (that’s the kind of spending on things you don’t necessarily need, but probably want.)

Why does it matter for EarlyBird families?

Many Americans are unfortunately slowing their spending because they have no choice. A meaningful portion of Americans are “maxed out,” carrying excessive credit card debt or other liabilities which severely affect their ability to continue spending. However, many Americans are pulling back on spending simply because of shifting priorities — many want to save, invest, and pay off debt.

Out of these two scenarios, hopefully you’re the latter. But even if you’re not, it’s never too late to change that. Rather than serving the economy, you can serve your future self with a few meaningful changes to your budget and lifestyle.

Prioritizing long-term goals through savings and investing are the two most powerful ways you can invest in your future — and your family. By investing in qualified accounts like a 401(K) or IRA, investing for your children in a UGMA or 529, and saving in a high-yield savings account or money market, you can shave years off your working life. That could spare you an additional year of retirement — or even a decade — to spend with loved ones.

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Bad Banks: Problems with Neobanks Restrict Access to Money For Thousands of Americans

Imagine depositing your money in a bank, only to find out… it’s not a bank. Oh, and you can’t get your money. This nightmare situation is currently a nightmare reality for thousands of Americans which entrusted their money to neobanks.

In recent years, neobanks like SoFi and Ally have matured into full-fledged banks, while broker-dealers like Robinhood have grown to help over 23 million Americans invest in the stock market. But despite the rising promise of fintech firms, many Americans are realizing that these unregulated businesses don’t offer the security or safety they purported to have.

• How did we get here? To run a neobank or fintech, you usually need to partner with a financial institution who can open and manage bank accounts, brokerage accounts, and other account types. Many fintech companies relied on a firm called Synapse — which described itself as a “banking as a service” software company that managed these relationships for fintech companies and neobanks.
• What does that mean? Unfortunately, Synapse’s partnership with its primary bank fell through learlier this year — leaving the “banking as a service” platform without a bank to custody and insure customer money. And as if it couldn’t get worse, the company proceeded to file for bankruptcy as a result of its failed partnership.
• How bad is that? The change meant that Synapse had to force its clients — fintech companies and their customers — to move funds over to a brokerage account. That meant that money held by neobanks such as Yotta, Juno, and Copper moved out of a trustworthy financial institution… and into brokerage accounts. Most customers did not have a choice, and reported that they were not informed of the meaningfulness of the changes.

Why does it matter for EarlyBird families?

The spat between Synapse and Evolve Bank and Trust means that over $200 million held at neobanks are currently frozen — effectively lost in an aether filled with bankruptcy documents, discovery, and back-and-forth claims between companies. Eventually, customers are expected to get their funds back in full. However, many Americans who relied on these platforms — sold on their FDIC insurance or the safety of the platform — will probably have to wait another few weeks.

In any case, the turmoil is something of a wakeup call for personal finance-conscious Americans. If it sounds too good to be true, it probably is. After the failure of crypto exchange FTX and the demise of crypto-focused fintech company Prime Trust, the bankruptcy of Synapse is just another reminder to remain in the know about companies that manage your money and investments.

Here at EarlyBird, we’re committed to customer safety and security. We’ve even written at length about how we keep families safe while they build wealth.

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Compute Is The Magic Word Fueling the Market (and Industry Leader Nvidia)

The world might not have an artificial intelligence (AI) super app, nor an all-knowing omniscient AI God to lead on the path to righteousness… but that isn’t stopping Wall Street from investing in those plausible, science fiction-y futures. And more than any other company, investors have embraced the industry’s gold standard — Nvidia.

• What does Nvidia really do? In recent years, Nvidia made most of its money by selling graphics cards for gaming computers and 3D rending hardware. However, Nvidia has grown its valuation to nearly $3 trillion over the last few years by embracing another business — high-bandwidth compute. The company now makes the majority of its revenue — over $22.6 billion this past quarter — from selling computer hardware which can power AI models. In fact, every major AI software company has come to rely on the firm’s H100 hardware chip. And soon, many of those same firms will be lining up to pay between $30,000 and $40,000 for its next-generation AI chip.
• How is Nvidia handling its success? Investors were worried that AI demand might have tapered off since the start of the year, even as companies like Amazon, Microsoft, and Google are shelling out to upgrade their data centers for the AI generation. Instead, the company continued to stun investors — with its revenue rising over 262% year-over-year to $26B in its first-quarter report. In response, it announced that it would do a 10-for-1 stock split to reduce the price of its stock and make it more investable. And at the same time, it said it would raise its quarterly cash dividend by 150% to account for the lower share price.

Why does it matter for EarlyBird families?

Nvidia’s unprecedented fortunes make it one of the fastest-growing companies in history. In fact, there might not even be a firm that can hold a candle to its growth — with the firm closing in on Apple as the world’s second most-valuable company. And thankfully, with a diversified portfolio, you haven’t missed out on any of that growth.

At EarlyBird, we take a holistic approach to investing — buying generational companies through index funds like the S&P 500 or Nasdaq 100. In both funds, Nvidia has risen to represent 6.2% and 7.8% of the portfolio. And along with its growth, both funds have been rewarded for its strong returns. As a result, your portfolio has also come along for the ride… and will continue to benefit from its growth, so long as Nvidia and firms like it continue to have an impact on the market.

What else is up?

• FAA to limit Boeing 737 MAX production: Days after the company delivered a government-mandated safety improvement plan, America’s plane regulator declined to let the aerospace giant increase production of its next-generation 737 MAX planes. That’ll delay the deliveries of 1,000+ planes ordered by airlines. Read about the decision.
• GDP grew slower than expected in Q1: Revised economic data shows that America’s gross domestic product, a measure of all of the services and goods produced in an economy, grew just 1.3% in the first quarter — compared with the 1.6% estimated by economists in their first report. GDP is often watched to determine when a country is in recession. Read more about the GDP slowdown.
• American Airlines’ growth plan backfires: A year after reducing its salesforce and axing fares on third-party websites frequented by business travelers, the company conceded that its changes backfired — resulting in the termination of the company’s chief commercial officer and a commitment to change strategies. See how American alienated business travelers.