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Electric Ferrari

The Bureau of Labor Statistics released job data this week and the unemployment rate ticked up to 4%.  It is the first time since January 2022 that unemployment has reached this level, albeit 4% is still historically low.  Wage growth came in higher than expected at 4.1% as did the nonfarm payrolls number which increased by 272,000 for the month.  All this means that the odds of the Fed cutting rates in September according to the CME Group is now around 56%.  Earlier in the week, the Fed funds futures market was at a 68% likelihood that a rate cut would take place in September.

The National Association of Realtors came out with housing data this week and despite higher mortgage rates, the median price of an existing home registered an all-time high in May of $419,300, which is an increase of 5.8% year-over-year.  For context, the median price of an existing house was $270,400 in February 2020 when interest rates were hovering around the 3.5% range as opposed to today’s nearly 7% mortgage rate.  What’s more, is that approximately 28% of existing homes that were bought in May were cash transactions.  Even though the pace of home sales has declined over the past three months, the sale of high-priced homes has increased versus mid-priced homes, which has driven up the median price.

Earlier in the week, Nvidia briefly eclipsed Microsoft as the world’s largest company by market capitalization.  The company’s stock has continued its meteoric rise and is now worth over $3 trillion from a market value perspective.  Just five years ago, Nvidia wasn’t even amongst the largest 20 companies as measured by market cap.  Nvidia’s ascent to the top marked the first time since 2019 that a company other than Microsoft or Apple has been #1 on the list of most valuable companies.

The Internal Revenue Service announced that it will no longer process claims that were filed since mid-September 2023 as part of the Employee Retention Credit which was the brainchild of Congress during the pandemic.  The program was created to urge employers to maintain their personnel during the height of Coronavirus and it allowed for businesses to claim $21,000 for each employee during 2021.  While the merits of the program were genuine, it opened itself up to a bevy of issues including cost miscalculations along with a host of fraudulent claims.  The total cost of the program has swelled to $230 billion, which is roughly triple the initial estimate.  Additionally, the IRS has initiated hundreds of criminal cases concerning fraudulent claims that were filed totaling over $6 billion.  The IRS has permitted businesses to rescind claims that were submitted or send back a portion of the money that they have already received.  To date, more than $1 billion in tax credits have been returned and more than $500 million in tax credit requests have been withdrawn.

According to Reuters, Ferrari has decided to enter the electric vehicle market with its initial offering set to be priced at more than $500,000.  This is an interesting move considering that demand for EVs has waned and prices have begun to come down.  Additionally, several electric car manufacturers have declared bankruptcy over the past couple of years demonstrating the challenges within this genre of the auto industry.  Of course, Ferrari has a different target market than the average consumer that purchases an electric car, or any car for that matter, but it’s a new strategy for the Italian automaker.  Ferrari is reportedly opening a new manufacturing facility for this endeavor and is projecting its electric vehicle to be available in the latter half of 2025.  I wonder how many Ferraris you will see plugged into the electric charging station at your local grocery store.

In closing, I came across a statistic demonstrating consumers changing sentiment concerning automobiles in the United States.  Through May of this year, 80.8% of vehicle sales in the U.S. have been pickup trucks, minivans, sport utility vehicles, or some type of crossover vehicle.  The other 19.2% have been cars.  To contrast this, in 1980 only 19.8% of overall sales consisted of the so-called light truck category versus 80.2% that were cars.  Presumably, some of this can be attributed to the advent of the minivan the proliferation of SUVs and trucks, and the convenience that these types of larger vehicles offer for transporting kids, groceries, and the like.  I guess we’ll just have to wait a little longer for the wood-paneled station wagon to make a comeback.

 Matt Savoti, MBA