U.S. Economic Growth Accelerates, Defying Slowdown Expectations; META and JOE earnings; How Ukrainian DIY Drones Are Taking Out Russian Tanks; Pictures from Bend, Oregon
1) The economy grew a robust 2.4% in the second quarter, well above expectations of 1.8%: U.S. Economic Growth Accelerates, Defying Slowdown Expectations. Excerpt:
Faster economic growth this spring raises the prospect of a longer postpandemic expansion despite the Federal Reserve pushing interest rates to a two-decade high.
Gross domestic product grew at a seasonally- and inflation-adjusted 2.4% annual rate in the second quarter, the Commerce Department said Thursday. That was faster than economists expected and above the 2% growth in the first three months of the year.
Consumer spending cooled but rose enough to drive overall growth alongside much stronger business investment in the second quarter. Those factors combined to buck economists' earlier expectations that a downturn would start in the middle of this year due to higher interest rates.
As inflation falls from historic highs and the labor market remains strong, solid growth adds to the prospect of a soft landing – in which inflation returns close to the Federal Reserve's 2% target without a recession.
The biggest driver of GDP growth in the second quarter was nonresidential fixed (i.e., business) investment, which I've circled in this chart:
In summary, I think the forecast for the next four quarters (the gray bars in the chart above) are much too low, as I think real GDP growth will remain strong in the 2% range.
Meanwhile, inflation continues to fall, a combination that bodes well for stocks:
2) In Wednesday's e-mail, I covered Google parent Alphabet's (GOOGL) second-quarter earnings report. Today, let's look at Meta Platforms (META), which reported earnings after the close that day...
Across Facebook, Instagram, and WhatsApp, daily and monthly users rose 7% and 6%, respectively, which translated into healthy revenue growth of 11%. Expenses only rose 10%, so operating income grew 12%. Thanks mainly to share repurchases over the past year, diluted shares outstanding shrank by 3.7%, all of which led to phenomenal earnings per share growth of 21%. And as icing on the cake, operating cash flow soared 41.9% while capital expenditures dropped 17.9%.
Meta was one of the four core stocks I recommended – along with Berkshire Hathaway (BRK-B), Amazon (AMZN), and Alphabet – when we launched our flagship newsletters, Empire Investment Report and Empire Stock Investor in April and December 2019, respectively.
Since April 2019, META is up 75% versus 56% for the S&P 500 Index. I continue to believe the stock a solid foundation for any portfolio.
Right now, you can get lifetime access to Empire Stock Investor – and lifetime access to two more of our publications – and choose to have lifetime access to Empire Investment Report by joining our Empire Junior Partnership... It's an incredible deal for getting access our research here at Empire. You can learn more about it by clicking here.
3) Speaking of strong earnings, in my July 20 e-mail I shared a Wall Street Journal article about real estate development company St. Joe (JOE) and wrote that the company:
... is perfectly positioned to benefit from this booming area of northern Florida. It has a master plan approved by all of the necessary government entities to develop more than 110,000 acres, which in coming decades will be home to 170,000 houses, 10,000 hotel rooms, and much more...
Last September, I flew down to the company's headquarters in Panama City Beach and spent eight hours over two days with the CEO Jorge Gonzalez and CFO Marek Bakun – touring the area and seeing all of the properties St. Joe is developing.
I was so impressed that I immediately recommended the stock to Empire Investment Report subscribers in our October issue. Readers who followed our advice are up 64% since then.
Our JOE position in Empire Investment Report is now up 95% after the company reported outstanding earnings after the close on Wednesday, including boosting the dividend by 20%, which caused the stock to jump 18% yesterday.
4) In a quick follow-up to yesterday's e-mail, the Wall Street Journal posted this four-minute video: How Ukrainian DIY Drones Are Taking Out Russian Tanks .
5) After our Backroads trip ended in Portland, Oregon on Tuesday, Susan and I took a four-hour bus ride to Bend, where we spent the last two days walking around the beautiful downtown, hiking, river rafting, tubing, and going to see a Tears for Fears concert...
It brought back memories of our youth (the band's biggest hit, "Shout," was released during my senior year of high school in 1985 – see this video I took of them performing it on Wednesday night).
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.