How the stock market explains why I’m not moving out of my apartment that just got flooded — again! 🚣
Plus a charted review of the macro crosscurrents 🔀
📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 6,427.02 on Thursday and a closing high of 6,389.77 on Monday. For the week, the index shed 2.4%. It’s now up 5.9% year-to-date. For more on the market moves, read: 15 charts to consider with the stock market at record highs 📊📈
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My vacation last week was interrupted by a phone call from the building manager of my apartment.
My living room and kitchen were flooded. Apparently, my neighbor in the unit above mine left their kitchen sink running unsupervised. Whoops.
This is not the kind of thing you want to hear, especially when you’re sitting by a lake in New Hampshire, 300 miles away.
Some of you might remember that I experienced a similar disaster exactly two years ago. The cause was different at that time, and many more units were affected. But yes, my apartment has now been flooded twice.
Many people told me this week that it might be time to move out. That was my first thought as well.
But after thinking about it, I concluded that this second flood wasn’t a good enough reason for me to seek another place to lay my head.
What would I gain and lose by moving? 🏡
There’s almost no way to eliminate the risk of your home and property experiencing some serious water damage at some point. In fact, it happened in my family’s basement in Louisville when I was in high school. And it happened in my Midtown Manhattan studio in 2010.
How frustrating would it be if I moved because of this incident, only to get flooded again in my new place? When you ask around, you learn that it’s the case that most apartment buildings regularly deal with floods and water damage.
Importantly, I’ve gotten a ton of value from my apartment over the past six years. I’m in a high-rise in Downtown Brooklyn with breathtaking views. The unit is rent-stabilized. I’m within walking distance of a Whole Foods, Trader Joe’s, Stop & Shop, two Targets, Uniqlo, Alamo Drafthouse, CVS, the Barclays Center, and a lot of terrific independent restaurants and shops. Importantly, I’m within three blocks of the 2, 3, 4, 5, A, C, G, B, D, N, Q, R, and LIRR trains. (New Yorkers will appreciate the value of having close access to that many express trains.)
And all things considered, I have a pretty great landlord. My building is staffed 24/7. As soon as the flood was reported, the remediation process began. Professional movers carefully packed up my stuff and moved it into storage. My rugs got shipped out for a commercial cleaning. Water damage specialists came in like a SWAT team. Mind you, this all happened within hours while I was still in New Hampshire. Right now, the building staff is in there resetting the unit: replacing the affected drywall, resurfacing the floors, and repainting the walls. If things continue on schedule, I’ll be back in my unit after about eight days of inconvenience.
This is about how long it took last time. Sure, eight unplanned days away from home is not pleasant. But I’ve heard enough nightmare stories about how this type of damage can drag on for weeks or months because the landlord sucks. And that’s before dealing with costs and damages.
If things unfold like last time, I’ll be made financially whole by the end of the month. And I’ll walk away with what’s effectively a new apartment with fresh, dry rugs.
Everyone’s got nightmare stories with their homes and their landlords. If my biggest headache is being put out for a week every couple of years, then that’s actually not too bad.
Problems are unavoidable. It’s your preparation and response to those problems when they arise that matter.
In the stock market, you have to take the bad with the good 📈
The stock market is a terrific place to build wealth.
But investing in the stock market can be an unpleasant process with many unplanned, yet frequent setbacks. Here are some highlights:
This is all in the context of the stock market usually going up.
“Despite healthy gains, the S&P 500 has seen more than 30 pullbacks of 5% or more since 2009,” Truist’s Keith Lerner observed on Friday.
The longer you’re in the market, the more inconveniences and disasters you’ll experience along the way. So you should always keep your stock market seatbelts fastened, and be prepared for those unpredictable downturns.
But also, the more you extend your time horizon, the more likely you’ll generate a healthy positive return.
One of the bigger mistakes you can make as an investor is to walk away because of something bad that was historically and statistically likely to happen.
That’s just investing — and life!
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Related from TKer:
TKer featured in Yahoo Finance Chartbook! 📊
The editors at Yahoo Finance invited me to submit a chart for their 2025 chartbook. My submission will look familiar to TKer subscribers.
Here’s what I said: "Over 6-month, 1-year, 2-year, 3-year, and 5-year periods, the S&P 500 on average has generated positive returns. But as this data from JPMorgan Asset Management shows, investing specifically at all-time highs has actually generated higher average returns over these time horizons."
Check out the full chartbook at Yahoo Finance!
Also, check out my submission for last year’s chartbook!
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
🏛️ Fed holds rates, says uncertainty has diminished but remains elevated. In its monetary policy announcement on Wednesday, the Federal Reserve left its target for the federal funds rate unchanged at a range of 4.25% to 4.5%.
From the Fed’s policy statement: “Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.”
For more on Fed policy, read: 'How many times will the Fed cut rates?' is not the right question for stock market investors 🔪
📉 The labor market continues to add jobs — but it’s cooling. According to the BLS’s Employment Situation report released Friday, U.S. employers added just 73,000 jobs in July. The May and June tallies were revised down to 19,000 and 14,000, respectively. The report reflected the 55th straight month of gains, reaffirming an economy with growing demand for labor. But that demand is clearly cooling.
Total payroll employment is at a record 159.5 million jobs, up 7.2 million from the prepandemic high.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — rose to 4.2% during the month. The metric continues to hover near 50-year lows.
While the major metrics continue to reflect job growth and low unemployment, the labor market isn’t as hot as it used to be.
For more on the labor market, read: The labor market is cooling 💼 and 9 once-hot economic charts that cooled 📉
💸 Wage growth could be lower. Average hourly earnings rose by 0.3% month-over-month in July, up from the 0.2% pace in June. On a year-over-year basis, July’s wages were up 3.9%.
💼 Job openings tick lower. According to the BLS’s Job Openings and Labor Turnover Survey, employers had 7.44 million job openings in June, down from 7.71 million in May.
During the period, there were 7.02 million unemployed people — meaning there were 1.06 job openings per unemployed person. This continues to be one of the more obvious signs of excess demand for labor. However, this metric has returned to prepandemic levels.
For more on job openings, read: Were there really twice as many job openings as unemployed people? 🤨 and Revisiting the key chart to watch amid the Fed's war on inflation 📈
👍 Layoffs remain depressed, hiring remains firm. Employers laid off 1.60 million people in June. While challenging for the people affected, this figure represents just 1.0% of total employment. This metric remains below prepandemic levels.
For more on layoffs, read: Every macro layoffs discussion should start with this key metric 📊
Hiring activity continues to be much higher than layoff activity. During the month, employers hired 5.20 million people.
That said, the hiring rate — the number of hires as a percentage of the employed workforce — has been trending lower, which could be a sign of trouble to come in the labor market.
For more on why this metric matters, read: The hiring situation 🧩
🤔 People are quitting less. In June, 3.14 million workers quit their jobs. This represents 2.0% of the workforce. While the rate is above recent lows, it continues to trend below prepandemic levels.
A low quits rate could mean a number of things: more people are satisfied with their job, workers have fewer outside job opportunities, wage growth is cooling, or productivity will improve as fewer people are entering new, unfamiliar roles.
For more, read: Promising signs for productivity ⚙️
💰 Job switchers still get better pay. According to ADP, which tracks private payrolls and employs a different methodology than the BLS, annual pay in July for people who changed jobs was up 7.4% from a year ago. For those who stayed at their job, pay was up 4.4%.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed's war on inflation 📈
💼 New unemployment claims remain low — but total ongoing claims are a bit elevated. Initial claims for unemployment benefits rose to 218,000 during the week ending July 26, up from 217,000 the week prior. This metric remains at levels historically associated with economic growth.
Insured unemployment, which captures those who continue to claim unemployment benefits, rose to 1.946 million during the week ending July 19. This metric is near its highest level since November 2021.
Steady initial claims confirm that layoff activity remains low. Rising continued claims confirm hiring activity is weakening. This dynamic warrants close attention, as it reflects a deteriorating labor market.
For more context, read: The hiring situation 🧩 and The labor market is cooling 💼
👍 Consumer confidence ticks higher. The Conference Board’s Consumer Confidence Index ticked 2 points higher in July. From the firm’s Stephanie Guichard: “In July, pessimism about the future receded somewhat, leading to a slight improvement in overall confidence. All three components of the Expectation Index improved, with consumers feeling less pessimistic about future business conditions and employment, and more optimistic about future income. Meanwhile, consumers’ assessment of the present situation was little changed. They were a tad more positive about current business conditions in July than in June.”
The University of Michigan’s July Surveys of Consumers echoed this modest improvement in sentiment: “A rise in sentiment among stock holders was partially offset by a decline among consumers who do not own stocks. Perceptions of this month’s economic developments were similar across the political spectrum; Republicans, Independents, and Democrats all saw some minor increases in sentiment this month. Although recent trends show sentiment moving in a favorable direction, sentiment remains broadly negative. Consumers are hardly optimistic about the trajectory of the economy, even as their worries have softened since April 2025.“
Relatively weak consumer sentiment readings appear to contradict relatively strong consumer spending data. For more on this contradiction, read: What consumers do > what consumers say 🙊 and We're taking that vacation whether we like it or not 🛫
👎 Consumers feel worse about the labor market. From The Conference Board’s July Consumer Confidence survey: “Consumers’ views of the labor market cooled somewhat in July. 30.2% of consumers said jobs were ‘plentiful,’ up from 29.4% in June. However, 18.9% of consumers said jobs were ‘hard to get,’ up from 17.2%.“
Many economists monitor the spread between these two percentages (a.k.a., the labor market differential), and it’s been reflecting a cooling labor market.
Similarly, the University of Michigan’s July Surveys of Consumers reflected poor sentiment toward the labor market.
For more on the labor market, read: The labor market is cooling 💼
🎈 Inflation heats up. The personal consumption expenditures (PCE) price index in June was up 2.6% from a year ago. The core PCE price index — the Federal Reserve’s preferred measure of inflation — was up 2.8% during the month, up marginally from May’s rate. While it’s above the Fed’s 2% target, it remains near its lowest level since March 2021.
On a month-over-month basis, the core PCE price index was up 0.1%. If you annualized the rolling three-month and six-month figures, the core PCE price index was up 2.6% and 3.2%, respectively.
For more on inflation and the outlook for monetary policy, read: The Fed closes a chapter with a rate cut ✂️ and The other side of the Fed's inflation 'mistake' 🧐
⛽️ Gas prices tick lower. From AAA: “The summer driving season has one month to go, and so far, so good for drivers filling up their tanks. This past week, the national average for a gallon of regular dropped two cents to $3.14. July comes to an end with a monthly average of $3.15, the same as it was in July 2021, the last time summer gas prices were this low. Crude oil prices have gone up slightly, as gas demand has also risen, but not enough to drive up prices at the pump.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
🛍️ Consumer spending ticks higher. According to BEA data, personal consumption expenditures increased 0.2% month over month in June to an annual rate of $20.69 trillion.
Adjusted for inflation, real personal consumption expenditures increased by 0.1%.
For more on consumer spending, read: Americans have money, and they're spending it 🛍️ and 9 once-hot economic charts that cooled 📉
💳 Card spending data is holding up. From JPM: “As of 22 Jul 2025, our Chase Consumer Card spending data (unadjusted) was 1.2% above the same day last year. Based on the Chase Consumer Card data through 22 Jul 2025, our estimate of the US Census July control measure of retail sales m/m is 0.69%.“
From BofA: “Total card spending per HH was up 0.9% y/y in the week ending Jul 26, according to BAC aggregated credit & debit card data. Relative to last week, in our categories, department stores, entertainment & transit saw the biggest decline in y/y spending. Meanwhile, online electronics, furniture & gas saw modest gains relative to last week, partly due to tariff buy ahead.”
For more on consumer spending, read: Americans have money, and they're spending it 🛍️
🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.72% from 6.74% last week. From Freddie Mac: “The 30-year fixed-rate mortgage showed little movement, remaining within the same narrow range for the fourth consecutive week. Continued economic growth, along with moderating house prices and rising inventory, bodes well for buyers and sellers alike.”
There are 147.9 million housing units in the U.S., of which 86.1 million are owner-occupied and about 39% are mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏚 Home sales fall. Sales of previously owned homes declined by 2.7% in June to an annualized rate of 3.93 million units. From NAR chief economist Lawrence Yun: “High mortgage rates are causing home sales to remain stuck at cyclical lows. If the average mortgage rates were to decline to 6%, our scenario analysis suggests an additional 160,000 renters becoming first-time homeowners and elevated sales activity from existing homeowners.”
Prices for previously owned homes increased from last month’s levels and year-ago levels. From the NAR: “The median existing-home sales price for all housing types in June was $435,300, up 2.0% from one year ago ($426,900) – the highest recorded for existing homes.”
From Yun: “Multiple years of undersupply are driving the record-high home price. Home construction continues to lag population growth. This is holding back first-time home buyers from entering the market. More supply is needed to increase the share of first-time homebuyers in the coming years even though some markets appear to have a temporary oversupply at the moment.“
🏘️ New home sales tick higher. Sales of newly built homes increased 0.6% in June to an annualized rate of 627,000 units.
🏢 Offices remain relatively empty. From Kastle Systems: “Peak day office occupancy was 64.9% again on Tuesday last week, matching the post-pandemic single-day record high set the previous week. New York and Chicago reached new record highs on Tuesday, rising 1.1 points to 70.8% and seven-tenths of a point to 76.7%, respectively. The average low was 35.1% on Friday, down half a point from the previous week.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
👍 Activity survey improves. From S&P Global’s July U.S. PMI: “The flash PMI data indicated that the US economy grew at a sharply increased rate at the start of the third quarter, consistent with the economy expanding at a 2.3% annualized rate. That represents a marked improvement on the 1.3% rate signalled by the survey for the second quarter. Whether this growth can be sustained is by no means assured. Growth was worryingly uneven and overly reliant on the services economy as manufacturing business conditions deteriorated for the first time this year, the latter linked to a fading boost from tariff front-running.”
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on this, read: What businesses do > what businesses say 🙊
🔨 Construction spending ticks lower. Construction spending decreased 0.4% to an annual rate of $2.136 trillion in June.
🐢 GDP growth picked up in Q2, but underlying growth cooled. U.S. GDP grew at a 3.0% rate in Q2, reversing the -0.5% rate in Q1.
This change is almost entirely attributable to imports and investment falling in Q2 after spiking in Q1. The former quarter’s imports and investment reflected consumers and businesses stockpiling goods ahead of expected tariffs.
Because the GDP calculation includes several quirks, economists often point to “real final sales to private domestic purchasers” to gain a better understanding of the economy's underlying health. Sometimes referred to as “core” GDP, this metric excludes net exports, inventory adjustments, and government spending. That metric grew at a slow 1.2% rate in Q2, down from the 1.9% rate in Q1.
For more on GDP, read: What does the negative GDP report really tell us? 🤔
🇺🇸 Most U.S. states are still growing. From the Philly Fed’s June State Coincident Indexes report: "Over the past three months, the indexes increased in 40 states, decreased in seven states, and remained stable in three, for a three-month diffusion index of 66. Additionally, in the past month, the indexes increased in 41 states, decreased in four states, and remained stable in five, for a one-month diffusion index of 74.”
📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 2.1% rate in Q3.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and You call this a recession? 🤨
Putting it all together 📋
🚨 The Trump administration’s pursuit of tariffs threatens to disrupt global trade, with significant implications for the U.S. economy, corporate earnings, and the stock market. Until we get more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, while cooling, also remains positive, and the Federal Reserve — having resolved the inflation crisis — shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings and core capex orders have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Economy ≠ Stock Market 🤷♂️
The stock market sorta reflects the economy. But also, not really. The S&P 500 is more about the manufacture and sale of goods. U.S. GDP is more about providing services.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% beat the index in the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 24% of the stocks in the S&P 500 outperformed the average stock’s return from 2000 to 2022. Over this period, the average return on an S&P 500 stock was 390%, while the median stock rose by just 93%.
