August 04, 2022
Hey now, Marketeers. Happy Thursday. Here's your newsletter.
🏝 Also, a heads-up in case you're taking off early for the weekend, starting Monday we are off for a week — no newsletter for five days. You can still email us though, anytime. We love hearing from you.
This newsletter, edited by Kate Marino, is 1,105 words, 4.5 minutes.
1 big thing: The most pro-business Supreme Court ever
The current Supreme Court is the most pro-business of all time. That's the clear message from an important new paper looking at court decisions between 1921 and 2020, Axios' Felix Salmon writes.
Why it matters: The past 70 years have seen the government broadly — not only the judiciary but also both the Democratic and Republican parties — embrace an increasingly business-friendly agenda.
- The new data shows a degree of pro-business sentiment today far exceeding even the pre-Depression highs.
State of play: When the court heard a case featuring a business on one side and a non-business on the other, it found in favor of the business 83% of the time in 2020, and 63% of the time that John Roberts has been chief justice.
- Historically, the Supreme Court has only found in favor of businesses 41% of the time.
- The paper's authors — Lee Epstein, of Washington University in St. Louis, and Mitu Gulati, of the University of Virginia — collated their findings from the Washington University Supreme Court Database.
By the numbers: The six justices with the most pro-business voting records of all time are all sitting on the court right now. Each (Justices Amy Barrett, Brett Kavanaugh, Neil Gorsuch, Samuel Alito, John Roberts and Clarence Thomas) was nominated by Republican presidents.
- Justices nominated by Democrats can also be business-friendly. Elena Kagan, for instance, is pro-business 56% of the time, placing her higher on the list than Antonin Scalia.
- The least business-friendly current justice, Sonia Sotomayor, still ranks 17th out of 57 justices. She finds in favor of business 48% of the time. The equivalent number for Earl Warren, who was chief justice during the more worker-friendly era of 1953 to 1969, is just 25%.
How it works: To some extent, the justices can be seen to be following the lead of the government.
- When the government takes sides in these cases, it usually takes the business's side. The Office of the Solicitor General opposed the business just 20% of the time while Roberts was chief justice. That's down from a high of 58% under the Vinson court of 1946 to 1953.
Between the lines: While high-profile cases like Citizens United or Hobby Lobby garner most of the news coverage, the Roberts court has been particularly active when it comes to upholding arbitration clauses (in favor of corporations) and rejecting class actions in the securities industry (which companies invariably oppose).
- Such quotidian rulings often do more to help the broad mass of U.S. businesses than the politically relevant headline-grabbers do.
The bottom line: Expect the pro-business stance to continue for the foreseeable future, especially now that Republican-nominated justices constitute a 6-3 majority on the court.
2. Catch up quick
3. Goodbye, remote work arbitrage
The remote work arbitrage ain't what it used to be. I'm talking about the pandemic-fueled phenomenon of white-collar workers, suddenly free to work from home, leveraging their higher salaries to buy homes in cheaper areas, Emily writes.
The big picture: All those remote workers drove up home prices in the formerly inexpensive areas, and made them more expensive. (Rents surged, too.)
- In these "pandemic boomtowns," like Boise, Idaho, and Austin, Texas, homebuyer incomes soared over the past two years — and home prices went up right along with them, according to a new Redfin analysis of federal mortgage lending data shared exclusively with Axios.
- In Boise, the poster child of pandemic real estate, the median income for homebuyers in 2021 was $98,000 — a 24% increase from two years prior. Meanwhile, home prices surged 53% in that time period.
- In Austin, it was $137,000 — up 19%.
On the flip side: Homebuyer incomes fell 1.5% in San Francisco, as those workers fled for cheaper environs.
- San Francisco and Baton Rouge, Louisiana, are the only major metro areas where home prices fell in the two years Redfin examined.
- But maybe don't pack your bags for SF unless you're a millionaire ... the city's median home price dropped just 0.5% to $1.58 million.
What's next: These booms aren't busting, per se, but they're slowing down as higher mortgage rates and higher prices crush demand.
- Migration into Austin slowed significantly in 2022, Redfin notes, because out-of-town buyers pushed prices up.
4. Earnings inflection
Profits remain strong, but America's publicly traded companies seem less bullish about the future, Matt writes.
Why it matters: In theory, stock prices depend — at least in part — on expectations for what companies will earn over time.
- We're more than halfway through earnings season when publicly traded companies report how they did, and — more importantly — send signals about how they'll do over the next year or so.
So how'd they do? Better than expected.
- Of course, they almost always do better than expected, which seems more a matter of executives' ability to under-promise rather than consistently over-deliver.
- With more than 350 of S&P 500 companies' second-quarter results in the books, about 77% reported profits higher than Wall Street analysts expected. (Over the past four quarters, roughly 81% of companies beat expectations, according to data provider Refinitiv.)
Yes, but: There are some clouds on the horizon. Since earning season began, analysts started trimming forecasts for the profits they expect companies to earn over the next year.
- That means analysts aren't getting an especially bullish vibe from what executives are saying.
- Expectations for S&P 500 earnings per share over the next 12 months — a core measure of profitability for stock investors — have fallen roughly 1.3% from its late-June peak to $235 a share.
The bottom line: This may just be a momentary wobble. But it's something to watch amid worries about an economic slowdown.
5. Houses just got a tad more affordable
If you're in the market for a house — maybe hurry to get your loan, Emily writes.
- Mortgage rates are still high, but the rate on the 30-year saw its steepest weekly drop since March 2020 this past week hitting 5.43%, according to data from the Mortgage Bankers Association.
- The steepest overall drop happened during the Great Recession.
What's up: Markets got a little cocky — believing the Federal Reserve's steep rate hike days were waning, as our friends at Axios Macro wrote.
- That sent Treasuries lower — and mortgages followed.
But, but, but: The respite may not last.
- Mortgage rates will keep bouncing around for a while, said Mike Fratantoni, chief economist at the MBA. "I think we're going to continue to be in this unsettled condition until we get a clear move downward on inflation."
⚾️ 1 thing Matt loves: Vin Scully's classic call describing a hobbled Kirk Gibson's pinch-hit, walk-off home run to win the first game of the 1988 World Series. It's perfect. Hollywood's hokiest writers couldn't have crafted the setup any better.
- I watched this as a 10-year-old snot, on a little black-and-white TV that I negotiated to bring upstairs to my room to watch the California-only series. It was probably the most exciting sports moment I've ever seen, made better by Scully's decision to simply go silent in favor of the roar of the crowd after the ball sailed into the right-field stands.
- The legendary Scully, a Dodgers broadcaster for 67 years, died on Tuesday night at the age of 94.
⚡️ A big thank you to Mickey Meece for copy editing Markets today, and every day.