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The U.S. Economy is Fine.

The U.S. economy is doing fine. Gross domestic product (GDP), which measures how the economy is growing (or declining), came in at 3.3% in 4Q 2023 compared to 4.9% in 3Q 2023. This is still higher than the historical average range of 2% to 3%.

Consumption growth remained steady at 2.8% (3Q 2023: 3.1%), while exports were higher at 6.3% (3Q 2023: 5.4%). If we go to the labour market side, the unemployment rate is still quite low at 3.7% in January 2024, which has come down from 3.8% in October 2023.

All in all, there is nothing yet to show that the U.S. is going into a recession for now.

Sentiments are Improving.

Moving forward, both the manufacturing and services purchasing manager’s index (PMI) have increased. PMI measures companies’ confidence (above 50 means positive and vice versa).

Manufacturing PMI increased to 49.1 points in January 2024 (December 2023: 47.1), while services PMI rose to 53.4 from 50.5 over the same period. This represents an improvement in U.S. companies’ sentiments on the ground. But more might still be in store. The highest levels for both manufacturing and services PMI were 61.1 (September 2021) and 69.1 (November 2021) respectively.

So, while they are still positive, they haven’t recovered to their best levels.

Inflation is Coming Down.

The boogeyman continues to be chained up. Inflation came down to 3.1% in January 2024 from 3.4% in December 2023. But markets seemed to have expected it to be lower at 2.9%. And that’s why some investors are nervous about the stronger-than-projected inflation here.

But that shouldn’t be a cause of concern. Inflation is still coming down, and it’s getting closer to the 2.0% to 2.5% range that the Federal Reserve (Fed) is targeting.

What does this mean for interest rates? For now, I think the Fed will still keep it at the current rates until inflation gets lower to the desired range. From there, it might decrease interest rates. Some investors are already factoring in a rate cut in 2H 2024 as the recession might be coming by then.

Positive for U.S. Stock Market.

What do all these developments for February 2024 mean? They are probably positive for the U.S. stock markets. The S&P 500 has risen by 4.7% for February 2024. This might continue for the next few months. If you have missed it, I projected that the S&P 500 would be higher for March, April and May 2024.

… and Some Super Results for AI and Tech Stocks

Company in Focus (February Performance)	Analysts’ Investment Thesis	What We Think You Need to Know
Nvidia (+25%) Designs and manufactures graphics processors, chips, and multimedia software.Analysts’ Projections: US$800	Toshiya Hari (Goldman Sachs) Robust demand for AI servers and improvement in GPU supplyRevenue growth expected in 2H 2024 supported by investments in AI infrastructure.	Latest quarterly earnings came out stronger-than-expected at US$5.16 per share (Market: US$4.64).The AI trend is going strong. Statista projects the global AI market to grow by 15.9% annually to reach US$739 bn by 2030.Volatile stock. Share prices have swung wildly in the past few months.
Super Micro (+64%): Manufactures and provides servers and storage systems for data centres, cloud computing, AI and 5GAnalysts’ Projections: US$745	George Wang (Barclays) AI demand outstripping supply. Support $25 – $30 bn revenue over the next few years.Potential heat dissipation upgrade from air to liquid cooling could transform data centre design.	Share prices have grown by 10 times from $82 in Dec 2022 to $866 in Feb 2024. Expensive. High valuation at a price-to-earnings ratio of 63 times. Investors might have missed the timing to enter considering the high rise in share price this year (+205%).
Micro Strategy (+104%): Designs, develops, markets and sells software platforms.Analysts’ Projections: US$794	Mark Palmer (Benchmark) Uptrend in the Bitcoin market due to approval of several Bitcoin ETFs.Halving of Bitcoin is expected to be positive, with the projection of a Bitcoin price of $125k by 2025.	Very hard to project earnings as actual earnings always are a surprise to analyst projections.Valuations are ok with a PER of 32 times. It’s not as crazy as other AI-related companies.Its AI analytics could prove to be beneficial to the company’s prospects.
Meta Platforms (+26%) Provides social media platform services.Analysts’ Projections: US$517	Ronald Josey (Citigroup) Quarterly financial performance exceeded expectations.Increasing engagement and broad-based advertising.Increasing investments in servers including AI and non-AI hardware in data centres.	Meta’s 2000s business model on Facebook, Instagram and WhatsApp is still going strong.However, its venture into the metaverse needs to be monitored closely considering the high losses in this division.

China Remains Weak at This Point …

GDP was Fine, Just Not Spectacular

China’s 4Q 2023 gross domestic product (GDP) came out at 5.2%, which translated to a full-year 2023 growth of 5.2%. This pretty much was in line with the government’s target of ‘around 5.0%’. This was higher than the 3.0% recorded in 2022 when several lockdown restrictions crippled the Chinese economy.

The government has not officially declared a government target yet. But the International Monetary Fund expects 2024 to be a weaker year with a projected growth of 4.6%. World Bank also thinks so with a projection of 4.5%.

For you as an investor, you should take this as a sign of weakness in the Chinese economy.

But Deflation is a Concern Now

No joke. But China has experienced deflation for the past 5 months now. Its latest reading of -0.8% is certainly concerning and has sparked off talks of a Japan-like Lost Decade. If you don’t understand the reference here, Japan underwent a long period of slow economic growth and deflation from 1993 onwards until the late 2010s.

Investors are worried that this might be the start of something similar also with Chinese consumer sentiments being weak. Meanwhile, the property market is also in a deep downturn. Both these trends did happen in Japan.

With Government Support Not Enough

I have previously written about this before. Chinese government support whether fiscal or monetary is just not enough. It’s too slow and conservative in cutting interest rates. And it’s spending all of its money on the wrong things in building infrastructure and properties that Chinese people don’t need in the short term.

It should just aggressively expand its cash transfers to encourage Chinese consumers to spend. That’s what the Chinese economy sorely needs now.

While Long-Term Reforms Are Lacking

I do not doubt the capacity of the Chinese government and bureaucracy to implement reforms. But they are just the wrong ones. The recent experiences of clamping down on the tuition, technology and gaming industries were just misguided and paint a deep picture of distrust of its companies.

President Xi Jinping’s ‘guidance’ and ‘philosophy’ severely lack details on how regulation should be done. And that has decreased investors, consumers and companies’ confidence in the Chinese economy.

… While EV and AI-Related Stocks Seem to Have Done Well

Company in Focus (February Performance)	Analysts’ Investment Thesis	What We Think You Need to Know
Li Auto (+66%) Designs, produces and sells electric vehicles.Analysts’ Target Price: US$55.5 (+21%)	Tim Hsiao (Morgan Stanley) Confident in the new model, MEGA, in driving sales and has the highest profit margins.Li Auto’s shift to expanding the 4S store network could drive higher traffic and efficiency.Consolidation in the EV premium market is positive for Li Auto.	Consistently exceeds analyst expectations in earnings. Beat expectations by 60% for 4Q 2023.PER at 28 times. Fair valuation considering that the EV trend is riding high currently.Have weathered the price war in China pretty well and is profitable now.
Xpeng (+13%) Designs, produces and sells electric vehicles.Analysts’ Target Price: US$14.19 (+51%)	Edison Yu (Deutsche Bank) Strong track record in delivering EVs to customers.Target of 250,000 EVs in 2024 compared to 147,000 in 2023.Expectations of higher profit margins due to lower battery cost.	Share price has declined by 30% since the beginning of 2024. Valuations are expensive, with a price-to-book ratio of 2.3 times compared to the industry’s average of 1.4 times.Xpeng is still unprofitable, making in 2023.
SMIC (+19%) Designs, produces and sells electrical and electronic semiconductors and chips.Analysts’ Target Price: US$17.82 (+4.5%)	IJIWEI (Barclays) Chip manufacturing capacity to double within the next 5 years.Focus on legacy chips is positive considering its wide applications in many products.	AI trend will drive market demand for the next 5 years.However, there is currently an oversupply of such products, depressing prices.
Meituan (+29%) Technology company providing food delivery, retail, hotel and travel services.Analysts’ Target Price: US$88.40 (+10.8%)	Ronald Keung (Goldman Sachs) Oversold position by investors.Food delivery business volume has grown threefold over the past five years.Profitability has surged by 20 times.	The pace of economic activity in China remains precarious in 2024.Much remains to be seen whether the overall economic activity can support Meituan’s business.

What We Get Wrong About Progress …

It was dead at night. A cold one. A cloudy one. I lie awake, meditating on the anxieties of modern life, and our pursuit of progress. To me, progress was a concept introduced since young, since I started schooling. And back then, it was simple. You study. You understand. You get better grades. And the score will determine the progress that you have. A better score indicates you are progressing. A worse score means you have gone backwards.

For 16 years of my life, that has been how progress was defined for me. It was straightforward. I just had to study harder if I wasn’t progressing. And that was often enough. Going into the working life, I took that mentality with me, thinking working harder and harder would mean progression in my career and life. And higher pay and promotions indicated how much progress I have made.

To me, progress was linear. It’s constantly climbing that hill up. And everyone around me was doing it. But as I worked more and more, the needs of wanting more became unbearable. I find myself thinking of what’s next, and what can I work on, and the next moment, I am in a corner, fearing that the world will end. Anxiety and panic attacks have become very common by then.

Taking a step back, I thought more about what it means to ‘progress’ in life. Is it earning higher pay? Getting more recognition from peers and bosses? Buying a bigger house or car? The more I thought about it, the more it became apparent to me. This was progress towards an ego. An ever-growing ego that will never be satisfied by anything. A greed that knows no bounds and which, will kill me in the long term.

I realised the nature and meaning of progression. It isn’t only defined by results. Let’s say that you are exercising and you did 50 push-ups today. The next day, you only did 30 push-ups. By my old me, that isn’t progression. That’s regressing. And when that happens, I will beat myself up and think that I am such a loser and failure to regress this way.

But the thing is I did 80 push-ups. Why doesn’t that matter? That’s when I realized that I had got it all wrong about progress. We have been so conditioned to do ‘more’ that we perceived any results that fell short of what we did before, as an act of failure or regression. And that to me, became more unreasonable and irrational the more I thought about it.

… And Why We Need to Rethink It

I wanted to rethink what it means to progress in life. And I realised that I needed to include other things in life. I asked myself the question, “If I were to die tomorrow, what would I do today?”. And it became clear. The last thing I wanted to do was to ‘progress’ by getting more money or material wealth. I wanted to spend time with my family, do my hobbies, and pursue my passion. Even if it’s just one day, I would do all those things without hesitation.

The path forward became clearer. Progress became more non-linear and not straightforward. I included things like having lunch and dinner with parents, wife, nephews, nieces, relatives and friends, being healthy and fit, and writing articles every day. I quit my corporate job. Mind you, it paid quite well but I realized working so hard for someone else is meaningless. And pleasing people I don’t like is certainly not bearable anymore.

It will be too late when I am in my 50s and 60s after retirement, thinking about the things I want to do and what I value in life. There’s no time such as now to get started. If you wait and tell yourself there is a ‘right’ time, you will never do it. That’s what I was afraid of. So, I took the plunge.

When I took the plunge, these things were core to my progress in life. Family time, sports & workout and pursuing writing as a career. In the morning, I will eat breakfast with my wife. 3 times a week, I will go over to my parent’s house and I will help my mother to send Dad to physiotherapy. And then, I will eat lunch with my mum, aunts and uncles. Furthermore, I will pick my nieces up from kindergarten if my brother is busy and spend time with them. And, I go swimming with them too at the weekends.

For hobbies in sports and workouts, I go for badminton 3 to 4 times a week. Before this, I always couldn’t make it due to work commitments stretching into the deep night. My aim now is to be healthy and fit, because I want to spend more time with family and friends. Every two days, I will do push-ups, sit-ups, leg lifts, squats, weights and cycling. All of these felt great. And I had the energy to pursue my passion in writing.

Here I am now, writing for a living. And I only earn a fraction of what I did in my corporate job. But I have progressed in life. I am spending more time with family and friends. I am the healthiest and fittest I have ever been in my life. And I like writing. The only problem I have is my income is not enough. Other than that, I love the way of life I have now and the progress.