False Positive

By Matthew Gutierrez, Shawn O'Malley, and Weronika Pycek · September 07, 2023

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It’s pretty incredible that the stock market has predicted nine of the past five recessions, huh? ??

That’s a joke from the eminent economist and MIT professor Paul Samuelson way back in 1966.

Since the quip was decades ago, it can be updated to something like the stock market has predicted 15 of the last eight recessions (in the U.S.).

?? The stock market isn’t the economy, and bear markets aren’t a perfect indicator of recession — let’s hope we can add last year’s bear market to the list of selloffs that didn’t anticipate a recession.

— Weronika, Shawn, and Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Inside the rising cost of health insurance
• What closing daycares could mean for the workforce
• New accounting rules for Bitcoin make it easier to own (for companies)

All this, and more, in just 5 minutes to read.

POP QUIZ

What’s the largest stock market selloff in history that didn’t precede a recession? (Read to the end to find out!)

CHART OF THE DAY

IN THE NEWS

??Health Insurance Costs Take Biggest Jump in Years (WSJ)

Do you have employer-sponsored health insurance? You might have noticed the rising cost. If you haven’t, your employer probably has.

Surging costs: Health insurance costs are rising at their highest clip in years and could continue climbing by about 6.5% in the next year, according to major benefits consulting firms.

• The boost could add to the price tag for employers already paying an average of $14,600 annually per employee. For companies with hundreds or thousands of employees, you can see how those health costs can increase quickly.

Health insurance is among American companies' biggest expenses and can drain peoples’ finances.

• Factors for the rising costs include hospitals’ higher labor costs, plus heavy demand for new and expensive diabetes and obesity drugs as the American population ages and obesity rates rise.

• Health insurance increases are expected to keep impacting businesses, small and large, nationwide. Fortunately for some employees, employers are expected to absorb many cost increases amid a tight labor market with near-record-low unemployment.
• Simply, companies want to maintain attractive benefits to compete for workers amid labor shortages.

Cost of business: Along with job responsibilities and compensation, health insurance, paid time off, and hybrid/remote abilities have become key factors in employees changing jobs.

One executive spoke for many when he told the Wall Street Journal that he didn’t want to increase the burden on his employees, especially as competitors have tried to poach them away. Still, he might soon be forced to increase workers’ out-of-pocket costs for care.

• On July 1, his firm was hit with a 24% health coverage increase. It’s a very difficult situation,” he said.

Why it matters:

If it feels like everything is getting more expensive, even as the headline inflation numbers cool off, you’re not wrong.

Rent, groceries, daycare, hotels — it’s all higher in the last couple of years. Health insurance is (more or less) another part of the trend. However, a bigger-picture theme could drive insurance costs higher in the next decade as Baby Boomers — Americans born between 1946 and 1964 — grow older and require more medical needs.

Domino effect: Health coverage costs increased slowly for most of the last few years, but hospitals have had to raise wages for nurses and pay more for other expenses, from staffing to technology.

• So, to cover their rising costs, hospitals are passing the cost onto insurance providers. That, in turn, is raising the cost for companies and employees, mainly because hospital care is a major source of healthcare spending.

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?? Over 70,000 Daycare Programs at Risk of Closure (Bloomberg)

After federal child-care funding ends on Sept. 30, over 3 million children could lose their care spots, potentially forcing many mothers to pause their careers.

The gains U.S. women have made in the job market are in jeopardy as $24 billion in federal child-care assistance expires, potentially pushing as many as 70,000 child-care facilities to shut down.

• The open centers may have to downsize staff, shorten operating hours, or hike fees, which could cause parents, especially women, to reduce their work commitments or exit the labor force altogether.

Historic comeback: While working-age women's labor force participation hit a record?high of almost 78% this summer and companies have more women on their payrolls than ever before, rising childcare costs change the equation about returning to or continuing work.

• Post-pandemic research shows the link between affordable, convenient child care and women's presence in the workforce, highlighting how vital childcare is for many women’s career prospects.
• The struggle is real. In a recent survey of 215 parents with kids under 5, 59% said they or a household member had to cut back on work hours or leave a job because they couldn’t find affordable & reliable child care.

Why it matters:

The historic comeback within the women's labor market was partly enabled by the resumption of daycare services, which utilized funds from the American Rescue Plan to increase wages and counter escalating expenses.

• If women withdraw from the job market, it could worsen labor scarcities in positions from air traffic controllers to teachers.

The Century Foundation projects that the impending child-care crisis could cost U.S. states $10.6 billion in taxes and business revenue while families forsake around $9 billion in earnings.

More negative impacts: If child care becomes more expensive or less available, it could extend beyond women reducing their work hours or leaving their jobs altogether.

• One expert said women might have to settle for roles that don't fully utilize their economic capabilities, adding: "During the pandemic, we saw nurses becoming Uber drivers because daycare was unavailable."

MORE HEADLINES

?? The Chinese government is restricting government workers from using iPhones

??? Apartment building construction is on track to hit a record high

??+??? Tom Brady has a new job — at an airline

?? Tesla to install charging stations at 2,000 Hiltons in North America

?? GM offers 10% wage increases as big strike looms

?? New Accounting Rules Make Owning Bitcoin Easier for Corporations (CoinTelegraph)

Accounting rule changes aren’t sexy, and covering them here feels like getting socks for your birthday — you may not like it, but they’re important.

Outdated regulations and accounting standards have hindered institutions' adoption of digital assets, though there’s progress in at least one area.

The U.S. Financial Accounting Standards Board (FASB) recently approved new rules accounting for companies’ digital asset holdings, like Bitcoin.

• Going into effect in 2025, companies must report their cryptocurrency holdings at fair value — the most up-to-date market value.

Why is that news? Because companies previously couldn’t report their digital asset holdings at fair value. It seems so obvious one might wonder how this wasn’t already the norm.

• See, accounting standards haven’t previously addressed how companies like MicroStrategy and Tesla should report their Bitcoin holdings, leaving them to default to alternative guidelines, where digital assets are treated like intangible assets.

In the weeds: The technical difference here is that on their balance sheet, companies record their crypto at the price they paid, and if the price drops, even just briefly, those holdings are considered “impaired.”

• Such balance sheet impairments ding a company’s earnings, and there’s no redemption if, say, Bitcoin’s price recovers.
• Companies would just take the hit to their profits, unable to count a price upswing in their favor.

Why it matters:

That basically makes it inevitable that if a company buys Bitcoin, it’ll eventually go down in price and subtract from earnings. It’s not exactly an appealing proposition to a firm’s chief financial officer, especially if their management colleagues are on the fence about investing in digital assets.

Good news: For MicroStrategy, which owns over 152,000 Bitcoins, its CFO applauded the accounting change.

• He commented that fair-value crypto reporting “would enable us to provide investors with a more relevant view of our financial position and the economic value of our Bitcoin holdings,” helping investors in the company make better-informed investment decisions.

Times are changing: FASB has rejected three requests to rewrite crypto rules since 2017, arguing that too few companies materially use digital assets.

• With Bitcoin and Ethereum adoption persisting even after the noise of 2021’s broader crypto bubble, accounting rules writers are changing their tune about digital assets.

TRIVIA ANSWER

Known as Black Monday, in 1987, the S&P 500 dropped 22% in one day. In total, it fell 34% during a four-month bear market, but no recession ensued.

SEE YOU NEXT TIME!

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