What We Learned This Week

Primed for a Correction: What's going on with the markets? That's the big question when we see a surge in volatility after a long period of stable, consistent gains. Headlines have pointed to various factors as the cause of the recent wave of selling, with some calling it a perfect storm signaling major issues in the global economy. In reality, with stocks sitting at all-time highs for an extended period, investors almost start looking for a reason to reverse the trend, fearing they might miss the inflection point.

The selloff was triggered last week by weaker-than-expected economic data, specifically soft job growth, which sparked concerns that the Fed may have kept interest rates too high, unintentionally tipping the economy into a recession. This was followed by the Bank of Japan's surprise decision to raise interest rates, which set off another wave of selling as large investors needed liquidity to unwind a popular carry trade. In this trade, investors borrowed in Japan, where interest rates were extremely low, and invested in places like the U.S.

While these events could spook the markets, it's more likely that investors were looking for a reason to sell, and these events provided the opportunity. Soft economic data and the unwinding of large foreign exchange trades can be significant, but declaring them as the end of our period of prosperity seems sensationalized. It's better to take a breath, let things settle, and then reassess.

Another Anti-Tech Ruling: A federal U.S. judge ruled against Google this week in a landmark antitrust case filed by the government in 2020. The case alleged that Google maintained its dominance in the general search market by creating unfair barriers to entry, resulting in a flywheel effect that continuously strengthened its market position. The court highlighted Google’s strong ties and arrangements with Android and Apple’s iPhones and iPads, stating that its integration into these ecosystems cemented its search dominance and prevented new entrants from gaining traction. However, the court did not side with the government on search advertising, ruling that Google does not have a monopoly in this area since search advertising is not a market in itself.

While this ruling makes for enticing headlines, it only establishes responsibilities; potential remedies will be addressed in a future phase of the proceedings, and Google will likely appeal the ruling. This case raises questions about the controversial issue of consumer impact. Are consumers worse off because of Google’s actions, or do they benefit from having best-of-breed services seamlessly integrated into operating systems? Politicians often claim they are standing up for the American people by challenging big companies, but we must consider how our lives might change if dominant players like Google, Apple, and Microsoft were less influential.

Cracks Emerging in Travel: Airbnb may have raised concerns about the seemingly resilient travel market with its second-quarter results this week. The company reported a softening of demand primarily in North American markets, noting that travelers are booking later and favoring shorter trips than in the past couple of years. Interestingly, Airbnb did not observe a significant shift toward cheaper accommodations, which could indicate a trend seen in other discretionary industries where consumers are becoming more selective with their purchases without sacrificing quality.

It's important to recognize that several factors could be contributing to Airbnb's slower growth, which may not necessarily reflect broader economic weakness. After a couple of years of massive travel demand post-pandemic lockdowns, demand could be normalizing. The push for employees to return to offices also impacts travel, as people are less flexible with long-term work-from-anywhere retreats. Additionally, Airbnb faces increased competition from peers like VRBO and major hotel chains expanding their appeal to travelers. A slowdown at Airbnb doesn't necessarily indicate a broader economic slowdown, as headlines might suggest. While it’s possible, it’s essential to distinguish between correlation and causation.