Vegas or Bust?

Welcome to August! First, the U.S. economy showed impressive resilience with Q2 GDP growth clocking in at an annualized 3.0%. This not only beat economists' estimates of 2.3% but also erased the worry of Q1's 0.5% decline, flipping the narrative from slowdown fears to solid expansion. Consumer spending, business investment, and inventory builds drove the surge, despite lingering inflation pressures. It's a reminder that the U.S. economy can surprise to the upside, even in a high-rate environment. This GDP beat bolsters my tilt toward the US Large Caps, as domestic equities often thrive on such momentum. Shifting to the Federal Reserve's July decision: no rate cut, a bit of a surprise to me, with the federal funds rate being held steady at 4.25%-4.50. The Federal Reserve cited still-elevated inflation and a robust labor market as reasons to not cut. But here's the twist—two governors dissented, pushing for an immediate cut, marking a rare fracture in consensus. Finally, let's talk Las Vegas—a microcosm of consumer trends that is sometimes used as a canary in the coal mine to predict a recession. Las Vegas is seeing a contraction, with hotel occupancy plunging 15% in June and potentially worsening into July. Tourism numbers are down, casino revenues are slipping, and Nevada's unemployment is ticking up amid broader economic anxiety, inflation bites, and geopolitical jitters. However, based on other trends in the younger generations, I’m not sure we can use Las Vegas as the canary anymore. The average visitor age has dropped to around 43, with millennials and Gen Z making up a larger share. These younger crowds are putting less into traditional gambling and more into experiences like concerts, e-sports, and high-end dining. Vegas is adapting with new attractions, but the shift could signal broader consumer evolution—away from vice-driven spending (these younger generations drink less too) toward experienced-based entertainment. I bring this up as I have seen many different economists use different tools to forecast recessions, and I don’t think Vegas fits the bill anymore. Overall, these developments paint a picture of an economy that’s strong but continues to suffer from a high Federal Funds interest rate. The GDP pop and Fed dissent fuel near-term upside for U.S. equities, justifying my continued shift to the Large Caps, but as long as international interest rates are low, the international funds will still remain appealing. Keep investing!