Chris

Sam, the eyes of the world are on the United States, Mexico, and Canada over the next five weeks as we host this year's World Cup. 104 games in 16 different stadiums, and 11 of those are in major cities across our country. Historically, hosting big events has had an impact on economic data, whether it's hosting a Super Bowl, concert tours, or even the World Cup in 1994. Estimates show that Taylor Swift's Eras Tour added $5 billion to the U.S. economy. Now, the U.S. economy is $25 trillion, but at a local level, it can have a meaningful impact, and we're certainly seeing that in the Boston area. So, what are you looking for in terms of economic data where we may see an impact from the World Cup activity?

Sam

Yep, that's a great question, Chris. And for anybody who's been in the greater Boston area for the past week, I would not, you know, be surprised if you think this is going to be the number-one economic story all year because we have seen a huge influx of Scottish fans. They brought a lot of energy and activity to the city. But when you look past sort of those anecdotal, you know, hyper city-specific type of experiences, I think the real question is, what can we expect on the aggregate data, right? What is the impact going to be on a broader scale? As you mentioned, these onetime events can have a real impact, but we’ve got a really big economy, right? So, if I'm looking at specific places, I'm going to be looking specifically at the employment report, because in the past, we've seen hiring leading up to and through events like this get kind of a boost. And then I'm also going to look at kind of consumer spending, right, and the retail sales report, because as we know, consumer spending drives the majority of economic activity in this country. So, if we have these onetime events that are really, you know, driving activity, and a lot of that ancillary knock-on spending, you can see that having a real impact on, you know, the economy. But my question for you is, you know, while I can see a short-term impact, what do you think the more medium- to long-term impacts of something like the World Cup could be?

Chris

Right, so I do agree with you. I think any positive news you get around the consumer, you have to say that's good for the U.S. economy. The U.S. consumer drives the economy, so I would expect to see higher employment, higher retail sales show up in some level in U.S. GDP growth. But on the other hand, if you've been out in the Boston area, you're probably thinking it'll probably show up in the inflationary data too, and I think that's true, whether it's hotels, or airfare, or restaurants, right? But, historically, these big events have not had a permanent impact on the economy that then provides momentum for the next 6 to 12 months going forward. And my guess is a lot of these positive benefits we're talking about will have dissipated by the time the American football season kicks off in September. So, my guess is that the Federal Reserve will not put a lot of weight on positive economic data from the World Cup. So, what do you think they'll be focused on over the next few months as we see this impact on the data?

Sam

Yeah, no, I think that's really another good question, and something that the central bankers are going to be kind of contending with as they meet this month, and you know, months ahead, and set interest rates throughout the course of the year. I think the real thing is, though, they're going to be looking more at the long-term trends and not the short-term noise, right? And to that, you know, I think there's a bit of a tailwind and a headwind from what's going on right now. As we alluded to, in the short term, I think hiring is going to be a little stronger, which is, you know, good news if you're the central bank looking to maximize employment. But also we're probably going to see some rising inflationary pressure. I think the encouraging sign, if you're the Fed, is this is likely going to be short-lived, and we can expect to see a lot of this data kind of roll over by the time we get to the fall. However, you know, markets aren't really expecting anything dramatic from the Fed in the meantime, so wait-and-see approach, I think, is definitely the most likely outcome for the next few months.

Chris

Yeah, that makes a lot of sense, and if the Federal Reserve isn't going to put a lot of weight in the positive economic data from the World Cup, then investors should certainly not be making portfolio decisions, because employment might be temporarily higher or retail sales could be temporarily higher. So, it's important for investors to continue to focus on the fundamentals that have driven stock markets higher over the last couple of weeks, and that has clearly been corporate earnings growth, because it has been very strong, driven in large part by artificial intelligence infrastructure spending, and that'll continue no matter what happens with the World Cup. But I do think there's an interesting lesson when it comes to the World Cup and how to build portfolios. There are 48 teams in this tournament: there are some real long shots, there are some underdogs, and there are some favorites. So, you, as I, you and I, as fans, can come up with a group of teams that have a lot of different profiles from a risk and a reward standpoint, and that's how investors have to think about portfolio construction going forward. Keep your eye on long-term objectives, but diversify across sectors and industries and companies and geographies, because there still is a lot of uncertainty. You alluded to the Federal Reserve, that's one of them, their policies going forward. The other is how the war’s end in the Middle East comes to fruition. When does the Strait of Hormuz fully open, and how fast do oil prices go back down? So, historically, diversification has worked to navigate uncertainty and still allowing you to participate in whatever upside comes from stronger earnings growth.

Sam

So, it sounds like for sports fans and investors, diversification really remains the name of the game.

Chris

That's why I'm both.

Sam

Sounds like a plan. Well, thank you for an engaging conversation, as always, Chris. And thank you for joining us. Join us again next month for another update from the Market Observatory.