Tag: Interest Rates

Spooktacular Investing Times

It is Halloween, so with an intended pun it must be said: spooktacular times in markets and the economy continue. 

AI (Artificial Intelligence) is simultaneously spooky and spectacular. Nvidia, this week, reached a new milestone surpassing all other US companies with a $5 trillion market valuation. Nvidia’s market cap is now larger than the largest semiconductor companies AMD, Arm Holdings, ASML, Broadcom, Intel, Lam Research, Micron Technology, Qualcomm and Taiwan Semiconductor Manufacturing combined.*

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Recession or Head Fake?

With the Federal Reserve’s action this week in cutting interests rates by one quarter of one percent, the word “recession” is back in the news as a possibility. There must be literally nothing else financially speaking to talk about. In the meantime, check out two really good slides.

The first slide (above) outlines the vast difference of:

  • when a recession really occurs in the economy
  • when markets anticipate the recession and react
  • versus when the government (the NBER, National Bureau of Economic Research) “declares” a recession.

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The (Almost) Aftermath of Inflation

Inflation is not entirely gone yet. BUT – it could be worthwhile to try talking about it in the past tense and examine what enduring inflation has dealt – both negative and possibly positive – to spenders, savers and investors.

For one thing, inflation has gotten our attention! There is not one friend or client with whom I speak – those with money to burn and those with stricter budgets – who has not been shocked by food prices the past two and a half years. Are there any “silver linings” to this situation? What have been the worst consequences of inflation?

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The Markets Are UP

At this time of the year, clients and friends love asking the question, “What do you think of the markets?” Long ago, I learned not to answer with what I believe the markets will do – because no one knows for certain what the markets will do – but rather to respond with a handful of “data points” about what events are taking place currently and what near-future events truly figure in to investor expectations.

So far this year, markets are UP. To be exact, in the first 11 trading days of 2025 the markets have been up, down and then up. On balance markets are UP 1% to 1.5% year-to-date with small companies marginally leading the way. Small companies tend to be more volatile and react positively when there is perceived value in stock prices.

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Optimism & Caution Wrap Up 2024

Anything could have happened in 2024. The uncertainties were immense:

  • Outcome of the US Presidential election
  • Trajectory of US interest rates and inflation
  • At least two active wars with an element of US involvement
  • Trajectory of US stocks in this environment
  • The US Fed’s interest rate policy (did I say interest rates twice?)
  • Numerous other personal and world economic and social events.

The results – to date – in several of these categories have been positive or on-the-way-to-becoming-positive.

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Top of Mind Issues in US Presidential Transition

Today’s edition could be a risky one to write, as anything related to the recent US Presidential election can stir up division. BUT – there are a healthy handful of issues that unite all Americans. These issues, ironically, are similar to those facing the 2016 version of President-Elect Trump.

Below are excerpts (in italics) from a November 2016 edition of TGIF 2 Minutes with thoughts on updates for 2024 (in bold) –

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Interest Rate Changes Amidst Election Seasons

The Fed Chairman, Jerome Powell, and the US Federal Reserve are between a rock and a hard place.

There is far too much that can be said on the topics of where interest rates should be and the timing of when interest rates will be adjusted (most likely lower in the near future). To sum it up: politics, political opinions and political pundits – not to mention political candidates of both parties – have now entered the picture, clouding the views of regular people on the street even smarter investors attuned to the finer points of stock and bond markets.

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Interest Rates, The Fed & Market Highs

Today’s edition of TGIF 2 Minutes is worth a comparison to this past February’s archives – just 6 months ago – and was originally titled, “Interest Rates, The Fed & Gray Hair.” In today’s re-run, readers will learn that the US Federal Reserve lowering interest rates is not the only mechanism able to cause the stock market to go up. Sometimes markets go up due to other factors including momentum or continued consumer spending, as in the past 6 months.

Question asked in February 2024:

How soon might the US Fed lower rates and how fast might the markets keep going up or falter down?

A certain amount of gray hair (read: wisdom and experience) helps in understanding the current interest rate and US Federal Reserve environment. Why? Because economies do not move as fast as same-day or even same-month. And “gray hairs” know this.

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Lack of Clarity = Volatility

Markets prefer certainty. In times of relative economic certainty, market trends can be more defined and steadier. In times of economic uncertainty, markets react with volatility similar to the past 6 to 7 months. Two simple pieces of data:

  • The 10-year US Treasury yield was as high as 5.0% in late-October, then as low as 3.79% just after Christmas, then back up to 4.28% in March and very recently higher to 4.68% a mere few days ago. These levels – and the speed with which they have changed – represent fairly massive volatility based on historical 10-year US Treasury rates.
  • In the US stock markets, there has been similar volatility in both small-company indexes and the larger-company S&P 500 since last year with a noticeably weak 3Q 2023 and then all-time highs taking place just this past April 2024.

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Inflation vs. Interest Rates Stand-Off

If the “land the inflation airplane” graphic (originally pictured in October 2022) indicated a US Federal Reserve trying to “land” inflation, then the current graphic would look like a slowly unfolding aborted airplane landing.

To summarize, prices of a number of key consumer items are NOT coming down fast enough to lower inflation in a meaningful way – even if the media has convinced Americans that $5 or $7 for a dozen eggs is “a relief”.

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