Consumer and wholesale inflation rates are much lower than they were since peaking in mid-2022, and trade has spiked as a result. The CME Group's FedWatch gauge indicates that the Federal Reserve may cut as much as a percentage point from the interest rates. This is far from certain, however, because moves to lower rates have been cautious so far. Still, it is a signifier of progress. According to the Labor Department, overall consumer prices went unchanged last month, but wholesale prices declined half a percent in the same time period. The producer price index is down to 1.3%, the consumer price index remains at 3.2%, and Core CPI is at 4%. Things are looking promising.
In other news, stocks rose on Wednesday. The S&P 500 is up 0.16%, the Nasdaq Composite is up 0.07%, and the Dow Jones Industrial Average is up 0.47%. The 10-year U.S. Treasury added 9 basis points. The producer price index fell by 0.5%. These changes all seem to be in line with interest rates. Target rose 18%, and V.F. Corp went up 14%. Wall Street is watching for a potential government shutdown at the end of the week if congress fails to pass a funding bill.
Given the potential for a significant reduction in Fed rates and the favorable trends in inflation, investors may consider adjusting their investment portfolios to capitalize on the evolving economic landscape. In a scenario where interest rates decrease, fixed-income investments like bonds become more attractive, as their yields tend to move inversely to interest rates. However, it's crucial for investors to diversify their bond holdings across different maturities to mitigate interest rate risk. Short-term bonds are generally less affected by interest rate changes than long-term bonds.
Additionally, the recent uptick in stock prices suggests a positive sentiment in the market. Investors might want to review their equity holdings and assess whether the current economic conditions warrant adjustments. Consider focusing on sectors that historically perform well in low-interest-rate environments, such as technology and consumer discretionary. However, it's essential to conduct thorough research and possibly consult with a financial advisor to ensure alignment with your overall investment goals and risk tolerance.
As Wall Street keeps a close eye on the potential government shutdown, investors should also be prepared for short-term market volatility. Maintaining a diversified and balanced portfolio can help mitigate the impact of unforeseen events. Furthermore, having a portion of the portfolio allocated to defensive assets, such as gold or other precious metals, can act as a hedge against market uncertainties. It's crucial to stay informed about geopolitical developments and their potential implications for financial markets to make informed investment decisions.
Interest rates still remain high. The Fed did not lower the rates last month but kept them steady. The jury is still out when the Fed will begin to lower rates again, but we may get some insight with the cpi report coming out this week. The expected cpi number is .3% month over month so we are still seeing inflation but not nearly as bad as last year, so that is good news for our wallets.
Even more good news for the wallets is with the Fed keeping interest rates high that mean high yield saving accounts can get around 4% apy and good money market accounts can get around 5% apy. Cash is actually performing really well right now, so if you are in an old school brick and mortar bank it might be time to look to switch to an online high yield savings account.
Unfortunately, rates remaining high are not all good news. Recently we saw mortgage rates go above 8% which makes refinancing or buying a new house harder than it was back in 2021 when rates were around 2.75%. Around the country we are starting to see the slow down in the housing market. Hopefully we get good news the rest of this week, so we can check up on the Fed and see if they really are able to get us that soft landing they have been promising us and we can avoid a recession.
The Dow Jones Industrial Average is down 106.58 points. The S&P 500 sank by 0.23%, to 4,320.06. The Nasdaq Composite fell 0.09%, to 13,211.81. These indexes have been slipping for four days in a row, possibly as a reaction from investors to the Fed’s statement that it would further maintain higher interest rates. Bond yields, on the other hand, shot up. Investors are being forced to adjust to these heightened rate levels. A possible government shutdown added to the general economic anxiety, which has left investors in a position of uncertainty, waiting to find out results, and how bad those results are.
Credit cards also fare poorly. The losses amount to the greatest blow to credit card companies since the Great Financial Crisis. Loss rates have been increasing since 2022, and there seems to be no end in sight. At the moment, losses are at 3.63%, and are predicted by Goldman to rise to 4.93%. The losses aren’t predicted to peak until late 2024 or early 2025. This is all despite the fact that the economy itself is not in recession. Past credit card losses have often been defined by recessions that accompanied them. Capital One Financial and Discover Financial Services are projected to have the worst loss potential.
In the midst of this challenging financial landscape, it's crucial for investors and individuals to navigate wisely and make informed decisions. One key consideration is the impact of rising interest rates. As the Federal Reserve continues to signal its intent to maintain higher interest rates, it's essential for investors to reassess their portfolios. Historically, higher interest rates have often led to lower stock market returns, as borrowing costs rise and corporate profits are squeezed. To mitigate this risk, diversifying your investments across different asset classes, such as bonds and real estate, can provide a cushion against market volatility.
Additionally, with bond yields on the rise, fixed-income investors may face challenges as bond prices move inversely to yields. To address this, it's essential to review your bond holdings and consider shorter-duration bonds or bond funds, which are less sensitive to interest rate fluctuations. Moreover, explore opportunities in alternative investments, like precious metals or inflation-protected securities, to hedge against the eroding purchasing power of your money in an environment of increasing interest rates.
In the realm of credit cards, the worsening credit card loss rates should serve as a warning sign for consumers. To protect your financial well-being, it's crucial to manage your credit responsibly. Paying down high-interest debt and avoiding carrying a balance on your credit cards can help you steer clear of the financial turmoil that rising loss rates can bring. Furthermore, be cautious about taking on additional credit card debt, especially if you anticipate challenges in repaying it promptly.
The Federal Reserve might raise rates by more than we thought. Even though stocks rose again on Friday, experts are cautious about being too optimistic. After all, this overall week came to a loss, bringing a three-week winning streak to an end. Oil stocks, on the other hand, have kept rising, along with Energy stocks, and multiple tech company stocks that had been dropping, like Microsoft, Apple, and Salesforce, ended up bouncing back. Jobless claims have also been surprisingly low. It's overall good news as results this week generally outperformed our expectations. However, there are two sides to this coin. There is cause for both relief and for some amount of worry, because good results like these can result in more spending and inflation, and with these, increases in the Fed rates.
Though rates are expected to pause for the duration of September, November brings an expectation that rates may increase. Traders anticipate the chances of this to be above 4 in 10. This combination of worry surrounding rates and assurance that companies are doing well regardless is creating an unstable up and down of market wins and losses. It's hard to trust good news during a time like this, but experts are optimistic that this period could be coming to an end.
In other news, there is debate about the current well-being of American banks. Bond rating agencies have recently rated the banks quite negatively, but Wall Street equity analysts counter that bank stocks were rising before the rating agencies had their say, and that earnings reports have overperformed. Despite these claims, the SPDR S&P Regional Banking Index is heading towards its worst year since 2006, when it was founded. Still though, bank stocks had been going up the rating call, in May and July. Most banks stayed more successful than the year before despite a hit resulting from the rating call.
Looking ahead, given the uncertainty in the financial markets and the potential for increased interest rates, it's crucial for individuals to consider their own financial well-being. One strategy that helps us to navigate a shifting market like this is investment diversification. Mixing your investments between stocks, bonds, and alternative investments is a wise way to spread risks. Another piece of advice: Make sure you have an emergency fund. A big enough fund should cover at least three to six months' worth of living expenses. This provides a financial cushion that can offer greater stability during uncertain times in the market. It's important to remember that while market fluctuations can be unnerving, a well-thought-out financial plan and disciplined approach to managing your finances can help you weather the storms that may come.
Are we staring down the barrel of of a recession? Inflation fears are still looming and the notes meeting did not give investors much hope this week of another pause in the rate hikes. This week a lot of major retailors reported earnings and much across the board people are continuing to spend money, especially at Walmart. Walmart saw it's customers continuing spending money like there wasn't a fear in the world. while this may sound like a good thing that the recession is not coming this is a good news is bad news situation. If people are continuing to spend money then we may have more inflation. This is the fed's main worry. With inflation on the rise they will have to continue to raise rates or keep them at higher levels.
However, not all big realtors are created equal. Target gave the other side of the picture this week. They announced in their earning call that they saw some headwinds due to political backlash. They did not have the greatest quarter and they are really fearing when the student loan payments resume this fall. Most of Targets market share are younger people and thats the group that is most likely to be effected the most by the student loan repayments starting.
Two giants in the retail game Walmart and Target gave us very different viewpoints. Walmart saw an increase in spending and Target saw the decrease. So, that begs the question are people spending more, less or the same but in different places? The jury may still be out on this one, but it is the question the fed is trying to answer. The markets however seems to have high hopes for the US economy. This week we saw a huge uptick in treasury bonds which tend to be where people go to bet on the long term growth of the US economy. If investors think the economy will do well in the long term could we have the soft landing and avoid the recession? I am not sure.
It is incredibly hard to predict the future thats why we do not recommend it when dealing with your own personal finances. Whatever happens in the macro economy should not effect you much as an individual as long as you are prepared for the best of times by dollar cost averaging your investments and making sure you have an emergency fund in case the bad turns to worse. This weeks tip is to make sure you have an adequate emergency fund for when Murphy comes knocking on your door. Do you have 3-6 months of an emergency fund built up? If you want to learn more about emergencies funds read this quick article about them.
This was not the most exciting week in the world of personal finance. The S&P posted a loss and the DOW and NASDAQ posted modest gains. After coming off a few weeks of a rallying market the market seem like it is patiently waiting to decide whether to go up or down, so it may not be the best time to check your brokerage accounts. However, this doesn't mean to stop dollar cost averaging. You should always be trying to grow your assets especially ones in the stock market.
In other news the inflation report for July came out this past week. Inflation ticked up slightly and we are now at a 3.2% inflation year over year and up 0.2% month over month. This may not feel like a lot in the sort term but your bills keep going up and you may have to slightly adjust your budgets to account for the inflation over the past 2 year. This was the first month in while inflation kicked back up so it always could be worse. The real good news is that inflation is returning to normal levels so hopefully we don't see huge increases in prices again any time soon.
With inflation being one of our headlines this week you may want to take this time to check your budget. Are you staying on track of your budget? Do you need to increase some budget catagories like groceries? Or maybe you need to decrease another category so that you can invest more for the future or save for your next big purchase. This weeks personal finance tip of the week is to check and adjust your budget. It is always good to go back in and look at where you have been missing or hitting the mark with your budget. When you know how you have been doing, it can help you adjust for the next month. So how is your budget for August are you on track for the month?
Another exciting week in the world of finance. Finch a credit rating company downgraded the economy from AAA to AA+. While this move was considered by many to be mostly symbolic it did have a way to ripple through the markets this week. This is the first week in a while that the stock market did not end in the green. Instead it was in the red posting a relatively flat week. But, what does the down grade in US credit rating mean for you? Probably nothing. It is just an estimate of a country's ability to pay their debts. Their are only 8 countries that have a AAA rating. The US is now in the same bucket as canada with a AA+ rating. So, there really isn't to much to worry about here.
In other news there was a new program to help borrows pay back their student loans. The Biden administration rolled out a new plan that is a way to get the income based repayment. This will allow borrows to lower their monthly payment. However, there is a chance this will be faced with new law suits, so don't plan on this affecting you just yet.
For this weeks tip of the week we will be focused on paying down debts. If you have high consumer debts one way to attack them is the debt snowball. This is where you pay off your debts from lowest to highest and each time you pay one off you use that payment to add to the next one, thus creating a snowball where your payments get bigger and bigger after each debt you pay off.
This is the first article where we will discuss how the macro and micros of the US economy may effect your personal finance. It will have weekly updates on macro and micro trends as well as tips and tricks for your own personal finance.
Lets start with last week. Last week was a busy week for the US. We had another .25 basis point rase of the federal interest rate which will increase the cost of borrowing across the US. This in turn will cause mortgages, car loans and other types of debt to become more expensive. However, the benefit of this is high yield savings accounts will also pay slightly more. Will the fed keeps trying to cool the economy, the gdp growth was higher than expected in the latest report giving us some more positives that we might not be heading into a recession. While it is split, analyst still believe a recession may be looming especially as student loan repayments are scheduled to start back up really soon. One more big highlight of the week was the stock market. It may actually be fun to see all the green in your retirement and trading accounts from last week as the S&P and DOW continue to rally. All in all it was a busy week for the macro and micros of personal finance.
Each week I will try to put in a small reminder or tip for your personal finance. This week with the market booming see if you can find an extra $50 or even $100 to invest monthly that way you can continue to ride the booming stock market in the back half of the year.