Blog
The Markets
The best week of the year?
After two weeks of slow and jolting market performance, a bounty of positive news calmed investors and lifted stock markets higher last week.
“Investors seem to have come to the realization that while the economy may be in fact slowing, the Federal Reserve is going to take action to address that by cutting interest rates on Sept. 18…with a September rate cut a near certainty, the mood in the market has turned on a dime,” reported Paul R. La Monica of Barron’s.1
Here’s what happened:
Inflation continued to move lower. In July, prices rose 2.9 percent year to year, according to the latest Consumer Price Index report. That was an improvement on June’s 3.0 percent increase. The price of gasoline, new and used vehicles, and medical care moved lower, while the cost of shelter, motor vehicle insurance and recreation moved higher.2,3
“It was the first time that the annual pace of inflation was below 3 [percent] since spring of 2021. Even though June’s inflation reading was slightly better, the pricing data from last month will likely help convince Fed officials to cut interest rates by at least a quarter of a percentage point at their next policy meeting in September,” reported Megan Leonhardt of Barron’s.4
Consumer spending remained strong. Consumer spending is the engine that drives the American economy. After slowing (down 0.2 percent) in June, retail sales accelerated (up 1.0 percent) in July, according to the U.S. Commerce Department’s Advance Monthly Sales for Retail and Food Services.5
“The retail sales numbers were a blowout versus consensus [expectations], but more importantly it should lay to rest (at least for the moment) all of the ‘doom and gloom’ that was expressed at the beginning of this month,” said a source cited by Rita Nazareth of Bloomberg.6
Consumer sentiment brightened. In August, for the first time in five months, consumer sentiment improved, according to the University of Michigan’s Consumer Sentiment Survey.7 Joanne Hsu, the Survey of Consumers Director, wrote:
“Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months, consistent with the fact that election developments can influence future expectations but are unlikely to alter current assessments. Survey responses generally incorporate who, at the moment, consumers expect the next president will be. Some consumers note that if their election expectations do not come to pass, their expected trajectory of the economy would be entirely different. Hence, consumer expectations are subject to change as the presidential campaign comes into greater focus, even as consumers expect that inflation—still their top concern—will continue stabilizing.”7
Major U.S. stock indices finished the week higher.8The yield on longer-maturities of U.S. Treasuries moved higher over the week.9
Data as of 8/16/24 | 1-Week | YTD | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 Index | 3.9% | 16.5% | 26.1% | 7.4% | 14.0% | 10.9% |
| Dow Jones Global ex-U.S. Index | 3.6 | 6.2 | 13.2 | -1.5 | 4.9 | 1.9 |
| 10-year Treasury Note (yield only) | 3.9 | N/A | 4.3 | 1.3 | 1.5 | 2.4 |
| Gold (per ounce) | 3.1 | 19.6 | 30.5 | 11.6 | 10.4 | 6.7 |
| Bloomberg Commodity Index | 0.2 | -3.0 | -7.5 | 0.2 | 4.5 | -2.6 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
SUMMER CAMP IS A GROWING INDUSTRY. Many people have fond memories of sleep-away summer camps that feature hiking, canoeing, swimming and campfire songs. Others remember camp as a place where they learned about music, theater, dance, horseback riding, creative writing, environmental education or other activities.
After stalling during the pandemic, camp is once again a growing industry. A 2023 study conducted by the University of Michigan Economic Growth Institute and the American Camp Association (ACA) found, “camp contributes $70 billion to the national economy directly and through ripple effects, including via business-to-business purchases and labor income.”10
About 26 million kids—more than 30 percent of school-age children in the United States—go to summer camp. As a result, day camps and overnight camps have become an important aspect of children’s education and growth reported Kira Garcia of Bloomberg.11
“Today’s entrepreneurial camp directors are thinking beyond canoes and lakeside cabins,” wrote Garcia. “Want your kid to work on DJ skills, robotics or scuba diving? There’s a camp for that! Specialty programs were the industry’s fastest-growing segment prior to the COVID-19 pandemic and are predicted to be in increasingly high demand from 2023 to 2028.”11
Camp is also important for parents. When the school year ends, working parents are left without structured supervision for school-age children. The struggle to juggle work, home and parenting responsibilities can be intense. Camp offers a way for children to refuel and reset, while participating in stimulating activities, reported Alex Frost in Success.12
One issue for many families is cost. While the average cost of camp varies widely, the average cost is $87 per day, reported Nancy Chen of CBS News.13 The ACA reports there are ways to reduce or manage the cost of camp, including:14
- Applying for a camp scholarship,
- Taking advantage of early registration discounts,
- Choosing a structured payment plan,
- Spending funds in a Dependent Care Flexible Spending Account, and
- Receiving the Child and Dependent Care Tax Credit.
If you’re looking for a present for a younger person, gifting a summer camp experience may be a good choice.
Weekly Focus – Think About It
“To this day, I fondly recall the challenges of building a fire, pitching a tent, climbing a New England mountain, canoeing on a lake. Camp songs still resonate inside me. Nobody fails summer camp, a nice respite from winters of fortune and misfortune at school.”15―Michael Eisner, Disney CEO
* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
Sources:
[1] https://www.barrons.com/articles/stock-market-complacency-violent-volatility-12691013?mod=hp_LEAD_1_B_2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-19-2024_Barrons_How%20the%20Stock%20Market%20Went%20from%20Complacency%20to%20Volatility%20and%20Back_1.pdf)
2 https://www.bls.gov/news.release/cpi.nr0.htm
4 https://www.barrons.com/livecoverage/cpi-inflation-july-report-data-today (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-19-2024_Barrons_Inflation%20Falls%20Below%203%25%20for%20First%20Time%20Since%202021_4.pdf)
5 https://www.census.gov/retail/marts/www/marts_current.pdf
6 https://www.bloomberg.com/news/articles/2024-08-14/asian-stocks-to-open-weaker-cpi-calms-wall-street-markets-wrap (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-19-2024_Bloomberg_Stocks%20Rally%20as%20Data%20Show%20US%20Economy%20is%20Holding%20Up_6.pdf)
7 http://www.sca.isr.umich.edu
8 https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-19-2024_Barrons_Data_8.pdf)
11 https://www.success.com/working-parents-summer-break/
12 https://www.cbsnews.com/news/summer-camp-soaring-heres-some-tips-for-parents-on-how-to-save-money/
[1]3 https://www.bloomberg.com/news/features/2023-06-01/niches-such-as-soccer-and-arts-make-summer-camp-a-3-5-billion-business (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-19-2024_Bloomberg_How%20Summer%20Camp%20Became%20a%20$3.5%20Billion%20Industry_13.pdf)
[1]4 https://www.acacamps.org/parents-families/planning-camp/preparing-camp/how-afford-camp [1]5https://www.summercamps.com/summer-camp-quotes/
The Markets
Stock markets swelled and dropped like waves at the Olympic surfing competition in Tahiti.
It is often said that markets hate uncertainty. There was a lot of uncertainty last week, and it showed. “The technology-heavy Nasdaq 100 Index soared 3 [percent] on Wednesday and then retreated almost that much on Thursday, before paring the decline at the close, for its biggest up-to-down rotation since May 2022. The S&P 500 Index sank 1.4 [percent], just one day after rallying 1.6 [percent],” reported Alexandra Semenova, Esha Dey, Carmen Reinicke, and Natalia Kniazhevich of Bloomberg.1
High levels of market volatility reflect high levels of uncertainty. Here are three issues that have been top-of-mind for investors:
- Will the United States experience a soft landing or dip into a recession?
Last week, investors became concerned that the U.S. economy may be slowing faster than anticipated.2 First, a key gauge showed that U.S. manufacturing activity slowed in July, reported Lucia Mutikani of Reuters.3 Then, on Friday, the U.S. unemployment rate rose to 4.3 percent as employers added fewer new jobs than economists had anticipated.4,5
Investors were in a tizzy after seeing weaker-than-expected data. Expectations about the magnitude of a possible Federal Reserve rate cut in September changed—and then changed again. On Friday, the CME FedWatch Tool registered a 74 percent probability of a half-percentage-point rate cut at the Fed’s September meeting, suggesting that the market thought the Fed was likely to begin easing rates too late and would have to lower aggressively. Markets took some calming breaths and, on Saturday, expectations had reversed. There was a 22 percent probability of a half-point cut in September and a 78 percent chance of a quarter-point drop.5
- Will geopolitical issues escalate?
There is a lot happening around the world that could affect financial markets. One concern is ongoing tensions in relations between the United States and China. In addition to tariffs and trade issues, there are allegations that China is providing support for Russian war efforts in Ukraine, and concerns about a possible conflict over Taiwan.6 Energy security also is a risk as wars in Ukraine and the Middle East have disrupted energy supplies in some regions of the world, according to to S&P Global and David McHugh and Matthew Daly of AP News.7,8
- Who will win the United States election?
There has been—and will continue to be—a lot of speculation about the outcome of the U.S. election and its potential effect on the economy and markets. The emotion that accompanies elections can make it difficult to remember that financial markets are generally efficient and adjust to changing risks. While election sentiment may sway stock markets over the shorter term, other factors—valuations, earnings, and the business cycle—also are important,” reported Karishma Vanjani of Barron’s.9
Last week, major U.S. stock indices moved lower with the Nasdaq Composite Index dropping into correction territory as it fell by about 10 percent.The U.S. Treasury market rallied as the yield on the benchmark 10-year Treasury fell to its lowest level since last December, reported Pia Singh and Hakyung Kim of CNBC. 10,11
Data as of 8/2/24 | 1-Week | YTD | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 Index | -2.1% | 12.1% | 18.5% | 6.8% | 12.8% | 10.7% |
| Dow Jones Global ex-U.S. Index | -1.7 | 2.7 | 6.4 | -2.6 | 3.6 | 1.6 |
| 10-year Treasury Note (yield only) | 3.8 | N/A | 4.1 | 1.2 | 1.9 | 2.5 |
| Gold (per ounce) | 3.5 | 18.8 | 27.0 | 10.9 | 11.4 | 6.7 |
| Bloomberg Commodity Index | -1.3 | -4.0 | -9.8 | -0.4 | 4.3 | -3.0 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
THE OLYMPIC BONUS. Before 1972, only amateur athletes could compete in the Olympics.For example, in 1913, Jim Thorpe’s Olympic titles were stripped from him because Thorpe had been paid to play semi-pro baseball for two seasons. (Eventually, his gold medals were reinstated.) 12
Olympic amateurism rules became less stringent during the latter decades of the 20th century and, by the 1990s, the rules were mostly eliminated. Today, athletes from many countries receive a bonus if they earn a spot on the Olympic podium. For example, the United States awards bonuses of $38,000 for a gold medal, $23,000 for silver, and $15,000 for bronze. Many countries offer far larger bonuses, reported Lee Ying Shan of CNBC.13 Here are a few:
- Hong Kong, which has won 13 Olympic medals in total (when this was written), pays a bonus of 6 million Hong Kong dollars (~US $768,000) for a gold medal, HK$3 million for silver (~US $384,000), and HK$1.5 million for bronze (~US $192,000).13
- Singapore, which has won five Olympic medals in total (when this was written), pays a bonus of 1 million Singaporean dollars for a gold medal (~US $745,000), SG$500,000 for silver (~US $373,000), and SG $250,000 for bronze (~US $186,000).13
- Indonesia, which has won 37 Olympic medals in total (when this was written), pays a bonus of 5 billion Indonesian rupiah for a gold medal (~US $300,000), Rp2.5 billion for silver (~US $150,000), and Rp1.2 billion for bronze (~US $75,000).13,14
Other countries that offer a triple-digit U.S. dollar bonus for gold include Israel, Kazakhstan, Malaysia, and Spain.13
You may not be an Olympian, but you can reward yourself for your hard work by saving and investing for the future. If you would like to learn more, get in touch.
Weekly Focus – Think About It
“Friendships born on the field of athletic strife are the real gold of competition. Awards become corroded; friends gather no dust.”15
―Jesse Owens, Olympic gold medalist
* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
Sources:
[1] https://www.bloomberg.com/news/articles/2024-08-01/stocks-sell-off-a-day-after-furious-rally-as-volatility-returns?embedded-checkout=true (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-05-24_Bloomberg_Stocks%20Sell%20Off%20a%20Day%20After%20Furious%20Rally%20as%20Volatility%20Returns_1.pdf)
2 https://www.barrons.com/livecoverage/stock-market-today-080224?mod=hpsubnav (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-05-24_Barrons_Nasdaq%20on%20Track%20to%20Enter%20Correction%20Territory_2.pdf)
3 https://www.reuters.com/markets/us/us-manufacturing-gauge-drops-eight-month-low-2024-08-01/
4 https://www.bls.gov/news.release/empsit.nr0.htm
5 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-05-24_CME%20Group_FedWatch_5.pdf)
6 https://www.bbc.com/news/articles/cqvvxzv24pqo
7 https://www.spglobal.com/en/research-insights/market-insights/geopolitical-risk#energy-security
8 https://apnews.com/article/houthi-ship-attacks-red-sea-lng-europe-50661b8d42065f7fd7cab6556574e4b6
9 https://www.barrons.com/articles/investing-election-risk-0b6bab54?mod=Searchresults (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-05-24_Barrons_Why%20Investing%20for%20the%20Election%20Might%20Be%20a%20Mistake_9.pdf)
10 https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/08-05-24_Barrons_Data_10.pdf)
[1]1 https://www.cnbc.com/2024/08/01/stock-market-today-live-updates.html
12 https://usopm.org/jim-thorpe/
[1]4 https://wise.com/gb/currency-converter/usd-to-idr-rate?amount=300000 [1]5https://www.brainyquote.com/quotes/jesse_owens_140490?src=t_competition
The Markets
Americans may be witnessing something remarkable.
Earlier this year, we had the relatively rare opportunity to view a total solar eclipse – when the moon passes between the sun and the Earth, blocking the sun completely – as it crossed numerous states.1 Now, we may see the United States’ economy experience a soft landing – when the Federal Reserve raises rates to fight inflation and does not cause a recession.
“According to the conventional wisdom, the Federal Reserve has managed to achieve only one soft landing in the past 60 years—in 1994–1995,” wrote economist Alan Blinder in an abstract for the Journal of Economic Perspectives.2
Blinder’s research suggests that soft landings are more common than conventional wisdom suggests – but not easy to achieve. From 1965 to 2022, the Federal Reserve tightened monetary policy to fight inflation eleven times. In five cases, the Fed achieved a soft or softish landing.3 It appears that the Fed may be about to add another soft landing to the list.
The U.S. economy grew 2.8 percent in the second quarter of 2024 (after inflation), which is faster than economists expected. The economy grew as businesses continued to invest and consumers continued to spend on goods and services, according to figures released last week by the U.S. Department of Commerce.4
“A robust economy is a good sign for the average consumer, and because it came in tandem with positive data on prices, it is in line with the soft landing of a healthy economy and cooling inflation that Federal Reserve officials are looking to achieve. Economists consider real GDP growth rates of between 2% and 3% to be healthy in developed economies…The personal consumption expenditures price index increased 2.6% during the second quarter—the slowest pace since the first quarter of 2021. That is a marked slowdown from the 3.4% pace recorded in the first three months of the year,” reported Megan Leonhardt of Barron’s.5
Markets moved lower early in the week and then regained some lost ground after economic growth and inflation figures were released, reported Connor Smith of Barron’s.6 By the end of the week, the Dow Jones Industrial Average was up, while the Standard & Poor’s 500 Index and Nasdaq Composites indexes finished the week lower.7 Yields on most maturities of U.S. Treasuries moved lower over the week.8
Data as of 7/26/24 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 Index | -0.8% | 14.5% | 19.5% | 7.3% | 12.5% | 10.7% |
| Dow Jones Global ex-U.S. Index | -1.1 | 4.5 | 6.0 | -1.7 | 3.3 | 1.6 |
| 10-year Treasury Note (yield only) | 4.2 | N/A | 3.9 | 1.3 | 2.1 | 2.5 |
| Gold (per ounce) | -0.7 | 14.8 | 21.4 | 9.9 | 10.9 | 6.2 |
| Bloomberg Commodity Index | -1.6 | -2.7 | -10.8 | -0.2 | 4.0 | -2.9 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
HOW CAN INVESTORS FIGHT INFLATION? Inflation is the steady increase in prices over time. After years of relatively low inflation, the last couple of years have been an important reminder that investors need to consider inflation as they invest for the future. Even at the Fed’s target level, prices rise slightly each year. A financial plan and a well-diversified portfolio can help investors beat inflation as they save and invest. See what you know about inflation and investments by taking this brief quiz.
- Part of the Federal Reserve’s mission is keeping prices from rising or falling too fast. What do Fed officials think is the right rate for inflation?
- 0%
- 1%
- 2%
- 3%
- Inflation erodes spending power, which means that the amount of goods or services that a person on a fixed income can buy gets smaller when inflation is higher. Which of the following can help investors manage the risks associated with inflation?
- Cash under the mattress
- A diversified portfolio
- Certificates of deposit
- Fixed rate loans
- A “real” rate of return is the annual return that an investment earns minus the annual rate of inflation. If the average annual return for the Standard & Poor’s 500 Index was 10 percent over the last ten years, and inflation averaged 3 percent a year over the same period, what was the “real” average annual return over that period?
- 16 percent
- 13 percent
- 10 percent
- 7 percent
- What is the highest rate of inflation the United States has experienced since 1917 when the Consumer Price Index was introduced?
- 20.5 percent in 1917
- 9.5 percent in 1951
- 14.6 percent in 1980
- 8.9 percent in 2022
If you would like to talk about your financial goals and developing a plan to reach them, please get in touch.
Weekly Focus – Think About It
“The past is always tense, the future perfect.”9
― Zadie Smith, Novelist
Answers: 1) c10; 2) b11; 3) d; 4) a12
* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
Sources:
3 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.37.1.101
4 https://www.bea.gov/sites/default/files/2024-07/gdp2q24-adv.pdf
5 https://www.barrons.com/articles/gdp-growth-data-report-today-7fbb5a1d
6 https://www.barrons.com/livecoverage/stock-market-today-072624?mod=article_inline
7 https://www.barrons.com/market-data?mod=BOL_TOPNAV
10 https://www.richmondfed.org/publications/research/econ_focus/2024/q1_q2_federal_reserve
The Markets
The rate cut stars are aligning.
For the last year, borrowing costs in the United States have remained relatively high as the U.S. Federal Reserve (Fed) waited for economic data to show that inflation was on track to reach the Fed’s two percent target. Now, we may finally be on the cusp of lower rates.
“The Fed’s preferred inflation gauge has eased to 2.6 [percent], not far off its 2 [percent] target, and the once overheated labor market has cooled to pre-pandemic levels. The rebalancing has been accompanied by moderation in consumer spending, as high prices and borrowing costs damp demand and thus price pressures,” reported Victoria Cavaliere of Bloomberg.1
Last week, Fed Chair Jerome Powell told the Economic Club of Washington D.C., “…if you wait until inflation gets all the way down to 2 [percent], you probably waited too long…Our test has been that we wanted to have greater confidence that inflation was moving sustainably down toward our 2 percent target. What increases that confidence is more good inflation data and, lately here, we have been getting some of that.”2
Few anticipate the Fed will lower the federal funds rate at its July meeting, but the outlook for September is good. The probability of a September rate cut was above 90 percent last week, according to the CME FedWatch.3
Changing rate expectations disrupted stock markets, last week. Investors moved from big technology firms into smaller companies that tend to perform better when rates are lower. Rita Nazareth of Bloomberg explained that the market experienced, “a ‘rotation’ that saw investors trimming positions on this year’s winners in favor of laggards. Underpinning that trade were bets the 2024 rally would broaden out of megacaps as the Federal Reserve cuts rates.”4
By the end of the week, the Standard & Poor’s 500 Index was down about 2.0 percent and the Nasdaq Composite had fallen about 3.7 percent. The Dow Jones Industrial Average fared better, finishing the week in positive territory, reported Alex Harring and Jesse Pound of CNBC.5 Yields on U.S. Treasuries were mixed over the week.6
Data as of 7/19/24 | 1-Week | YTD | 1-Year | 3-Year | 5-Year | 10-Year |
| Standard & Poor’s 500 Index | -2.0% | 15.4% | 20.6% | 8.9% | 13.1% | 10.8% |
| Dow Jones Global ex-U.S. Index | -2.3 | 5.6 | 7.6 | -1.0 | 3.4 | 1.7 |
| 10-year Treasury Note (yield only) | 4.2 | N/A | 3.7 | 1.2 | 2.1 | 2.5 |
| Gold (per ounce) | -0.1 | 15.6 | 21.7 | 9.8 | 10.8 | 6.2 |
| Bloomberg Commodity Index | -3.2 | -1.2 | -7.6 | 1.9 | 4.2 | -2.8 |
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
MICROCHIP COMPANIES STUMBLED OVER GOVERNMENT POLICY. In general, one aim of governments in democratic countries is to implement policies that promote solid and sustainable economic growth.7 Sometimes, a policy change—or the possibility of one—will ripple through financial markets. Last week, we saw two examples of this as companies that have benefited from enthusiasm around artificial intelligence saw their share prices drop sharply when it appeared that U.S. government policy might change.
- Stricter limits could be imposed on some exports to China. In one case, a potential change in government policy caused the share price of a Dutch company to drop, reported Adam Clark of Barron’s. The company produces lithography machines that are necessary for semiconductor manufacturing. The company’s solid second quarter earnings report was overshadowed by news that President Biden may impose new restrictions on exports to China.8 Clark reported that the administration:
“…is considering more severe trade restrictions on exports to China if companies…continue selling chip-making machinery to the country. While the [lithography machinery] company is already restricted from selling its most advanced machines to Chinese customers, [the company] still generated 49% of its revenue from China in the second quarter, as buyers looked to stock up on older machinery.”8
- The United States’ relationship with Taiwan may change. In an interview with Bloomberg Businessweek, presidential candidate Donald Trump was asked about the United States’ relationship with Taiwan. He answered, “They did take about 100 [percent] of our chip business. I think, Taiwan should pay us for defense.”9
After the remarks became public, the share price of Taiwan’s largest company—the world’s largest maker of advanced chips—tumbled, reported George Glover of Barron’s.10 The share price fell even though the company had beaten quarterly estimates and lifted 2024 revenue projections, reported Jane Lanhee Lee of Bloomberg.11
Other chip companies’ stocks moved lower, too, on concerns that a change in U.S. policy could result in new supply chain disruptions. “China’s ruling Communist Party has vowed to ‘reunify’ with Taiwan and has refused to rule out using military force to take back control of the country,” reported Glover.10
It can be dismaying when the value of a stock or stock market index moves lower. However, falling share prices sometimes have silver linings. They sometimes create opportunities to invest in companies with solid fundamentals at attractive prices.
Weekly Focus – Think About It
“It’s not what you look at that matters, it’s what you see.”12―Henry David Thoreau, author
* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
Sources:
[1] https://www.cnbc.com/2024/07/15/powell-indicates-fed-wont-wait-until-inflation-is-down-to-2percent-before-cutting-rates.html (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Bloomberg_Economists%20Warn%20Trump%20Policies%20Would%20Stoke%20Inflation_1.pdf)
3 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_CME%20Group_FedWatch_FOMC%20Rate%20Moves_3.pdf)
4 https://www.bloomberg.com/news/articles/2024-07-18/stock-market-today-dow-s-p-live-updates?srnd=phx-markets (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Bloomberg_Stocks%20Slide%20Before%20High-Stakes%20Megacap%20Earnings_4.pdf)
5 https://www.cnbc.com/2024/07/18/stock-market-today-live-updates.html
7 https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Fiscal-Policy
8 https://www.barrons.com/articles/asml-stock-drop-price-buy-sell-79d71cc3?mod=hp_LEAD_1_B_3 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Barrons_ASML%20Stock%20is%20a%20Buying%20Opportunity%20After%20Tumble_8.pdf)
9 https://www.bloomberg.com/features/2024-trump-interview-transcript/ (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Bloomberg_The%20Donald%20Trump%20Interview%20Transcript_9.pdf)
10 https://www.barrons.com/articles/tsmc-stock-price-taiwan-semi-e70d6c61?mod=article_inline (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Barrons_TSMC%20Stock%20Falls_10.pdf)
[1]1 https://www.bloomberg.com/news/articles/2024-07-18/tsmc-s-profit-surpasses-estimates-after-ai-investment-surges (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/07-22-24_Bloomberg_TSMC%20Hikes%20Revenue%20Outlook%20to%20Reflect%20Heated%20AI%20Demand_11.pdf)
12 https://www.brainyquote.com/quotes/henry_david_thoreau_106041