Greysen Golgert/Brien L. Smith CFP®
Economic Analyst Intern/Chief Investment Officer A surprising Federal Open Market Committee decision to cut rates by fifty basis points in late September has U.S. financial markets booming a month later. Unfazed by a turbulent start to October that included port strikes, hurricanes, and an Iran-Israel conflict escalation, investors are optimistic about the direction of this surging U.S. economy. Initial worries that the Fed acted too soon have been drowned out by a great jobs report and stable inflation. According to a quarterly Wall Street Journal survey of sixty-six economists, the probability of a recession occurring in the next 12 months is down to about 25%. For context, this same WSJ survey of economists in October 2023 predicted about a 50% chance that a recession would occur this past year. Whether we simply dodged a 50/50 bullet in the last 12 months or not, economists are beginning to lean toward the likelihood that Fed strategy will cause a soft landing instead of a hard one. A recent Bureau of Labor Statistics employment report shows that 254,000 jobs were added in September, while the July and August jobs reports were revised upward by 55,000 and 17,000, respectively. Most of these employment gains have been made in food services and drinking places, health care, government, social assistance, and construction. The overall unemployment rate ticked down to 4.1%, still well below the U.S. long term average unemployment rate of 5.69%. The BLS also releases a monthly Consumer Price Index report, the most widely used measure for inflation. The report for September showed that the all-items price index increased by 0.2%, which was the same as in August and July. For the 12 months ending in September, prices have risen by 2.4% in the all-items index. This is good news for a Fed that is hoping to see inflation slowly wind its way down to an annual target rate of 2%. Energy and medical care commodities were the only sectors that experienced deflation, but sectors that have experienced notoriously high inflation this year cooled off a little last month. The shelter price index only rose 0.2%, compared to a 0.5% increase in August. In the 12 months ended September 2024, Shelter (4.9% increase) and transportation services (8.5% increase) have been the largest drivers of upside inflation this year. According to the Atlanta Fed’s GDPNow model, estimates for Q3 2024 GDP growth are reading in at approximately 3.4%. The advance estimate and most reliable measurement of Q3 GDP growth will be released on October 30th by the Bureau of Economic Analysis, but even the lowest forecasts from private economists suggest that the recent trend of stable GDP growth (since Q3 2022) will continue through the end of the year. Growth appears to be defying economists’ expectations once more, but this could result in more upside risk for an inflation figure that is currently under control. There are several areas to consider when making investment decisions in this new interest rate environment. SMID-cap companies (market capitalization of $20 billion or lower) should have more breathing room to spend and grow because the cost of borrowing will fall as rates do. This has certainly been reflected in the breakout performance of the Russell 2000 small cap index over the past month. However, investors should be selective when analyzing small or mid-cap companies and their valuations. Rate cuts have also created a favorable environment for the traditional 60-40 (stocks and bonds) portfolio allocation. Stocks and bonds are both attractive avenues for investment right now because of soft-landing expectations. If the soft landing scenario occurs and the economy does cool down without a recession, both asset classes will benefit. Sources: https://www.bls.gov https://www.capitalgroup.com/advisor/insights/articles/where-consider-investing-interest-rates-fall.html? https://www.atlantafed.org/cqer/research/gdpnow https://www.wsj.com/economy/economists-predictions-survey-charts-68ba82d6?mod=central-banking_more_article_pos11
0 Comments
A will is an important way to distribute your assets, financial and otherwise. One major limitation of a will is that you have to die before it can become effective; in other words, if you're incapacitated, a will has no legal effect, so any health care proxies or durable powers of attorney you might have will guide any decisions made on your behalf. This could create problems if you need to complete financial transactions with outside parties who have trouble accepting or even refuse to accept a power of attorney.
A will also has to be probated in each state where you have assets — a process that can be lengthy and potentially costly. Further, a will is a public document that can be scrutinized or contested, giving the public access to information you might want to keep private. A trust is a fiduciary arrangement specifying how your assets will be distributed, usually without involvement of a probate court. Additionally, trusts can be structured to take effect before or after death, or in the case of incapacitation. They can be very specific about how, when and to whom your assets will be distributed. Depending on the type of trust, assets held in a trust will be managed by you while you are alive and/or by a disinterested trustee. After your death, your successor trustee will be appointed by the trust in a manner more private than the typical probate proceeding. The following are among trusts' features:
Paying an attorney to set up a trust represents additional front-end costs but may save your heirs significant money on the back end by avoiding probate. Some attorneys offer a basic trust package for a flat fee. Let your family and friends know the trust exists and share the thinking behind its creation to cultivate stewardship around the bequest. You've worked years to build a legacy, so make sure you optimize the legacy you leave to the people and causes you care about. Questions? Please reach out to Laurie at [email protected] Source: Seidel Schroeder https://newsletter.homeactions.net/archive/full_article/14869/10338713/5162414/200504 #1 – Understand what your retirement needs may be.
This first step is to think about and write down what your ideal life after your earning years looks like. Without an idea of what your retirement goals are, it can be difficult to know if you have enough assets to achieve them. That’s why it’s important to take time to understand and articulate your vision for retirement. Are you hoping to travel the world? Spend time with family and friends? Take up a new hobby? Support charitable causes? Purchase a second home? Talk with your spouse about your shared and individual retirement goals, and determine how much you might need each month to live comfortably. This figure can help you determine if your current savings is enough to fund your ideal retirement lifestyle. #2 – Consider what expenses may increase in retirement. A general rule of thumb is to plan on spending between 70% and 80% of your current income while living in retirement. While it’s true some expenses decrease once you leave the workforce, others actually increase. For example, healthcare is a major expense for most retirees, and healthcare expenses typically increase as you age and encounter more medical issues. Similarly, you may find that you spend more on hobbies and traveling now that you have more time to do the things you enjoy. That’s why it’s wise to consider both the expenses that will decrease in retirement (e.g., commuting to work) and the expenses that are likely to increase (e.g., healthcare). #3 – Develop a financial plan. The best way to help ensure your savings will last throughout retirement is by having a financial plan in place to guide your saving, investing, and retirement income strategies. A comprehensive financial plan puts you in control of all aspects of your financial life and can help you identify specific actions to address the challenges you face. More than anything, a financial plan can help you articulate and remain accountable to your goals, as it clearly highlights where you stand today versus where you hope to be in the future. Questions about your financial plan or how to get started? Reach out to [email protected] #4 – Establish a long-term investment allocation. Once you’ve created a strong financial plan, you need to create an investment plan that gives you the best shot of making your plan come to life. A common mistake made by many retirees is maintaining an asset allocation that’s too conservative. While it’s important to protect your retirement fund, it’s also important to continue growing your assets for the future. After all, you could end up living in retirement for 20 to 30 years — or even longer. You’ll need your assets to continue growing in order to keep up with both inflation and your daily living expenses. In order to continue growing your assets at an appropriate rate, it’s important to maintain a diversified investment portfolio. While stocks are typically more volatile than bonds, they provide the potential for greater growth within your portfolio, which is vital in helping you keep up with inflation. On the flip side, an allocation to bonds and other conservative investments can help protect your assets during periods of market volatility. The financial markets are unpredictable. In order to take advantage of this fact and extend the longevity of your portfolio, it’s critical to withdraw from stocks when markets are up and from bonds when markets are down. We typically recommend our clients have five to seven years of expenses invested in safer assets, such as bonds. This way, when the markets are down, you have the ability to withdraw from less-volatile investments without realizing a loss in your stock portfolio. Once the markets have recovered, we can sell some stocks at a profit to replenish your bond portfolio in preparation for the next bear market. This approach allows us to continue growing your assets for the long term while also protecting the money needed to cover your daily living expenses. #5 – Model a systematic withdrawal plan. Once you have a solid financial plan and an investment allocation that supports it, the final step is developing a systematic withdrawal plan for your assets. This is simply a scheduled withdrawal from your invested assets based on a reasonable withdrawal rate. Retirees in their mid-sixties typically begin by withdrawing no more than 4% of their retirement savings their first year and adjusting that dollar amount for inflation each year thereafter to maintain their spending power. Of course, the exact withdrawal percentage should depend on how much you have, your lifestyle goals, your life expectancy, your desire for passing on a legacy, etc. Your wealth manager can help you model a systematic withdrawal plan that makes sense given your personal financial situation and retirement goals. Could you use help determining whether you have enough retirement savings to achieve your goals? Creative Planning can help. Our experienced professionals help clients make smart financial decisions that take into account a wide range of personal and economic factors. We’d be happy to help you determine a retirement strategy that makes sense for your personal financial situation. To get started, please e-mail or call us at [email protected] or 979-694-9100 Source: Kratz, AJ. Creative Planning, 6 June 2024. Financial Planning. Will Your Savings Last in Retirement? https://creativeplanning.com/insights/financial-planning/savings-last-retirement/?utm_source=pardot&utm_medium=email&utm_campaign=stw September Monthly Economic Market Update
Traditions Wealth Advisors Greysen Golgert/Brien L. Smith CFP® Economic Analyst Intern/Chief Investment Officer September 27, 2024 Federal Open Market Committee (FOMC) members elected to cut the federal funds rate by 50 basis points during their September meeting. After the cut, the official rate range is 4.75 to 5%, but this does not mean interest rates—the costs associated with borrowing—are within that range for all loans. The Federal Reserve sets this rate to dictate the interest rate that banks must pay when they borrow from other banks on an overnight basis. This rate on overnight lending between banks has significant downstream effects that change the interest rates on commercial loans, auto loans, mortgages, and more. Money will essentially become cheaper to borrow for businesses and individuals as a result of the FOMC decision to slash rates. Growth, inflation, and the unemployment rate are all affected by this decision because it will change the amount of borrowing and investment that occurs in the economy. Rates are typically hiked to keep inflation low and lowered to keep employment at maximum sustainable levels by fostering economic growth. The central bank’s September decision was a pleasant surprise for financial markets, with major indices rising to new heights (record highs for the DJIA and S&P 500). The FOMC had kept the fed funds rate at its previous level of 5.25 to 5.5% for well over a year, and this rate cut shows that the Fed is no longer committed to restrictive policy, which is a major green light for investors. Most economists agreed that it was time for the cutting cycle to begin, with some prominent economists even arguing that it should have begun at the FOMC’s last meeting in July. All of the FOMC members saw the need for cuts too, but there was a surprising point of dissent not seen during Jerome Powell’s tenure as chair of the Fed. Taking issue with the size of the cut, Federal Reserve Governor Michelle Bowman was the first governor to dissent from an interest rate decision since 2005. Understandably, Bowman does not want to risk reinflation when inflation is finally close to the target rate of 2% and the economy has been robust despite a weakening labor market. On the other side of the discussion, proponents of the 50-point cut argue that inflation is under control and the Fed should seek to be proactive instead of reactive. As a data-driven entity, the Federal Reserve is often backward-looking, meaning that they primarily rely on trends in past data instead of forecasts to make decisions. This has led to situations in the past where the Fed waited too long for more data and got burned as a result (most recently during the inflation episode of 2021-2022). As the bold rate decision suggests, this Fed seems to be learning from previous mistakes. We have yet to see what the broader impact of looser monetary policy will be at this time, but optimism for a soft landing and continued growth is high. At his press conference following the FOMC meeting, Jerome Powell expressed optimism and confidence in this US economy where GDP grew by 3.0% in Q2, and projections have Q3 growth at 2.5%. He acknowledged that the Fed’s “intention is really to maintain the strength that we currently see in the US economy.” As for inflation concerns, recent PCE—Personal Consumption Expenditures—index readings certainly support the Fed’s decision to loosen monetary policy by cutting interest rates. For the month of August, PCE and Core PCE—excluding volatile food and gas prices—prices rose by 0.1%, bringing the year-over-year increases to 2.2% and 2.7%, respectively. We need more data to determine the effect this cut will have on inflation in the coming months, but those numbers are remarkably close to the Fed’s target year-over-year inflation rate of 2%. Ideally, inflation will continue cooling in 2024 and hold steady between 2 and 2.5% for 2025. In the meantime, all eyes will be watching how the Fed’s outlook evolves, and what federal funds rate they plan on targeting as this cycle gets underway. Sources: https://www.capitalgroup.com/advisor/insights/articles/fed-just-cut-interest-rates-now-what.html https://www.wsj.com/economy/central-banking/the-fed-aims-to-repeat-greenspans-1990s-masterpiece-69613b85 https://www.crossmarkglobal.com/wp-content/uploads/Dolls-Deliberations-Weekly-Investment-Commentary_092324_FINAL.pdf Traditions Wealth Advisors
Greysen Golgert/Brien L. Smith CFP® Economic Analyst Intern/Chief Investment Officer Is a recession on the way? Or is this economy primed for a soft-landing scenario? Investment professionals are certainly optimistic that the global economy will manage to avoid a recession. According to an August Bank of America survey, 76% of global fund managers expect a soft-landing outcome in the next 12 months, 13% expect a recession, and ~8% expect the economy to keep chugging along without landing. While the results of this survey are encouraging, sentiment and expectations a year out will never be a reliable predictor. We only need compare the results of 2023 global fund manager surveys to the economic situation of today to find unmistakable evidence of sentiment’s inconstancy. However, the data informing these expectations is worth considering seriously. Correctly interpreting that data is a difficult and imperfect science, but consistently falling inflation and rising unemployment provide support for the soft-landing optimism. A recession—defined by the National Bureau for Economic Research (NBER) as “a significant decline in economic activity that is spread across the economy and lasts more than a few months”— remains a distinct possibility but seems to be in a state of perpetual postponement. Financial markets endured a tough first week of August when the Sahm rule—an unemployment-related recession indicator—barely triggered, bringing recessionary fears to a fever pitch and the volatility index (VIX) to its highest peak since 2020. As those fears abated, the following weeks saw the longest rally of the year, with each major index regaining all of those losses. Markets recovered from that mini crash because the past data and future projections do not suggest an impending recession. GDP growth, perhaps the most relevant indicator for the NBER’s recession definition, has continued to demonstrate the resilience of a truly exceptional US economy. With 2.8% growth in Q2 and forecasts predicting 2% growth for Q3, there would have to be an extreme demand or supply shock to bring this economy into a recession. Another thing to consider is that retail sales surged upward 1% in the month of July, indicating the strength of the US consumer and propelling growth further. Despite the positive outlook, there are several points to touch on that may put a damper on the wave of optimism. For starters, unemployment is rising month over month, but this is not necessarily a bad thing. Even an exceptional US economy cannot sit above maximum employment for too long, and what we are seeing is a steady correction from historically low unemployment levels to a long-run average that will likely hover around 5%. Unfortunately, inflation is not at the Fed’s target rate of 2%. The PCE level, the Fed’s preferred gauge of inflation, has slowly ticked down to 2.5% year over year and it should continue to fall. However, with a September rate cut on the horizon we may see what John Mauldin of Mauldin Economics calls a “head fake.” Recently, there have been several times in this rate environment where inflation began trending downward only to fake us out by suddenly reversing course. Worries remain that excess demand caused by a rate cut may result in a head fake that pops inflation up to an undesired level. Businesses of all kinds are likely to jump on the opportunity to borrow at a lower cost, and the Fed is certainly considering the adverse effects on inflation that might bring. The Fed will almost certainly cut in September, and the debate now is between a 25 or 50 basis point cut. In his speech at the Jackson Hole Symposium, Fed Chair Jerome Powell signaled his acknowledgement of the need for change to combat a softening labor market. The Fed’s rate decision should lay the groundwork for the coming year, and hopefully set the economy up for a soft landing. Sources: Global markets weekly update | T. Rowe Price (troweprice.com) A Head Fake, Maybe - Mauldin Economics Dolls-Deliberations-Weekly-Investment-Commentary_081924_FINAL.pdf (crossmarkglobal.com) https://www.nber.org/research/business-cycle-dating https://finance.yahoo.com/news/investors-more-confident-in-soft-landing-as-fed-rate-cut-expectations-rise-bofa-survey Traditions Wealth Advisors Greysen Golgert/Brien L. Smith CFP® Economic Analyst Intern/Chief Investment Officer July 28, 2024 This month has seen events occur in the US political sphere that have changed the election cycle from relatively predictable to wildly unpredictable in a short amount of time. In the past week we have seen an ever-changing slew of predictions, polls, and headlines that prove this race has been flipped on its head. With that being said, history has repeatedly shown that political turnover has little to no effect on the overall performance of a diversified investment portfolio. There will likely be short-term ripples in the months leading up to the race, but these occurred time and time again as Election Day approached during previous cycles. It is only natural for investors to get the jitters when either candidate proposes a policy change or espouses a desired geopolitical stance, but the long-run reality is that the impact of these ripples fades away in the wake of an election year. In fact, since 1950, stocks have averaged 9.1% returns during an election year and 8.3% returns in the year after an election. Regardless of who wins the presidency or which party controls Congress, financial markets will not be affected by the various potential outcomes. As seen below, the average annual S&P 500 returns from 1933-2022 have been positive under each partisan combination. One of the common lines of thought when politics intersects with investment is that policy change (or continuity) will have a significant impact on individual sectors. While it is certainly true that policy can and will affect certain sectors in diverse ways, betting on the perceived effect of policy positions at this stage is extremely risky. Even if it is possible to anticipate the effect of each party’s current policy objectives, making investment decisions now based off of that is a gamble within a gamble. First, elections are not predictable, and this one recently became less predictable by a significant margin. Second, party policy on a variety of subjects can and often does shift while candidates are on the campaign trail or elected to office. Third, it can be extremely difficult for elected officials to implement policy when they take office, and thus certain policy goals take priority over others. Also, sector performance in election years has not produced much in the way of discernible patterns. Betting on sector returns relative to political outcomes can backfire in many ways, but the safe bet that produces consistent returns is to stick with the fundamentals and a consistent investment strategy.
Investors may also be concerned about the potential for newly elected officials to completely alter the fabric of the economy. Worries especially tend to arise when a single party gains control of Congress and the presidency in one fell swoop. In truth, sweeps have happened before and they are going to happen again, but the makeup of our economy has remained consistent for decades. In past years where one party dominated the legislative and executive branches of our government, the percentage of bills that are defined as having real-world impact on spending and policy has not risen when compared to years in which the government was divided. The quasi-public Federal Reserve and its monetary policy have a far more relevant impact than our elected officials do. Whatever the political situation come November, this US economy will continue chugging along. Apple, NVIDIA, Amazon, and hundreds of other American companies will continue to innovate and grow. In other news, progress on the inflation front and a higher than expected GDP growth reading for Q2 (2.8%) are positive signs for the Fed, the economy, and investors as they provide more optimism for a soft landing. Sources: https://www.invesco.com/us/en/insights/market-performance-2024-presidential-election.html https://www.fountainheadam.com/wp-content/uploads/2024/06/Market-Commentary-2024.5-1.pdf https://www.fidelity.com/learning-center/trading-investing/election-market-impact Traditions Wealth Advisors
Greysen Golgert/Brien L. Smith CFP® Economic Analyst Intern/Chief Investment Officer Financial markets are booming as long-awaited signs of a slowing economy and declining inflation have finally appeared in the recent prints of important economic indicators. The unemployment rate clocked in at 4.1% in June, its highest level since November 2021. In 2022 and 2023, an overheated labor market had the unemployment rate hovering between 3.4 and 3.8% before it began inching upward this year. Estimates hold that the natural rate of unemployment is between 4.3 and 4.4%, indicating that there is still room for the current rate to rise before it reaches that equilibrium level. The other reading of significant import is from the June CPI report, and it indicated a -0.1% change in consumer prices. For the first time since 2022, prices actually decreased on a month-to-month basis, bringing the year-to-date Consumer Price Index inflation down from 3.3% to a more modest 3.0%. With growth remaining steady and each of their dual mandate objectives coming into focus, the Fed’s balancing act appears to be working the way it should. So, why is all of this fueling markets upward? First and foremost, the pressure is now on the Federal Reserve to begin lowering their Federal Funds Rate from the current level of 5.25-5.50%. Following the June CPI report and the unemployment data, markets began pricing in a 100% chance for a 25bps cut in September. While the Fed has proven markets wrong before on rates, Chair Jerome Powell has sounded surprisingly dovish of late. Powell is notoriously close-mouthed about Fed decision-making, but during his congressional testimonies and various speaking engagements this month he has noted, with increasing certainty, that the labor market is cooling, and inflation is moderating to a desired level. Certainty is the name of the game with market sentiment and stocks are soaring because of it. The end of a contractionary rate environment is something that companies and investors are extremely keen on, but other factors have also increased sentiment and kept these market rallies going. As noted earlier, the economy has finally shown consistent enough trends in unemployment and inflation to indicate that it’s behaving as it should. This economy will likely continue to respond as expected, barring any strong supply or demand-side economic shocks while the Fed lowers rates. Another major contributor to the state of financial markets is the rising level of certainty when it comes to November elections. Betting marketplace PredictIt.org now has odds of a Trump victory at 2:1 instead of the coin toss it was just a month ago. In the long-run, markets typically don’t care who sits in the Oval Office, but in the short-run they do prefer less political uncertainty during election season. At this point, the only plausible shakeup on that front would occur if Biden were to drop out of the race. Although the data is cause for optimism about the success of the Fed’s monetary policy, some experts remain skeptical. Recent reports of unchanged retail sales indicate that the economy might be chugging along steadily when it should be slowing down in this environment. It’s also worth bearing in mind that if the Fed lowers interest rates at the wrong time, it could result in a bumpier ride than expected. Transitionary periods are always a little more vulnerable than what we’re used to, but we can’t stay in this spot forever, and everybody knows it. Whether the first cut is in September or December, market confidence in Jerome Powell and the other Fed decision-makers should remain strong. Despite the few worries brought about by the retail sales report and the debate about when to cut rates, a soft landing and “immaculate disinflation” are securely in play for this economy going forward. Sources: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/notes-on-the-week-ahead/is-4-1-percent-unemployment-a-recession-warning/ https://www.investopedia.com/articles/investing/100715/breaking-down-federal-reserves-dual-mandate.asp https://www.yardeniquicktakes.com/the-trump-trade/ Mixed Signals
Traditions Wealth Advisors Greysen Golgert/Brien L. Smith CFP® Economic Analyst Intern/Chief Investment Officer June 25, 2024 Monetary policy among the major central banks officially diverged this month as the European Central Bank (ECB) and the Bank of Canada (BoC) pulled the trigger on a 25 basis point rate cut, with more cuts expected by the end of the year. Meanwhile, the US Federal Reserve System (Fed) and the Bank of England (BoE) remain committed to their current interest rate levels of ~5.25%. This divergence began because the BoC and ECB have seen enough progress on inflation to warrant a gradual easing of their monetary policy. Critics of the cut, especially in the European Union, see the move as premature. For an economy already seeing a resurgence this year, the fear is that cutting rates will bring inflation higher than its current level. While rate cuts are expected later this year in the US and UK, the Fed and Bank of England remain hawkish for now. Each has indicated that they need to see further evidence of cooling inflation and a corresponding decline in economic growth before they can begin easing monetary policy. In his opening remarks at a press conference following the FOMC meeting this month, Jerome Powell emphasized the Fed’s commitment to keeping the Federal Funds Rate high for as long as the FOMC deems necessary. Pressed on all fronts by reporters, he answered again and again that the Fed would continue to pursue its dual mandate objectives of stable prices and maximum sustainable employment. Notably, fifteen members of the nineteen-member FOMC penciled in projections for at least one rate cut before the end of 2024. Despite stubborn inflation from Q1, the CPI(Consumer Price Index) and PCE(Personal Consumption Expenditures) numbers have been positive recently, and it is encouraging to see most of the committee project a slight loosening of monetary policy before the end of the year. However, it should be acknowledged that the Fed is content to let this current rate environment ride until its hand is forced. As Chair Powell indicated in his speech, they will decide based on what the data tells them, and right now that data is telling them to remain firm. That said, the US economy has been hit with mixed signals recently. It’s too early to say whether these developments are positive or negative, but at the very least important indicators are not in line with typical expectations. To clarify, the current rate environment should theoretically cause inflation to cool, economic growth to slow down, and unemployment to rise. One figure that finally moved the way it should according to conditions was inflation. The one-month change in CPI inflation for the month from April to May clocked in below expectations at ~0%, bringing the year-over-year rate down to 3.3%. This is still well above the Fed’s stated goal of 2% year-over-year inflation, but it should be viewed as a positive. After all, lower inflation is lower inflation. However, the major expectation for this quarter is that economic growth will decelerate as it did in Q1. Recent developments indicate that this may not be the case after all. Nonfarm payroll employment (up 165,000 in April) was expected to increase by 190,000 in May but instead shot up to 272,000. In conjunction with that surprise reading, the Atlanta Fed’s GDPNow estimate for Real GDP growth in Q2 is hovering around 3% as of June 20th. The official figure for Real GDP growth in Q2 won’t be out until late July, and the adjusted figure won’t be released until August, but a robust US economy will likely defy expectations once more. The next time FOMC meeting will be July 30-31, right after the release of that advance estimate. By the time they meet, maybe these murky waters will clear and make the path forward obvious. As we saw in Q1, sometimes the data has other plans. Sources: https://perc.tamu.edu/blog/2024/06/inflation-wages-june-2024.html https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20240612.pdf https://www.atlantafed.org/cqer/research/gdpnow PPI and CPI: April 2024 as of 5/23/2024 Traditions Wealth Advisors Greysen Golgert/ Brien L. Smith, CFP® Economic Analyst Intern/Chief Investment Officer Howdy, my name is Greysen Golgert, and I am the new Economic Analyst Intern at TWA for the 2024-25 academic year. I am currently a senior in a 3+2 program at Texas A&M, and I will graduate in May of 2025 with both my B.S. and M.S. degrees in Economics. For the next year, I will be assisting TWA and its clients by providing analysis of, and commentary on, the state of the economy as well as relevant macroeconomic trends. On May 14th and 15th respectively, the U.S. Bureau of Labor Statistics (BLS) released the highly anticipated Producer Price Index (PPI) and Consumer Price Index (CPI) numbers for April. Before analyzing the indices and their implications, we should clarify the difference between the two. The CPI measures the prices that consumers face, and the PPI tracks the prices that producers receive for their goods. Prices received by the producer and faced by the consumer are different because sales and excise taxes are a part of the consumer’s out-of-pocket expenditure, but they are not passed on to the producer. Another important consideration is that the PPI only analyzes prices received by U.S. producers, while the CPI data includes imports in its calculation. The CPI is a more accurate inflation indicator than the PPI, which is more useful as a measure of real growth in output. That said, the Producer Price Index rose by 0.5% in April, bringing the year-over-year increase to 2.2%. Hikes in the prices of services account for approximately three-fourths of the total rise. A 3.9% increase in portfolio management fees as the result of a stock market rally appears to be the main reason that services inflation exceeded monthly and annual expectations. Contributors also included rebounding prices for hotel and motel rooms along with steadily rising health and medical insurance prices. Core PPI—which excludes food, energy, and trade services prices—advanced at a monthly rate of 0.4% and an annualized rate of 3.1%, which was the largest year-on-year gain since April 2023. Most of the goods inflation for the month can be attributed to a 5.4% increase in gasoline prices received by producers. Released the following day, the CPI data did not reflect the unexpected PPI increase. After three straight months of inflation data defying expectations, the CPI was finally in line with predictions. On a year-over-year basis, CPI rose by 3.4% and Core CPI—which excludes volatile food and energy prices—only rose by 3.6%, the lowest percentage increase since 2021. Shelter and gasoline costs for consumers accounted for almost three quarters of the 0.3% monthly increase in the index. Other sectors that saw rising consumer prices besides shelter and energy include medical care, motor vehicle insurance, and apparel. The index saw notable declines in the prices for used vehicles, new vehicles, household furnishings and operations, and airline fares. Even though the PPI data gave expectations a bit of a shock, the CPI data indicates that inflation is likely on the decline. It also probably confirms that the Fed will not need to raise rates this year. Investment markets such as the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average rejoiced at the news, all closing on record highs this week in anticipation of rate cuts and/or a soft landing. A consistent decline in inflation without an extreme rise in unemployment over the coming months is the only way the Fed will consider cutting rates this calendar year. A soft landing is becoming increasingly probable as we proceed through Q2 of 2024. Other key indicators that work in tandem with inflation data are beginning to paint a clearer picture of the future. The labor market is cooling as only 175,000 jobs were added in April compared to 303,000 in March. GDP growth slowed to 1.6% in Q1 of 2024 from a previous growth rate of 3.4% in Q4 of 2023, unemployment is at an encouraging 3.9%, and retail sales were unexpectedly flat in April. All of these pieces of information, even if they may seem counterintuitive, are cause for relief and cautious optimism going forward. Sources:
https://www.bls.gov https://www.wsj.com/economy/inflation-april-cpi-report-interest-rate-55eda190 https://www.reuters.com/markets/us/us-producer-prices-increase-more-than-expected-april-2024-05-14/ Ryan Hill
Associate Wealth Manager Director & Manager of TWA Sponsored Internships Ryan is a 3rd generation Aggie and class of 2024. He was lured to Texas A&M University primarily by his desire to keep his family’s tradition alive and knowing that A&M is a premier university specifically, in recent times, in business. He initially wanted to follow in the footsteps of his mother and become a veterinarian. After recognizing that this was not his core passion, he obtained an interest in the operation of private businesses as well as obtaining a strong interest in the field of wealth management. Ryan's role as an Associate Wealth Manager/Director & Manager of TWA Sponsored Internships keeps him busy by researching and presenting current investments and investment opportunities for clients. He also directs and manages the TWA sponsored internship program. Ryan is the newest full time professional so he enjoys joining and taking notes in client meetings and helping to prepare financial projections. Ryan serves our clients by keeping a close eye on their portfolios and looking into their current funds as well as researching any additional funds TWA might recommend to the the client for investment purposes. When Ryan is not at work, he spends his free time with his wife Elizabeth, and their 6 month old daughter, Margaret. Ryan is an avid hunter and fisherman and also enjoys reading, playing the guitar, and cooking. Ryan volunteers at his church, St. Mary's Catholic Center, as a Rite of Christian Initiation of Adults(RCIA) small group leader. |
Archives
October 2024
Categories
All
|