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Navigating Turbulent Financial Waters: Insights into Inflation, Interest Rates, and Market Trends

Navigating Turbulent Financial Waters: Insights into Inflation, Interest Rates, and Market Trends

September 07, 2023

Transcript From our Monthly Market Update

Jual Fuchs: [00:00:00] Gentlemen come to that, a podcast of folks looking to expand the knowledge about finance. This podcast is hosted Jason.

Jual Fuchs: Sage financial bikers and I love them. And now you host my daddy.

Jason Fuchs: Thanks Jewel. You did such a great job. You ready to start the show? Yes.

Jason Fuchs: Ladies and gentlemen, welcome to Dad Sense. I'm your host, Jason Fuchs, managing director of Sage Path Financial Advisors. I am thrilled to be here today for our monthly market update, where we talk about what happened in the stock market, the economy in the month of August. Let's jump right into it, despite the hope.[00:01:00]

Jason Fuchs: For a continued market upswing, the positive trends we saw back in July did not carry into August. The Dow, NASDAQ, s and p, they all finished down for the month, the Fed, they didn't meet in August, so interest rates remain unchanged. However, the consensus is the Fed will likely implement another interest rate, hike increase at the September meeting.

Jason Fuchs: Potentially one additional hike maybe before the end of the year.

Jason Fuchs: Though the inflation rate remains higher than the fed's target rate of 2%, the US' current 3.3% rate is certainly more palatable than the inflation rates throughout much of Europe that we've seen. The uk, the consumer price index rate was 6.8% in July. Slightly more than double that of the US rate, the Eurozone harmonized index of consumer prices.

Jason Fuchs: That rate came in at [00:02:00] 5.3% for the same period. Woo.

Jason Fuchs: What do you need to know about inflation? Ladies and gentlemen? I am so glad you asked. You ask such intelligent questions, inflation. Well, it is the overall rise and the prices of goods and services over time, and it's measured by something called the Consumer Price Index or C P I for short, at lower rates.

Jason Fuchs: Inflation keeps the economy healthy conversely, higher inflation, well, it can cause a little bit of trouble. It can result in things like reduced purchasing power, and that's how far your dollar goes when buying goods and services, higher interest rates, borrowing money becomes more expensive and lastly, slower economic growth. When borrowing money becomes more expensive, it's difficult for most consumers to undertake big purchases like homes, [00:03:00] cars, appliances, vacations, et cetera. So what does that mean?

Jason Fuchs: Well, it means that consumers reign in spending, resulting in an economic slowdown. August brought abundant weather related tragedy. We had devastating wildfires in Canada, Hawaii, all over the world.

Jason Fuchs: That fire in August, August 8th, that tore apart the historic Hawaiian town of La Haina. It was one of the deadliest in modern US history. There are at least 115 confirmed deceased, and more than a thousand people are missing. Our thoughts go out to all of you impacted that tragic fire.

Jason Fuchs: Many parts of the world, Greece, Spain, Southern France, all over the place. They remain on high alert for fire danger with higher than normal temperatures, drought conditions, very high winds, and we [00:04:00] just had a hurricane here in Florida about a week ago now. Luckily it missed us, hit the Gulf side, and as I understand it, it hit a very rural area.

Jason Fuchs: But again, our thoughts. Positive vibes to those folks. And any of you out there dealing with these wildfires that are just tearing up areas all over the world, our thoughts are with you.

Jason Fuchs: Did you know that September's Life Insurance Awareness Month, how well do you understand this critical pillar in financial planning?

Jason Fuchs: Life insurance is a necessity for some. It provides a safety net that ensures the wellbeing of loved ones, even when you're no longer around to support them. And policy proceeds can be extremely helpful. They cover outstanding debts, funeral expenses, and the ongoing needs of your family. Like mortgage payments, education costs, [00:05:00] daily living expenses, and much, much more beyond its practical benefits.

Jason Fuchs: Life insurance offers peace of mind. You will know with a solid life insurance policy that your family's future is protected. It's secured, and that is important. And for some of you, like I said, it is a necessity. Reach out to this month if you still need to put this protection in place. Matter of fact, reach out to us anytime.

Jason Fuchs: We would be happy to help with the approach of fall. The days are becoming shorter. Hopefully, for many of you, the temperatures are cooling down. Florida a couple weeks ago for about a month was hot, hot, hot, but luckily, fortunately those temperatures, that humidity is starting to drop a little bit. So we're having very lovely mornings here in Florida, [00:06:00] and ladies and gentlemen, we hope you can take advantage of that good weather.

Jason Fuchs: And enjoy your favorite outdoor activities with your families and friends. Maybe if you have pets, and if you have concerns, if you have questions relating to your finances, give us a call. We'd be happy to make ourselves available to you. We're gonna get into a more detailed explanation of what happened in the markets and the economy last month, but I wanna take a time out.

Jason Fuchs: I am all about humor. Dual has been telling me a ton of jokes. They. May or may not make sense. So what I've been trying to do is find jokes I think she would appreciate and share those with her. And here's one I really like and it's great because it's in honor of the talk like a pirate date, and that's on September 19th.

Jason Fuchs: So I'm gonna share this groaner of a joke. You ready? Alright, here it is. I don't know if you're ready for this. Ladies and gentlemen, did you hear [00:07:00] about the pirate? Who got angry? Every time his ship floated away. Yeah. He had to take anchor management classes. I'm sorry. I know that's corny, but he gets me every time and Joel laughs.

Jason Fuchs: Even though she probably doesn't know what an anchor is despite the 30 times I've shared that with her four year olds. Right. She's magic. So we'll let that one slide. Alright. Let's get into a more specific explanation of what happened to stocks in the month of August. In August, equity struggled. Some of their month long winning streaks came to a halt.

Jason Fuchs: All three major equity indices, the s and p, the Dow, the nasdaq, they were all down 1.5% or more in August. The main driver of poor performance has been the reckoning that yields will stay. Higher for longer, quote unquote, and this implies that the Fed may not hike rates much, [00:08:00] if any more, but they will likely keep the rates at their current level until mid to late 2024.

Jason Fuchs: In addition to the news about rates, some investors undoubtedly decided to take profits and sell, or maybe we can refer to that as trim equities after earning 20% or more on the s and p through the first seven months of the year. Now, I know that sounds incredible, but there's a catch to that,

Jason Fuchs: and that leads me to sector performance in the month of August. August. Like I said, it was a large reversal from previous months and that was driven those previous months by large tech companies, and they're dubbed, quote unquote, the magnificent seven. Now, despite positive earnings reports from companies like Nvidia, blew away analyst expectations, by the way, incredible earnings.

Jason Fuchs: Tech did not drive markets [00:09:00] higher. Yeah, I know that's hard to believe. There's something called the Bloomberg Magnificent seven Index. The ticker is B as in boy, M as in man, seven T as in Tom, ladies and gentlemen. It was down 0.08% in the month of August.

Jason Fuchs: Earning season was better than expected for most firms, but many issued negative guidance moving forward based on the cost of capital increasing and set to stay, quote unquote higher for longer. And that's important. Ladies and gentlemen, the energy sector, the only positive performer. The month of August, and that's largely because oil prices moved slightly higher up about 5.84% in August.

Jason Fuchs: Now the oil industry benchmark known as W T I closed at $84 and 70 cents. Can anyone out there guess [00:10:00] the largest detractor to performance in August? Drum roll please. The utility sector, natural disasters, ravaged the country and caused so many headaches for so many utility companies. And again, all of you out there struggling with these natural disasters.

Jason Fuchs: We hope you find peace soon. Truly. So we talked about the exciting world of stocks. Let's talk about the maybe not so exciting world of bonds, but if you're a nerdy financial advisor like me, this stuff is pretty exciting, so you might enjoy it. The Fed did not meet in August. Their next meeting is scheduled for September 20th.

Jason Fuchs: However, there was another gathering in Jackson Hole, Wyoming, that's called the Jackson Hole Symposium. This is where central bankers from all over the world discuss global [00:11:00] events, financial trends, all kinds of stuff. At the event, fed Powell gave a speech and he talked to the press about the current state of the Fed, their plans moving forward.

Jason Fuchs: When analyzing both the August press conference and the July rate hike announcement, the overall sentiment is that September's meeting will be data dependent despite a neutral stance from Powell, the quote unquote higher for longer narrative. Well, that trickled into the bond market. All three major bond indices traded down at the end of the month, and this is mainly due to a rise in yields.

Jason Fuchs: Which move? Inversely opposite to bond prices.

Jason Fuchs: The 10 year treasury closed the month of August, trading at 4.091%. Now that's 13 bips higher than it started the month. 0.13%. For those of you that don't know what bips is, financial [00:12:00] advisors, we love to use all kinds of acronyms and abbreviations. I know that doesn't help you though.

Jason Fuchs: What about the economy? Well, ladies and gentlemen, I'm so glad you asked. From an economic standpoint, August was the first month we started to see what a soft landing might be. There's something called the L E I. It's the leading economic index. It's a leading indicator.

Jason Fuchs: It usually forecasts where the economy is heading. L E I considers different indicators like broad manufacturing, consumer confidence and equity prices. The indicator it was negative for the 16th consecutive month. Why is that important? Well, it shows weakness in the economy. However, there's a flip side.

Jason Fuchs: Continued resilience from consumer spending. Corporate earnings, also reared their heads in August showing why they've kept us out of a recession.[00:13:00]

Jason Fuchs: So ladies and gentlemen, that was the market update for the month of August. I wanna end with the thought for the month. Life is like riding a bicycle. I. To keep your balance. You must keep moving a quote by the well-known Albert Einstein. Ladies and gentlemen, you are excellent. I appreciate you being here every Thursday for Dad sense.

Jason Fuchs: We'll see you next Thursday for a new episode. And guess who's gonna be joining us. That's right. My lovely wife, Amber. How I miss her when she's not on these. Thank you for being here. Take care and be well. Oh, oh, oh. Hello. It's me, Santa Claus, otherwise known as Old Saint. Saint Jason has. Also, his three year old daughter can get all the hot toys ahead of schedule.

Jason Fuchs: I'm visiting from the North [00:14:00] Pole so I can read the disclosure. We don't want to irritate regulators now do we? Securities and investment advisory services offered through F SS C Securities Corporation, F S C member. Finra, S I P C F S C is separately owned. Another entity. Entity, the nor marketing product or services referenced to our independent of F Ss C.

Jason Fuchs: Jason Fuchs, Amber and Sage Financial advisors are unaffiliated oh oh oh.