Money Matters 💰- Bigger Problems than a Recession?
GM friends & investors. Today we are going to be diving into the following:
What's going on in the markets
The Q3 GDP report & what that means for us
A potentially bigger catastrophe than a recession
Quotes to live by
Fun Fact:
On this day in 1997, The Dow Jones Industrial Average fell 554.26 points, forcing the stock market to shut down.
THE MARKETS
This week the S&P 500 and major indexes rebounded in hopes that the federal reserve will start cooling interest rate hikes.
The next FOMC meeting will be held on Nov. 1-2
As you see in the heat map above, Some major tech stocks reported earnings (Microsoft, Alphabet, Amazon, & Meta) and sank the S&P & the tech-heavy NASDAQ with it.
Why did these companies have a dramatic effect on the indexes?
Microsoft and Google (Alphabet) are among the most heavily weighted stocks in the S&P 500.
Because of their hefty market values, they have an outsize influence on the broader indexes' moves.
On the bright side, one factor contributing to optimistic outlooks is current valuations in the market.
Stocks look less expensive than they were for much of the pandemic. Suggesting that there are better returns to be had in the future.
In my opinion:
Most major indexes won't start rebounding to new highs until the federal reserve changes its stance on monetary policy.
The feds are playing a delicate game of deciding when to stop raising rates is the right time.
On the one hand, if they stop raising rates too soon, inflation will become a much bigger issue. On the other hand, if they keep raising rates past where they need to. They would be crippling the economy for no reason.
It is a tricky balancing act because the effects on growth because of rising interest rates aren't seen until a year later.
The effects of rising interest rates affecting inflation aren't seen until 3-4 years later on average. (According to the International Monetary Fund)
This Lag creates the risk that central banks might ease monetary policy too soon.
When people start losing their jobs before inflation cools, those in power are often pressured to stop the pain.
ECONOMY
U.S. Bureau of Economic Analysis (BEA) released Q3 Gross domestic product numbers yesterday.
The Results?
The numbers showed the US economy grew by 2.3% annually in the third quarter.
In the report, however, some signs pointed to a broader market slowdown. Both consumer and business spending faltered due to high inflation and rising interest rates.
As you can see from the chart above, net exports (because of the shrinking trade deficit) drove most of the third-quarter growth. Consumer spending contributed less than the previous quarter.
Highlights of the report:
Tech companies that saw bloated valuations during the pandemic are feeling the effects of rising rates
Inflation is denting consumers' appetite for big-ticket purchases
Most Americans say it is a bad time to buy a car or large household goods.
A Bigger Catastrophe than a Recession?
According to the US Secretary of labor, Marty Walsh, new turmoil might be brewing.
Surprisingly, it isn't about inflation or a recession.
Both political parties approach to immigration reform is a "catastrophe in the making," Marty said.
Why?
The US is amidst one of the tightest labor markets in history. Walsh is concerned that decreasing the workforce will cause serious labor market problems in the next five years.
Problems such as:
Baby boomer retirement is expected to skyrocket in 5 years.
The number of high-school grads is expected to peak (then drop) by 2025
The current immigration situation discourages business's from hiring
LIFE
I wanted to take some time today to talk about a philosophy that has served me well. That being... Stoicism
Founded thousands of years ago, stoicism has remained ever so relevant in our society because of its powerful teachings on the soul.
It doesn't matter who you are or what you have gone through; stoicism can make your life exponentially better.
At least, it has for me.
Disclaimer:
Nothing said in this newsletter is meant to be taken as financial advice, do your own research before making any investment decisions.