Market Update: August 15th, 2024
I am excited to announce that I will be starting a weekly market update email to all clients to keep you informed about the latest developments in the markets. Beginning today, you will receive a weekly update that will provide insights into market trends, key events, and potential opportunities.
In a world that seems littered with misinformation, having a weekly source of relevant information that you know and can trust seems very valuable and I am happy to do so. As such, these updates will be designed to help you stay informed about key things that you may hear about elsewhere – and I hope to be able to anticipate and address any questions or concerns you may have.
--------------------------------------------------------------------------------------------------------
MARKET UPDATE | AUGUST 15TH, 2024
Federal Reserve's Current Stance: The Fed has likely reached the peak of its interest rate cycle, with any future rate cuts contingent on economic data. Despite recent efforts, inflation remains higher than the target, and central banks may increasingly prioritize addressing unemployment over strictly adhering to inflation targets.
Interest Rates and Currency Dynamics: With interest rates peaking, the dollar has likely peaked as well. This shift has led to varying impacts across different currency baskets. Commodity producers and emerging markets are benefiting from higher commodity prices, while developed markets face more uncertainty due to large deficits and political instability.
Economic Growth and Emerging Risks: U.S. economic growth has slowed but remains in positive territory. However, there are rising concerns about unemployment and increasing delinquencies, particularly in credit card and auto loans. Additionally, the upcoming resumption of student loan payments could further strain consumer finances and increase defaults in other sectors.
Inflation and Market Outlook: Although inflation data suggests that the overall rate may stabilize in the short term, there are factors—such as rising goods inflation—that could drive it higher again. As a result, the Fed is likely to pursue gradual rate cuts in upcoming cycles.
Market Expectations and Federal Reserve Predictions: The bond market's expectations for rate cuts have fluctuated, reflecting the ongoing uncertainty. While a soft landing remains the most likely scenario, the risk of a hard landing is still significant, particularly if inflation remains stubbornly high or consumer stress escalates.
Global Impact of the Bank of Japan: The Bank of Japan's recent actions, including rate increases and reduced quantitative easing, are having a significant impact on global markets. A stronger yen and a weaker dollar are contributing to higher inflation expectations in the U.S., and the shrinking dollar liquidity is increasing volatility across global markets.
Overall, I emphasize the complex and volatile nature of the current economic environment, we have a lot of line items on the table, including the ongoing conflicts in Europe & the Middle East, social unrest abroad, and the upcoming elections here in the US. Each of these things add to the volatility of market sentiment and are drivers of fear in the average investor. But, keep in mind that your financial plan, and the portfolios that are managed here at Cantorbridge, are built with these things all in mind.
-Chris Rasmussen