Hello Eagle Wealth Community,
We hope you're well.
With markets caught in a volatile pattern of selloffs and rallies, we thought we'd do a quick round-up of what we know (very little) and don't (a whole lot).
(Don't want to hear about markets right now? We've got you. Scroll down to the P.S. for something fascinating.)
We also have a challenge for you at the end, if you're up for it.
Before we begin, we should say: if you're looking for perfect clarity, you won't find it here. From where we stand, the crystal ball looks murky.
Even the economic data strategists rely on is confusing, complex, and contradictory.
How likely is a recession?
We've already seen two negative quarters of GDP growth – that’s the technical definition of a recession.1
However, the official arbiter of recessions, the National Bureau of Economic Research (NBER), hasn't made the call yet because they're waiting to see how long and how widespread the current dip in growth is.
There are real risks of a recession all around us, but the overall picture is a mixed bag of positive and negative.2
On the positive side: The labor market has defied gravity and is still creating plenty of new jobs. Consumer spending is also looking healthy.
On the negative side: Persistent inflation is obviously on everyone's radar, as are the Fed's aggressive interest rate hikes.
As the economy recovers from all the distortions of pandemic lockdowns, federal spending, supply chain snarls, and policy changes, it could be hard to avoid a recession.
So let's be calm, ready, and flexible.
Are interest rates going to go higher?
That seems likely, yes.
Despite the optimism of folks who hope for a loosening of hikes, the Fed's monetary policy is likely going to continue tightening (and stay tight) to bring down inflation and keep it down.
Slacking interest rates too soon could lead to the lingering inflation problems of the 1970s, which we think Fed policymakers want to avoid.
With the benefit of hindsight, we know that a key contributor to the persistently high inflation in the mid-to-late 70s was the Fed's choice not to aggressively raise interest rates (to avoid triggering a recession).3
Unfortunately, that timid approach ended up failing.
The interest rate shock treatment a new Fed chair imposed in the early 80s triggered multiple painful recessions in the pursuit of low inflation.
It doesn't seem likely that we'll see the same situation today.
Why? The Fed's attitude is quite different, the economy is structurally different, and economists are much more aware of the delicate balance they must strike.
Have we seen the bottom of the market yet?
That's hard to say. Historically, the fourth quarter has been positive for market performance.4
However, we all know that the past can't predict the future, and there's a lot of uncertainty on the horizon.
We've got inflation and interest rate worries, midterm elections, a war in Ukraine, and energy price concerns.
However, we've seen that investors are eager to be optimistic, so we can expect rallies when positive news hits.
Timing market tops or bottoms almost never works. What works is being in the market when it moves.
Bottom line: Let's not focus on timing. Let's focus on sticking to the strategies we've set so we can see the upside when it comes.
With all the recent news, we can be forgiven for thinking that things are a mess. That everything’s bad or getting worse.
If you feel that way, you're not alone. A lot of people feel that way.
We're human. We live our lives one day at a time inside a fairly small bubble. And that bubble is easily influenced by daily hassles, headlines, and our own mindset.
We can’t promise you that everything’s going to be great. But we can gently remind you that we’ve been in places like this before.
And we’ve made it through.
Maybe a little older, a little wiser, and a little more cautious.
We’re not alone in this. We have you and you have us. We’ll take it one step at a time.
We’re watching, we’re strategizing, and we'll reach out as needed.
Before we go, we’d like to close with a challenge for all of us.
What are you grateful for right now? What’s good and beautiful about your life and the people around you?
Will you hit “reply” and let us know?
Your Eagle Wealth Team
P.S. We promised you something fascinating and here it is. Here's a fun TED talk by a pickpocket who teaches us about misdirection and human attention. Here's another one on lessons about life from the longest study on human happiness (this one's worth saving to watch later). What do you think? Did you learn anything interesting to share?
P.P.S. An update on student loan forgiveness. Please sign up for updates from the Department of Education so you can get your application submitted well before payments resume on December 31st. Processing will likely take weeks, so you want to get in as early as possible to avoid paying more on your loans.
Stay Alert for Sleep Disorders
We spend nearly 230,000 hours of our lives doing it. While it is not a conscious state of mind, we long to attain it. Nearly 15% of the American population hasn’t been getting enough of it—for a very long time. It’s sleep, and experts list nearly 70 disorders. i
Lack of or disrupted sleep creates numerous health problems, including hormone level fluctuations, mood shifts, and rapid weight gain or loss.
Here are some basic tips to beat insomnia:
- Go to sleep at the same time each night.
- Avoid using phones or reading devices before going to bed.
- Don’t use caffeine, nicotine, or alcohol late in the day.
- Get regular exercise.
- Don’t have a heavy meal late in the day.
- Follow a routine that helps you relax.
Making a good night’s sleep a top priority will lead to a healthier and more productive life.
Tips adapted from WebMD
The Week on Wall Street
A powerful two-day stock rebound cemented a positive week for investors as a new trading month began.
The Dow Jones Industrial Average rose 1.99%, while the Standard & Poor’s 500 added 1.51%. The Nasdaq Composite index increased 0.73% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 3.42%.1,2,3
Stocks Start Strongly
Stocks opened the week posting their best two-day rally since March 2020, as the U.K. prime minister’s decision to reverse a tax cut proposal that had upended financial markets the previous week lifted investors.4
Falling yields further lifted investor enthusiasm, as did new economic data indicating a cooling economy. Losses in the last two days erased much of the gains as concerns about higher rates and recession once again moved front and center. The selling pressure was due to a stream of hawkish comments by Fed officials and labor market data that suggested the Fed would likely stick with its rate-hike plans.
A Mixed Labor Picture
Employment-related reports offered conflicting signals on the state of the labor market. In a sign of cooling, the number of open jobs in August fell 10%, while a subsequent report from Automated Data Processing (ADP) showed continued labor market strength. ADP reported private employers added a higher-than-anticipated 208,000 jobs in September, and annual wages rose 7.8% from a year ago.5,6
Jobless claims rose to 219,000, up from the previous week’s 190,000 and in line with 2019’s average. September’s employment report showed that employers added 263,000 jobs–slightly lower than expectations. The combination of new hiring and lower labor force participation led to a drop in the unemployment rate to 3.5%.7,8
THE WEEK AHEAD
KEY ECONOMIC DATA
Wednesday: Producer Price Index (PPI). Federal Open Market Committee (FOMC) Meeting Minutes.
Thursday: Consumer Price Index (CPI). Jobless Claims.
Friday: Retail Sales.
Source: Econoday, October 7, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
COMPANIES REPORTING EARNINGS
Wednesday: Delta Air Lines, Inc. (DAL), PepsiCo, Inc. (PEP).
Thursday: Wells Fargo & Company (WFC), Walgreens Boots Alliance, Inc. (WBA), BlackRock, Inc. (BLK)
Friday: JPMorgan Chase & Co. (JPM), UnitedHealth Group, Inc. (UNH), Citigroup, Inc. (C), Morgan Stanley (MS), The PNC Financial Services Group, Inc. (PNC), U.S. Bancorp (USB).
Source: Zacks, October 7, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
Disclosures and Footnotes
Any companies mentioned are for informational purposes only, and this should not be considered a solicitation for the purchase or sale of their securities. Any investment should be consistent with your objectives, time frame, and risk tolerance.
1 - https://www.foxbusiness.com/economy/us-economy-shrank-second-quarter-entering-technical-recession
2 - https://economics.td.com/us-quarterly-economic-forecast
3 - https://www.schwab.com/learn/story/is-1970s-style-inflation-coming-back
4 - https://www.cnn.com/2022/10/03/investing/premarket-trading-stocks/index.html
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
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Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG is not affiliated with the named representative, financial professional, Registered Investment Advisor, Broker-Dealer, nor state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.