Welcome to our monthly newsletter which focuses on current events and is provided only to our ongoing clients. This is meant to be a deeper dive into issues that are front and center in the minds of our clients and we encourage you to reach out if you have any questions or comments on any of the points mentioned. Have something you’d like to learn more about? Let us know and we will be happy to cover it in one of these newsletters.
If you haven’t yet, take a listen to our podcast, The FI Entrepreneur. We just finished Season One and are starting to organize and record Season Two where we will spend more time digging into the how-tos of entrepreneurship and financial independence. We also are planning to interview a number of guests, so if you or someone you know is active in entrepreneurial or financial independence pursuits, please reach out and let us know!
Stock Market –
On Tuesday of this past week, stocks had their worst day since 2020. The S&P 500 dropped 4.3% the Dow 3.9% and the Nasdaq 5.2%. That’s in one day, not a month or greater period of time. You may recall that in our newsletter last month, in this very spot, we were excited about the general direction of the stock market. We also made sure to detail that we didn’t know if that general optimism in the market would continue. The truth is, no one knows what direction the market will move in on a daily basis and you may as well flip a coin to make your prediction. So, why did the markets tank on Tuesday? It really comes down to about .2%. That is the amount by which the reported value of inflation missed its estimate by. Inflation for August was expected to come in at 8.1%, instead, it came in at 8.3%. This fraction of a percent was apparently all that was needed to send the markets into a selling frenzy. The expectation is that the Federal Reserve will continue with its aggressive policy of increasing interest rates which will continue to put pressure on the economy and stock performance. We believe this is also probable as controlling inflation must be the Fed’s number one priority. Still, inflation aside, we believe there are a couple of bright spots to focus on which should bolster the global economy and ease downward pressure.
Ukraine War –
In reports by CNN and other news outlets this week, it appears that Ukraine is making strides in taking back territories previously held by Russia. As Ukrainian forces have advanced, the true strength of the Russian military and its troops’ willingness to fight has been exposed as severely lacking. If this trend continues, the general hope is that a peace treaty will be signed and the war that has helped foster instability and supply chain shortages all over the world will come to an end sooner than later. This would be good for the soldiers and civilians on both sides of the conflict and the markets as a whole.
The End of Covid?
On Wednesday, the World Health Organization released information that they are hopeful the Covid pandemic may be nearing a close. Global deaths due to the disease have dropped to their lowest point since March of 2020, a drop we are much happier to experience than the stock market’s recent woes. Other hopeful signs are new cases dropping and a newly available booster shot that protects against the original strain of the virus and the currently active BA4 and BA5 strains. Undoubtedly, we will continue to see peaks and valleys in the fight against Covid, but it seems the worst is behind us.
Mortgage Rates Continue Rising –
As the Fed continues to increase interest rates, mortgage rates continue to rise. Bad news for anyone looking to purchase or sell a home. The 30-year rate on mortgages rose to 5.89%, pushing more would-be buyers out of the market. As this trend continues, sales of existing homes will drop (as they have done for the past six months) and inventory should build up in the market, hopefully cooling what has been a historically hot market (which is one of the driving factors of inflation). Mortgage rates tend to track the 10-year Treasury rate, which has progressively been pushing up. While none of this is good news, we do not anticipate a large-scale housing market downturn as there are strong factors at play, such as a deep shortage of housing and a generally robust economy, which will continue to strengthen demand and prices for homes.
Trains Will Run, For Now –
In hopeful news for what could have become the newest thorn in the side of the American economy, a tentative deal has been struck to avoid a railway strike. The deal has not been finalized by union members, but they have agreed not to strike while votes are counted in the next few weeks. The White House is highly incentivized to avoid a strike at all costs with the Midterm Elections approaching, so we expect a resolution to this issue sooner than later. The workers and their unions likely know this and will be playing hardball. These talks affect the pay and benefits of approximately 115,000 workers for railroads like Union Pacific and Norfolk Southern. Pay increases and access to benefits are the sticking points in these negotiations.
Thank you so much for taking the time to read our newsletter. We hope you’ve found some value here. Please reach out if you have any questions or comments. Share this with your friends and family and let us know if you have any topics you’d like us to cover.
Have a great month and we’ll see you next time!
The Bona Fide Family