Temperatures in many parts of the United States were abnormally hot in July. Many places throughout the southwest broke new daily records for the average number of days above ninety degrees Fahrenheit. Similarly, July was an even busier month than usual in terms of meaningful economic events, and on top of that, there was a spike in stock market volatility. Investors showed their reflexivity and elasticity to market rate changes and events with big economic implications.
Stagflation is a misnomer, mused the great twentieth-century American economist Milton Friedman. Stagflation is not simply a period of slow economic growth and rising prices, it’s a cycle of inflation causing stagnation, concluded the monetarist sage. Freidman’s comments likely highlight how economic growth is hard to achieve during inflationary cycles since interest rates must remain elevated to strip inflation from the economy. Intuitively, above average rates are typically countercyclical for growth.
Higher interest rates in the US may be starting to countercyclically affect outside economies because of the strong demand for US dollars. When financial markets demand fewer non-US dollar assets, all those foreign exchange reserves go home to roost, increasing the odds that those international economies will experience renewed inflation threats.
The 1970s of American history stand out not only for cultural shifts and political upheaval but also for a significant environmental awakening. The era witnessed a burgeoning awareness of the need for environmental protection as industrial pollution marred landscapes and tainted waterways. Legend has it that pollution in the Cuyahoga River in northeastern Ohio was so bad that a spark from an overpassing Cleveland railroad bridge ignited chemicals and debris throughout the river on fire.
Current market affairs offer a myriad of insights for Investors to consider. Economically, there's a prevailing sense of optimism and confidence permeating through various sectors of the market. This positive sentiment has translated into key trends, including surging stock prices, resilient real-estate valuations (despite higher mortgage rates), and stable interest rates on many fixed income securities.
Maintaining market leadership presents formidable challenges. Competitors inevitably converge wherever there's a frontrunner, aiming to capitalize on their success and potentially overthrow them. James Madison, one of America's Founding Fathers, vocally opposed opening a federal bank to serve the treasury needs of a nascent American government.
The new year kicked off with several unforeseen events spanning global logistics, sports, and financial markets which have captured public attention. Notably, the Detroit Lions' unexpected journey to the NFC Championship game in the NFL, completing an impressive regular-season performance, took many by surprise.
Happy New Year! As the calendar turns, many embrace the opportunity to shed old habits and embrace a fresh start with renewed purpose and aspirations. The arrival of the new year often brings anticipation of change, though the specific nature of that change remains uncertain until the journey unfolds. Likewise, the realms related to economics, investing, and personal finance will undoubtedly transform throughout the year.
In just one month, the financial markets managed to bounce back from a previous period of poor investment returns, which benefited many investor portfolios. Various types of investments, including those tied to real estate, fixed income, and equities, experienced a notable recovery in value last month. Depending on the portfolio asset, market returns during November restored certain assets to higher valuations, matching the mid-summer market tops of this year.
Stocks encountered another round of mild monthly losses in October, extending their streak of losses to three consecutive months. A more competitive picture in fixed income may have stripped away some demand for stocks as of late. When viewed from the lens of opportunity costs, every notch higher in fixed-income yields raises the performance bar for stocks to clear in the future.
The Federal Reserve (Fed) paused and held short-term interest rates flat in September. The decision made at the last Fed meeting was the first decision to pause since the Fed started its current rate cycle. The Fed may have kept short-term rates unchanged last month, but that comes after increasing rates a full 5% in less than 20 months.
The stock market broadly declined in August. Last month marked the first time stocks lost money since February, 2023. The state of interest rates and broader market uncertainty seemed to give stocks a reason to pause. However, the strong stock market returns throughout most of this year appear to indicate that many investors believe stocks represent a great value in the long run.
Investor optimism has significantly improved since the global rate tightening cycle began in 2022. Investors may even look at capital markets today and think this is the best of both worlds regarding stock and bond returns. On the one hand, public equity markets have had an incredible start to the year.
The Santa Claus rally is said to occur during December’s last five trading days and the first two in January. These seven market days generally provide investors with positive returns, according to research that dates back to the 1950s. But, of course, there are always exceptions to the heuristic in non-ordinary times.
