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October 15, 2023
SEPTEMBER INFLATION: The Consumer Price Index rose 0.4% in September after increasing 0.6% in August. Over the last twelve months, the CPI was up 3.7%, unchanged from a month ago. The Fed focuses more on the CPI minus food and energy (due to their volatility), or the so-called Core CPI. The twelve month increase in Core CPI was 4.1%, down from 4.35% the month earlier.
INTEREST RATES: The yield on the ten-year Treasury stayed high this week, but not quite as high as the 16-year highs set last week. When this rate goes up, it tends to push mortgage rates and other commercial interest rates up. This has led many to believe that the Fed might feel it does not need to raise interest rates at the beginning of November (their next meeting). With these interest rates rising, the economy will slow without the Fed needing to raise rates. At the end of this week, the average 30-year mortgage rate in the U.S. was 7.57%, up from 7.49% the week before.
OIL PRICES: Oil prices jumped 4% to end the week. This came after the U.S. sanctioned two shipping firms it claimed breached the G7’s oil price ceiling for Russian oil. The price ceiling was an initiative to keep a consistent supply of Russian oil on the market while limiting the revenue Russia could enjoy. This action added to supply worries in the energy markets.
INVESTORS KEEPING THEIR EYES ON ENERGY PRICES: The S&P 500 eked out a second straight week of gains. Markets were buoyed by the belief that higher mortgage and other interest rates, influenced by the rise in the 10-year Treasury yield, will cause the Fed to keep rates the same at their November 1 meetings. Large U.S. banks reported strong earnings last week, which pushed their stock values higher. But as the week ended, the focus shifted to how the war in the Middle East might affect energy prices. Stocks, especially ones that rely on discretionary spending (casinos, cruise lines, etc.), sank on Friday.
LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.
STOCKS AND TIME: As you all know by now, past performance does not guarantee future results. Having said that, let me tell you a little about history. Since 1928, if you look at any given month during that entire period, 62.6% of the time the S&P 500 has been up. That means 37.4% of the time, it is negative. If you look at any given year, the S&P 500 was up 74.6% of the time. At five years, the S&P 500 was up 89.3% of the time. Over ten years: 94.4%. At 15 years, it is 99.6%. Once you get to 16-year time periods or longer, the S&P 500 has always been positive.
CHINESE DEVELOPERS UNDER STRAIN: Country Garden is a huge real estate developer in China. It failed to make an international debt payment last week. In the past few months, it has run into a major liquidity crisis. After failing to make a payment on a $60 million loan in Hong Kong dollars, Country Garden announced that it does not expect to meet all its U.S. dollar bond debt obligations when they come due, basically admitting that it is going to default. As I have reported here before, China’s Evergrande Group, another large real estate developer in China, defaulted on U.S. debt in late 2021 and continues to operate under intense strain. Will these developers collapse and put further strain on an already faltering Chinese economy?
TOO MUCH SOCIAL MEDIA: According to a recent Gallup survey, the average amount of time an American teenager is on social media each day is 4.8 hours. It gets longer as the teens get older. 13-year-olds average 4.1 hours per day, and 17-year-olds average 5.8 hours. Girls spend almost an hour more than boys (5.3 vs. 4.4 hours). YouTube and TikTok are by far the most popular with an average of 1.9 hours per day on YouTube and 1.5 hours per day on TikTok. I wonder how much time these teens average reading books per day.
TAKING BEAUTY FOR GRANTED: I am now on the Board of Trustees of my alma mater. During our meetings last week in Massachusetts, I got this view of Coy Pond, and the leaves beginning to turn. For four years as a student, I saw this and took it for granted. I did not do so this time. In a world of seeming chaos, there is a lot of beauty.
Have a great week!
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SOURCES:
SEPTEMBER INFLATION: https://www.bls.gov/news.release/cpi.nr0.htm
INTEREST RATES: YCharts.com AND https://www.wsj.com/economy/central-banking/cpi-report-september-mild-inflation-862679f7?mod=economy_lead_pos3
INVESTORS KEEPING THEIR EYES ON ENERGY PRICES: https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-10-13-2023-e93fb394?mod=stocks_news_article_pos3
OIL PRICES: gritcap.io
STOCKS AND TIME: https://www.tker.co/p/higher-interest-rates-interest-income
CHINESE DEVELOPERS UNDER STRAIN: https://www.wsj.com/finance/chinas-country-garden-succumbs-to-debt-crisis-after-sales-drop-84c85a79
TOO MUCH SOCIAL MEDIA: https://www.zerohedge.com/technology/us-teens-spend-48-hours-every-day-social-media
(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.
Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.