From the desks of Stanley Katz & Lauren Madera
HAPPY GRANDPARENTS’ DAY!
“LOVE IS THE GREATEST GIFT THAT ONE GENERATION CAN LEAVE TO ANOTHER.” — RICHARD GARNETT
Markets fell in a holiday-shortened week (DJIA: -1.57%, S&P 500: -0.80%, Nasdaq: -0.66%) and oil did most of the damage. Attacks on Saudi energy infrastructure and continued hostilities involving the U.S. and Iran pushed Brent crude toward $110 a barrel before it eased on Friday. Treasury yields followed, and the 10-year note approached 5%. Then came the inflation data. Producer prices accelerated sharply in August, and Friday’s consumer price index (aka CPI, the government’s primary measure of what households pay for goods and services) showed core prices rising at their fastest monthly pace since April. The reaction was immediate. Market-implied odds of a September rate hike jumped to roughly 87% by Friday afternoon from about 59% a week earlier. That is a striking reversal from mid-August, when those same odds sat near 32%. The labor market offered no counterargument this time, as jobless claims held steady. Consumers, however, are feeling the strain. The University of Michigan’s preliminary September sentiment reading fell for a second consecutive month, and expectations for inflation in the year ahead reached their highest level since June.
Argus Research’s latest commentary carries a title worth borrowing. They call it a chill pill, and the observation behind it is that global tensions keep rising while market volatility keeps sinking. The VIX, the common gauge of how much movement investors expect from stocks, has stayed below 20 all year despite a war, an energy shock, and a Fed that may be about to raise rates. Argus reads that calm as a judgment rather than complacency, arguing that investors increasingly treat higher rates as evidence of a strong economy instead of a threat to one. Their chief market strategist puts it more bluntly, suggesting the Fed is already a few hikes behind where it should be. The rest of their case rests on earnings and valuation, both of which they view as supportive heading into year-end. They are candid about what could go wrong: a weak housing market, rising borrowing by AI companies, strains on affordability, and the war with Iran. September is historically the worst month of the year for stocks, which makes this year’s calm all the more conspicuous.
While Argus names a weak housing market among the risks approaching year-end, Schwab’s latest “On Investing” podcast ascribes a longer time horizon to that risk. Their guest, housing analyst Ivy Zelman, argues that what looks like a rate problem is closer to a demographic one. Birth rates sit below replacement, immigration has nearly stopped, and Boomer mortality is accelerating. Taken together, this may point toward fewer new households forming for decades rather than quarters. Zelman expects deaths in this country to outnumber births by 2030. The conversation also explains why housing feels so uneven from one metro to the next, as Sun Belt markets work through oversupply while coastal and Midwest markets contend with almost no inventory. The bigger implication is that lower rates, whenever they arrive, may not deliver the rebound most people are waiting for because a shortage of buyers is a different problem than an expensive mortgage.
Below are links to a number of third-party research reports that we have read and analyzed over the past week. We hope you will find the information interesting, useful, and worthwhile.
Argus:
Schwab:
BlackRock:
Capital Group:
First Trust:
Stanley Katz & Lauren Madera, Financial Advisors
ClientFirst Financial Strategies, Inc.
937-293-5500
Source for weekly stock market returns: Barron’s.
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