Alchanati Campbell & Associates
What's up Global debt?
Global debt, the Model Y, divorce, wisdom from the wise, new market strategy, behavior economics, and the impact of higher interest rates.
The Market. As trading day came to its end on Friday the 13th, equities were sitting in the green for the week (though they are down on the day). The Dow, S&P500, and Nasdaq were all positive. Notably, the stock market is almost recouping all of its losses that occurred in the earlier, volatility riddled months of 2018. Lets talk about it.
CPI. The Consumer Price Index was released on Wednesday. There are two main types of inflation measures out there: CPI and PCE. Now, within these two types, there are another two types. Basic vs. Core. When looking at the core inflation, food and energy are excluded from the calculation due to their wild volatility. For the month of March, it put Core CPI at a 2.1% increase year over year (higher than estimated). Core Personal Consumption Expenditures (PCE) came in at 1.6%. Important to note, the PCE is the inflation measure that the Federal Reserve primarily cares about. Moreover, they've held a target of 2% for the PCE. We're not quite there, but many analysts and economists alike believe that it will hit that mark this year for a multitude of reasons, including the tightening labor market, the weakening of the USD, the massive corporate tax cut that came into effect in January, and an increase in government spending.
These higher inflation measures are leading many to believe that the Fed will hike interest rates 3 more times in 2018, not 2 more times as was anticipated.
’Tis the Season. Friday the 13th marks the unofficial/accepted beginning of earnings season. Investors are highly anticipating a strong earnings season, thanks in no small part to the tax plan we talked about previously. Today, JP Morgan Chase (-2.71%), Citigroup (-1.55%), and Wells Fargo (-3.43%). JP Morgan and Citigroup both beat their estimated earnings. Wells Fargo posted a 6% increase in profit, but is facing a $1 billion settlement as they are being investigated. This investigation stems from the opening of fake accounts by their employees.
Zuck vs. The Mob. Facebook CEO Mark Zuckerberg faced Congress this week to address recent concerns over user privacy and the company's overall business model. For two days, Zuck was asked over 600 questions by 100 lawmakers, including questions into whether the company should be regulated, whether it intentionally censors conservative ideas, and whether the Russian government disrupted the 2016 election using the platform. Despite the grilling, Zuckerberg's appearance in the capital seems to have had a positive effect on investors, with Facebook stock increasing 4.5 percent. The future of the stock is unclear. Regulation and a more easily accessible opt-out policy could significantly damage Facebook's quarterly reports. With questions of regulation looming, investors should be skeptical of Facebook bulls.
The Model Y. Tesla plans to begin production of the Model Y in November of 2019; the new all-electric crossover.
Divorce. 54% of baby boomer women and 61% of millennial women leave major investing and financial planning decisions to their spouses. 59% of widows and divorcees wish they had been more involved in finances while they were married. Now after being divorced, the financial decisions become their responsibility and when you had no prior experience with dealing with money management and finances, you can be in trouble.
The New Market. Markets hate uncertainty, but the world is always an uncertain place, When the Ebola pandemic began a couple years ago, US equities dropped 9%. But this can be justified: if millions died and global commerce halted, a 9% correction is reasonable. The stock market engages in catastrophic thinking. When presented with risk, it immediately images the worst. This new view of the market can be seen recently when the risk to trade and protectionism dropped the markets into multiple corrections. This abrupt behavior from the stock market must be considered when investing from now on.
Regret. Senior citizens flashback to their youth and give advice on what they would change about their financial planning. Here are some of the mistakes they made:
“We shape our buildings and afterwards our buildings shape us” -Winston Churchill. Do stock market investors take more risk when working on higher floors? Just like how people are more creative in rooms with high ceilings and just like how people are more likely to donate to charities in brightly lit settings, people are more prone to take more risks when on higher floors.
Higher rates are coming! Global debt reached a record $237 trillion in 2017. Higher interest rates will increase the financial distress for highly indebted corporations and countries, it will generate large losses on existing debt holdings, it will drive investors to invest in bonds than in stocks, it will divert cash from investing to increase economic growth to servicing debt, and lastly, higher interest rates will male it more expensive for the US to deploy fiscal stimulus.
The Alchanati Campbell & Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.