With Jerome Powell stating “the time has come for policy to adjust”, we are now just waiting for the Federal Reserve’s September 17th-18th meeting for the first interest rate cut. We don’t know if this first cut will be 0.25% or 0.5%. Currently, the chances of a 0.25% cut are higher but that could change between now and the Fed’s meeting as economic data continues to be released. The Fed will look at the inflation reports – the personal consumption expenditures index (PCE) out today and the consumer price index (CPI) out on September 11th. More rate reductions will come in Q4 of this year and into 2025.
So what do rate cuts mean for the stock market? Rate cuts will mean that borrowing money is less expensive, which is good for businesses. And the stock market’s performance is tied to corporate profits. The less corporations pay to borrow, the lower their expenses, and the higher their profits can be. That all looks good for the market. But it depends on why the Fed is cutting rates. If the Fed is cutting rates because it is worried and trying to stimulate the economy, that is a different story.
History shows us that 86% of the time the S&P 500 has had positive returns in the 12 months after the first rate cut of a cycle. Since 1929, there have been 14 interest rate cycles which is not a large sample size and past performance is not a predictor for future performance. But in those 14 cycles, in all but two of them, the stock market had positive returns over the next 12 months. The two cycles with negative returns happened in 2001 and 2007. Those of you who have been watching the markets for some time will recognize those dates as being related to the dot-com bubble and the subprime mortgage crisis which precipitated the Great Recession. Reuters (yardeniquicktakes.com)
Source: Charles Schwab, Bloomberg, and the Federal Reserve.
Earnings Expectations: Now that we are more than half-way through 2024, analysts are anticipating earnings-per-share growth of 10% this year, and looking into 2025, they are predicting growth of over 14%. With inflation returning to target, unemployment still low, and strong earnings projections, the economy is in good shape. All this points to an ability to believe that we are more than likely in the 86% of the time that rate cuts will be good for the market. And we are not in a cycle that would look like 2001 or 2007. (investing.com)
Financial Planning/Investment Strategy Corner:
RSWA Technology Update: At RSWA, we believe in always trying to improve, always trying to be better. In that vein, we are in the process of adopting a new technology that will replace our client relationship management software, our portfolio management software, our reporting software, and our client portal. We are integrating those technologies into one program to be more efficient and hopefully to improve the client experience. If that all sounds like a lot, it is! Just ask Wendi Smith, she is spearheading the process with the help of Gerrit Petersons and Wes McNeillie. They have been busy behind the scenes getting all of our client data into the new system so that we can go live as of the end of September.
For our clients, this will mean updated, and we believe improved, quarterly reports and a new client portal. We will have a direct to clients communication soon but we wanted to give you a heads-up that this is on the way. You may want to download documents from your current RSWA portal if you are interested in keeping them. We will continue to have copies of all documents our on our RSWA network, but the new client portal will be a fresh start. We are happy to answer any questions you may have and we will have a more detailed communication about this out to clients soon.
Quick Hits:
- I grew up in a family of avid Stephen King fans, so this was interesting to me: Stephen King/PBS News
- Even I can just hang there 😊. The Dead Hang Delight
- Starting to wonder if we don’t need to change our passwords quarterly? 7 password rules to live by/ZDNET
- I am always trying to get out of a food rut, and this has some interesting ideas: 5 Ways to Break Out of a Food Rut/SELF
- It’s back-to-school time – how did that happen? I liked this article because it’s back to school advice from kids: NPR
- At some point, we will need to address the national debt. But for this election cycle, no one is interested: Axios Markets
Another RSWA Update! In early 2023, we sent a client survey to ask about moving our office space. Our lease was up as of September 2023, and we were wondering if our moving would be beneficial to clients. The response was overwhelmingly positive for us to move to a space with onsite parking. We tried to do that last year but at the last minute our plans fell through, and we renewed our lease for 1 year. We are now near the end of that year, and we are happy to announce that we will be moving! Our new office will be at 82 Running Hill Road in South Portland. There is plenty of onsite parking and it’s very close to the interstate so we hope it will be convenient for clients. We do not have an official move-in date yet but expect to be in the office by October 1st. We will send out an announcement when we have more information.
I hope everyone has an enjoyable Labor Day Weekend, however you define enjoyable!
Quotes to Consider as We Head into Labor Day Weekend:
“Discipline is choosing between what you want now and what you want most.” —Abraham Lincoln
"I have not failed. I have just found 10,000 ways that won't work." — Thomas Edison
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