Josh Smith, CFA

Market Update - Week of June 10, 2024. Mega-cap technology stocks, led by Nvidia, carried the market rally. The bond market was extremely volatile because of a hotter-than-expected employment report. Quick Hits 1. Report releases: Hiring accelerated in May, with 272,000 jobs added during the month. 2. Financial market data: Nvidia continued to carry the market, surpassing $3 trillion in market capitalization. 3. Looking ahead: All eyes will be on this week’s Federal Reserve (Fed) meeting. The Takeaway Manufacturing confidence fell more than expected but was offset by a larger-than-expected rebound in service sector confidence.

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April Core PCE m/m at +0.2% vs +0.3% is a win for the Fed. Furthermore, Personal Spending soft at +0.2% vs +0.3% even with prior month revised comp down to +0.7% from +0.8%.

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FED Balance Sheet Normalisation: The FX-OIS Basis metric The article from St. Louis Fed highlights the key metrics that are monitored for determining when the FED Balance Sheet normalisation should end. The fact that reserves are "abundant", well above the minimum level required to maintain adequate liquidity, credit risk premia are compressed, helps to explain why the FOMC does not feel compelled to cut interest rates. The paper analyses the dynamics of the Repo rate and its relationship with the Interest Rate on Reserve Balances (IORB) to identify situations of stress in the funding market, as occurred in September 2019. In that occasion, an additional indicator of stress in USD funding market was the widening of the FX-OIS basis (>300bps), with many traders/treasurers using FX Swaps as instruments for USD funding purposes getting burnt. The FX-OIS basis measures the interest rate differential implied in FX Swap prices versus the OIS rates differential. Currently, both the IORB versus Repo rate and the FX-OIS basis differentials are tiny and relatively stable, signalling that Quantitative Tightening may end soon. As soon as the reserves reach the FOMC "desired" level, they will feel more comfortable to reduce interest rates. (Thanks to Amalia Estenssoro and  Kevin L. Kliesen)

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Based on newly released third estimates, real gross domestic product (GDP) rose at an annual rate of 1.4% in the first quarter of 2024. The Bureau of Economic Analysis also updated their Q4 GDP estimate to 3.4%. Both of those numbers represent a 0.1% increase over earlier estimates, based on clarification of imports, government spending, and nonresidential fixed investments, as well as increases in consumer spending. *** One Wealth Capital Management LLC. is a registered investment adviser. This platform is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advise in rendered by One Wealth Capital Management LLC. unless a client service agreement is in place.

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This chart from the Federal Reserve shows the extraordinary amount of cash that could be invested in the markets if rates fall in the next couple of years. Stay bullish.

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Last month's incoming jobs and inflation data revealed the economy isn’t slowing down as much as anticipated, indicating it’s less likely the Fed will drop their benchmark interest rate this summer. According to the CME’s FedWatch tool, there is just a 4.4% probability of an interest rate adjustment at the FOMC’s June 11-12 meeting. Earlier this year, the Fed predicted three quarter-point rate cuts by the end of 2024. However, the tone has changed to a "higher for longer" approach as the Fed looks for sustainable inflation and economic data consistent with its goals. Goldman Sachs now predicts the first rate cut of the year to occur in September, although they still anticipate two rate cuts by the end of the year. However, 60% of economists polled see only one rate cut on the horizon. Since July 2023, the federal funds target rate has maintained at 5.25% to 5.5%. Source: https://lnkd.in/gfMfKR_e

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🏠 15-YEAR VS 30-YEAR MORTGAGE 🔄📊 - When comparing a 15-year mortgage to a 30-year mortgage, the difference in payments may not seem significant, especially with current market conditions like an inverted yield curve. However, the long-term implications are substantial. For instance, on a $400,000 purchase with a 5% down payment, the total interest paid on a 15-year mortgage would amount to $234,760. - In contrast, opting for a 30-year mortgage results in significantly higher total interest payments, totaling $553,217 over the loan's lifespan. This represents a substantial difference in interest savings of approximately $318,000 between the two mortgage options. - The decision between a 15-year and a 30-year mortgage ultimately depends on individual preferences and financial goals. Whether one chooses to invest the money or pay off the loan quicker depends on their comfort level and financial strategy.

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𝗠𝗮𝗿𝗸𝗲𝘁 𝗯𝗮𝗰𝗸𝘀 𝗼𝗳𝗳 𝗼𝗻 𝗵𝗼𝗽𝗲𝘀 𝗳𝗼𝗿 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗿𝗮𝘁𝗲 𝗰𝘂𝘁𝘀 𝗳𝗼𝗹𝗹𝗼𝘄𝗶𝗻𝗴 𝘀𝘁𝗿𝗼𝗻𝗴 𝗷𝗼𝗯𝘀 𝗿𝗲𝗽𝗼𝗿𝘁 The data at the very least adds to the narrative that the Fed doesn't have to be in a rush to lower interest rates. ---𝘊𝘓𝘐𝘊𝘒 𝘚𝘏𝘖𝘙𝘛 𝘓𝘐𝘕𝘒 𝘈𝘛 𝘛𝘏𝘌 𝘌𝘕𝘋 𝘖𝘍 𝘛𝘏𝘐𝘚 𝘗𝘖𝘚𝘛 𝘛𝘖 𝘙𝘌𝘈𝘋 𝘖𝘕--- 𝗳𝗿𝗼𝗺 𝗖𝗡𝗕𝗖 Disclaimers: https://www.rfr.bz/lllmp17 -- #portfoliomanagement #RetirementPlanning #WealthBuilding #Investments #Insurance #thefed https://www.rfr.bz/lllmp16

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The S&P 500 futures are up 35 points, trading 0.7% above fair value, the Nasdaq 100 futures are up 205 points, trading 1.1% above fair value, and the Dow Jones Industrial Average futures are up 64 points, trading 0.2% above fair value. Read more here.

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Rate cuts often lead to short-term market optimism because they lower borrowing costs for businesses and consumers, potentially stimulating economic activity. However, their long-term impact is uncertain and depends on the reasons behind the cuts. When cuts are made in response to a strong but slowing economy, they can bolster market confidence. In contrast, cuts prompted by severe economic distress may not immediately reassure markets. Expectations of rate cuts can also lift the stock market. Currently, the market has priced in several cuts for this year. However, the Fed has postponed these cuts due to persistent inflationary pressures. If the expected cuts do not materialize this year, market reactions could be negative. The timing of the Fed's rate cuts remains uncertain; it might require a recession for them to occur. Investors should brace for heightened volatility in the stock market.

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Good news on the economic front: May's consumer prices remained unchanged, offering a glimmer of hope that the Federal Reserve might consider cutting interest rates sooner than expected. Here's what this could mean for you: Lower Inflation: This is a positive sign that the Fed's efforts to combat inflation are working. Potential Rate Cuts: While the Fed isn't likely to act immediately, this news increases the chances of rate cuts later in the year. This could lead to lower borrowing costs for mortgages, car loans, and credit cards. Remember, this is just one piece of the economic puzzle. Stay tuned for further updates on how this news may impact your financial goals. #inflation #interestrates #economy https://lnkd.in/eH3eNfpG

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The stock market rallied in Q2 around AI and hopes that the Fed will manage interest rates with inflation trending lower. #StockMarket #Investing #Finance #Economy #Q2Update https://lnkd.in/e3dSD9EK

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