In the last two weeks, the market positively responded to the Federal Reserve rate cut but remains sensitive to geopolitical tensions and economic data. Consumer confidence dipped amid concerns over employment, while global events have added uncertainty to the economic outlook. Let’s dive in!
oXYGen Insights
China Stimulus Package: China is launching a significant stimulus effort, including interest rate cuts and issuing special sovereign bonds, to boost economic growth towards their 5% target. These measures aim to address weak consumer confidence, a struggling property market, and declining industrial profits.
Gold Prices Surge: Gold hits an all-time high of $2,685, buoyed by China’s stimulus, Middle East tensions, and the recent FED rate cut. Despite a strong U.S. dollar, economic data shows signs of stability, supporting the precious metal's rise.
Mortgage Rates Decline: U.S. 30-year mortgage rates fell to 6.13%, the lowest in two years, spurring a jump in refinancing activity as homeowners look to reduce their monthly payments. See the graph below for the average 30-year fixed mortgage rate since 2020.
What Else is in the Air
Widening Trade Deficit: The U.S. current account deficit surged to $266.8 billion in Q2, the highest in over two years, driven by a sharp increase in imports of goods, such as computers and pharmaceuticals. This gap now represents 3.7% of GDP, reflecting a growing trade imbalance.
Consumer Confidence Drops: Consumer confidence fell sharply in September, with concerns over a cooling labor market as job openings declined and unemployment rose. The largest drop since August 2021 signals increased pessimism about future business and labor market conditions.
Global Debt Surge: Global debt reached a record $312 trillion in Q2, with borrowing driven by the U.S., China, and energy transition efforts. The Institute of International Finance warns that government borrowing is projected to rise significantly, with emerging markets’ debt-to-GDP ratio hitting a new high of over 245%.
Oil Prices Drop: U.S. crude oil posted a weekly loss, with West Texas Intermediate down 5% and Brent falling nearly 4%, as potential increased supply from Saudi Arabia overshadowed China’s economic stimulus efforts. Despite Middle East tensions, weak demand in China continues to weigh on the market.
U.S. GDP: The U.S. economy grew at an annualized 3% in the second quarter, surpassing expectations and outpacing the 1.4% growth in the first quarter. Steady GDP growth and low unemployment claims signal a resilient economy amid recent interest rate cuts.
Iran-Israel Tensions Escalate: Iran launched 180 missiles into Israel, following recent Israeli strikes on Hezbollah and Hamas leaders, heightening fears of a wider Middle East conflict. The United States has expressed strong support for Israel and is in active discussions about potential responses to Tehran’s actions.
Alaska-Hawaiian Merger: Alaska Airlines completed its $1.9 billion acquisition of Hawaiian Airlines, agreeing to maintain key routes and adopt consumer protections for six years. The merger expands access for consumers and aims to generate $235 million in synergies.
Earnings Spotlight
Costco (COST): EPS exceeded expectations by 4.1%, reporting $5.29 vs. $5.08 forecast; Revenue fell short by 0.3%, reporting $79.7B vs. $79.93B forecast.
Accenture (ACN): EPS surpassed forecasts by 0.4%, reporting $2.79 vs. $2.78 forecast; Revenue exceeded expectations by 0.3%, reporting $16.4B vs. $16.35B forecast.
Nike (NKE): EPS surpassed expectations by 34.6%, reporting $0.70 vs. $0.52 forecast; Revenue fell slightly short by 0.3%, reporting $11.6B vs. $11.64B forecast.
What Is It? Consistently investing a fixed dollar amount into a particular asset or portfolio at regular intervals, no matter the price. The amount of shares you purchase will change as the price rises/drops, but the cost to you remains the same.
Example: You want to invest $100 into Company XYG each month:
Ok, but why do it? DCA can reduce the impact of volatility by averaging out the purchase price of your shares, which can lower the overall cost of your investment. It removes the stress of trying to "time the market" with buying low and selling at a peak, while also giving investors a long-term discipline to follow.
Reminder: Do you have a 3-6 month Cash Reserve?
Having a 3-6 month emergency cash fund of living expenses is crucial to keeping a risk-mitigated financial plan. It helps give a peace of mind in times of stress, whether that be unexpected expenses or losing a job. It can also help you avoid racking up credit card debt with high interest payments, since you will be less likely to spend with credit cards when having an abundance of cash.
Summary
Markets will closely watch for further guidance from Federal Reserve Chair Jerome Powell following the recent rate cut, as investors assess the FED's stance on future monetary policy. Volatility is likely to remain elevated with the upcoming election and incoming economic data. Lastly, our thoughts are with those impacted by the hurricane in the Southeast.
