The Fed announcement came and markets continued lower.
The Federal Reserve made good on the pledge to increase the Fed Funds rate by ½%. The day of the announcement and before the press conference, the equity markets were down. The Fed announcement came and markets continued lower. During the press conference with Fed Chairman Powell, he stated that there are no plans to increase rates faster than ½ point going forward. This caused an unprecedented rally in the equity markets with the Dow gaining over 1000 points and the Nasdaq increasing by 5%. In the back of my mind, I have a rule: the market reaction on the day of a Fed announcement is not so important. It is the next day's equity reaction. Sure enough on the day after, the markets surrendered all the gains reached on the day of the announcement. This rule works over 50% of the time so it is unreliable.
US Treasury rates reflect Fed funds level much quicker than money market and bank investment interest rates. Similar to oil prices! When oil prices rise, gasoline prices will increase the same day. When oil prices drop, gas prices are much slower to respond. Same with interest rates. When interest rates fall, interest rates on savings drop instantly. Loan rates are also immediately impacted except those rates pegged to the Prime rate which do not drop. The lowest the Prime rate has been for the last 5 years was 3.25% as the Fed Funds rate was 0-.25%; not very consumer friendly surprise, surprise. The Prime rate just moved up from 3.5% to 4% after the Fed announcement.
GDP growth for the 1st quarter was negative, surprising analysts who expected a positive rate of over 1%. Instead, the figure was -1.7%. Is the economy slowing as the word “recession” is now being mentioned by analysts? Too early to tell from one quarter reading. The unemployment rate remains historically low as well as the number of job openings is very high. Consumers are spending. Unlike the recovery from the financial meltdown in 2009, demand is strong. The current economic trend is not a demand problem like 2009-2020. It is a supply problem due to the delays in production and delivery of all sorts of goods. Inflation, hardly a problem in 2009 when deflation was more of a concern, is not seemingly out of control now.
With all the economic and political problems converging it certainly feels like we are headed down a rabbit hole for investors. In fact, negative/bearish investor sentiment is at a level not seen for a long time. Currently, almost 53% of investors are bearish, down from nearly 60% last week.
This negative sentiment is actually a positive indicator for future stock market returns. Contrarian investing is one strategy that has a pretty good track record over the years. However, it is not easy to execute. Buying when everyone is selling can be a psychological challenge. A more modest strategy is not to sell when everyone is selling. The success of this strategy is equally compelling. Look at 2008/2009 and again 2020 through Covid. Moving with the herd is a tendency that is hard to resist but the herd is driven mainly by emotion and emotion as a primary driver of investing does not work.
Primary Residential Mortgage
As you've already heard from the news and the SAS Financial Advisors newsletter and blog, mortgage rates are going up. In this environment and others, it’s worth it to consider looking at your mortgage for a refinance, a first-time mortgage for new home buyers, any investment property, or second home purchases.
For years, SAS Financial Advisors has referred clients to Mike Koran to learn more about their first-time mortgage experience and/or refinancing for an existing mortgage. Many clients have expressed beyond satisfaction in their experience working with Mike and his team.
As fee-only financial advisors, we never receive any compensation for referrals and vice versa. SAS only refers clients to professionals whom we’ve worked with well, our clients appreciate working with, and can help more clients.
Michael "Mike" Koran works as the Division President of San Francisco's Primary Residential Mortgage which he co-founded in 2008. Mike and his team work tirelessly to redefine the customer experience in the mortgage industry.
Did anyone catch this segment on NPR last Friday? I found it most amusing! https://www.kqed.org/forum/2010101889055/plato-kant-and-six-year-olds-scott-hershovitz-celebrates-a-childs-inner-philosopher
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter.