Growing Interest Rates and Higher Education Regrets

Markets

September is historically a tough month for the stock market. Historical patterns can be a valuable tool for certain investors who have figured out timing markets, but extensive research says execution and consistent outperformance is very, very difficult. Missing a handful of the best days in the market over long time periods can drastically reduce the average annual return an investor could gain just by holding on to their equity investments during sell-offs. Now is such a time to hold on through the volatility. Of course, the best months for the stock market are typically the beginning of the year when new retirement and pension fund cash fuels gains. Today, Goldman Sachs and Morgan Stanley are predicting more lows ahead this year for market averages. From a contrarian point of view this would be good news as these firm’s market predictions are no better than a dart board.

 

Federal Reserve Governors confirmed their statements from their annual Jackson Hole meeting that rates will continue to be raised until inflation is snuffed out. Actually, what Chairman Powell reiterated today was that the psychology of inflation expectations is what needs to be reduced because in the late 1970’s and early 1980’s it was inflation expectations that drove the inflation rate higher as panic set in and Americans thought inflation could only go higher. I remember in the beginning of my career as a stockbroker talking to investors in 1984/5 about buying 30 year US Treasury Bonds at 12%, noncallable for 25 years and the response was “I am not buying bonds at this low rate. Rates are going higher!” Interest then entered a 45-year bull market with those rates not seen again. 

 

Interest rates continue higher with markets expecting a 3/4% rate increase at the next Federal Reserve meeting in a week and a half. This would lead to short term interest rates-1 month US Treasury rates of over 3%. What remains to be seen is the effect of a 0.75% Fed Funds rate increase on over maturities in Treasury securities. Over the past few weeks, the spread between the 2 year and 10-year Treasury has narrowed from July and August. Does this mean bond markets are seeing a stronger economy going forward than 2 months ago? Two-year Treasuries still have a higher yield than 10-year US Treasuries, but the difference is narrowing. The 5-year expected inflation rate continues to be about 2.5%.

 

Government Policy

Another historical note in regard to wage and price freezes, an unusual and infrequently used government intervention in the economy that has been mentioned as a possibility in our current economic environment. Richard Nixon was the last president to declare wage and price freezes. The policy was introduced for 90 days with speculation about motivation for his upcoming reelection, but they did not work!

 

Higher Education

A research study measuring college attendees and graduates' degree of regret about their college majors resulted in interesting findings. Turns out liberal arts and vocational studies have the most regret and engineering majors have the least regret. This link provides a great deal of information about other issues in regard to higher education. A recommended reading for those of you who have these issues upcoming in your financial lives and have to make some important decisions.

 

Miscellaneous

Surprise! Research shows acts of kindness have an impact! Check out this link for the article.

 

An interesting new trend of “zero-down mortgages” is gaining ground, find out more here.

 

Why "zero-down" mortgages are gaining ground

https://www.axios.com/2022/09/08/banks-mortgages-zero-down-payment

 

From Ally Bank: make the vow to be more open about money with your honey.

 

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.

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