Short Term Interest Rates
The Federal Reserve made its decision to keep short term interest rates at their current levels. The statement also shortened the time to expect an increase in short term rates. The Fed states that inflation is transitory as the economy returns from the pandemic induced recession. Sure enough, market reaction was a sell-off resulting in the worst performance of the major averages this year. The one day drop last Friday shook markets.
The impact on the yield curve was a jump in short-term interest rates and a drop in yield of 10-30 years. In other words, a flattening of the yield curve. Generally, this indicates the bond market expects the Fed to raise rates sooner than previously expected and is also more uncertain about intermediate and long-term economic growth. Today, the markets rebounded significantly from the Friday sell-off. Expect a volatile summer in the markets.
As the economy rebounds, what will look different? From the Washington Post’s Heather Long, at a minimum, workers have more power, housing costs have increased, supply chains have been disrupted, and most importantly income and wealth inequality have increased. Working at home is a reality for those privileged enough to not be direct service or direct line workers.
Housing is a particular problem as prices for first time home buyers increase dramatically with no commensurate increase in supply. Rental costs are also increasing for the same reason. A news item today pointed to an encouraging sign that the price of lumber is beginning to decline after a huge increase during the pandemic.
The desirable urban core has become the desirable suburb or exurb. Although, in the past couple of months, rental costs have rebounded in SF from the pandemic lows. As California opens up, behavior is changing very quickly. We ate inside in a restaurant with no masks last week and had vaccinated guests for dinner. Activity downtown is increasing as some workers return to offices. Salesforce had signs in the lobbies of their many office buildings welcoming workers back to the office.
It will take time for those Americans looking for work to find a match for their skills and interest. Workers are leaving their jobs at a record rate, looking for higher pay, more job security and the ability to work at home.
We subscribe to Morningstar for their many services, including client performance reports, investment research, invoicing, and an expanding set of services for financial planners and investment managers. A recent Morning Star research piece written by John Rekenthaler, offers perspective on long term stock market returns as Warren Buffett has framed it, setting expectations for returns at around 8%.
Equity returns consist of 3 parts:
- corporate earnings increases
- inflation expectations.
Financial Planning Tip of the Week:
Have you thought about your financial goals recently? Have circumstances in your life changed since you last established your financial goals? Is it time to review and refresh your financial goals? Good financial goals include a tentative timeline and specific amount as a single occurrence or a recurring amount. In SAS client financial plans, those amounts are estimated in “today’s dollars,” and after-tax.
Tips for successfully reviewing, refreshing and achieving your financial goals include scheduling:
- annual meetings with your SAS advisor team
- quarterly meetings personally and/or with your spouse/household
- monthly check-ins against your plan (PDF or login) to track your progress
Book at least one of the items into your calendar, even if you snooze or skip others, you’re still ahead of most who never have a plan to establish, address, or review financial goals.
Some ideas on setting your own financial goals along with the top financial goals are outlined in this quick read article from www.nerdwallet.com. These are just suggestions. What makes financial goals unique is that they are specific to each household.
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.