Expectations about the financial landscape are shifting beneath our feet in this economy. With talk of higher-for-longer interest rates and now possibly stagflation, it’s clear that the old playbook might not cut it anymore.
But here’s the silver lining: changes in this economy present an opportunity to work together to adapt and thrive. Ensuring you can manage your day-to-day expenses, without compromising the life you envision for your future. Helping you understand and adjust to these “new rules” is what I’m here for. As we all know, it’s not always just about tightening the belt. It’s about smart strategies that balance current needs with future goals, making your money work harder for you in the current environment.
Together, we can navigate changing expectations, identifying opportunities to optimize where we can, prioritize, and invest in your future. All while maintaining the lifestyle you value – like a nice dinner out, if that’s what you like. Let’s talk about any ideas or life changes that may affect your finances.
Market Brief – This Economy
Inflation appears stalled, but at a low level near the Fed’s 2% target. The headline signal of a cooling economy, 1Q24 GDP growth, may not be so true, as other economic data has been strong. As April finished and turned to May, investors appeared ready to get back into the stock market, driven by a familiar driver: earnings reports. For companies that have reported to date, just over 80% have exceeded expectations. This is better than the five-year trend of 77% and the 10-year trend of 74%.
One feature of the current environment is the cycle composed of the housing industry, interest and mortgage rates, rents, and Fed policy. Activity in the housing market is below prior year and prior two-year levels due to higher prices and higher mortgage rates. To get housing moving again, rates have to come down. To lower rates, the Fed has to be confident inflation is in fact declining so it can lower the fed funds rate.
Currently, inflation has stalled. The biggest culprit is shelter, one-third of consumer inflation, which in the March CPI was up 5.7% annually. Rents are high and rising because few people can afford to buy homes at current price/mortgage levels. These people are now competing for the low supply of rental units. Both the supply-demand imbalance and higher home prices are pushing landlords to keep raising rents at three-times the underlying level of all other inflation. That in turn keeps overall inflation too elevated for the Fed to lower rates.
A frustrated Fed is now contemplating two or fewer rate cuts in the second half of 2024. This is down from projecting three or more cuts just a few months ago. As long as inflation remains above the Fed’s comfort zone, we expect volatility to continue in the stock market. Regardless of changes in this economy, reach out to discuss whatever financial concerns you may have at this time.
Independent, fee-only, fiduciary standard | Erie CO Financial Advisor serving greater Denver/Boulder | Investment Management, Retirement Planning, Wealth Management
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