The value of staying in the middle is where you find the most significant return.
Welcome to another edition of “Ethel’s Diamond Post.” Many events have happened since our last newsletter within and outside the community that can make us feel a certain way. Our beloved Kansas City Chiefs home opening disappointed fans with a 21-20 loss to the Detroit Lions. Whether you are a component of climate control measurements, we have witnessed destructive fires, excessive heat, loss of life due to natural disasters and earthquakes, and the rise of COVID-19 and Respiratory Syncytial Virus (VSR). The moral of the headlines is that nothing stays the same, but Americans are resilient, and we fight back to regain what we lost. The capital markets are volatile, but they share common denominators like our everyday lives, for the S&P 500 is clawing its way back into positive territory.
Since the beginning of 2022, the investment gurus warned that a recession is coming. “VZD Capital Management, LLC, and the Federal Reserve no longer expect a recession. Remember, the Federal Reserve flooded the system with liquidity as the economy shut down in March 2020 due to the pandemic. Then, Congress passed a massive stimulus bill that extended unemployment benefits by $600 weekly and sent $1200 checks directly to households. Next, in December, Congress passed another $900 billion stimulus bill. That bill extended unemployment benefits at a reduced amount of $300 per week, plus sending $600 checks to individuals again. President Joseph Biden passed another $900 billion stimulus bill when he took office, which extended unemployment benefits to $400 and $1400 checks directly to households. Unsurprisingly, the combination of stopping supply chains due to a shuttering economy and flooding families with money was the birth of runaway inflation. The disconnect comes when you analyze the facts that the COVID-19 programs ended, the Federal Reserve aggressively hiked interest rates, and the economy is still holding steady to avoid a recession.
Remember, corporate strength relies on the power of the consumer, supported by solid unemployment rates. Federal Reserve Chair Jerome Powell reiterated that there is uncertainty surrounding the economic outlook. He eluded that the economy has been growing faster than expected, for consumers have kept spending briskly – trends that keep inflation pressures high. Perhaps they are watching discretionary spending, such as Beyonce and Taylor Swift concert tickets, increased international and domestic travel, and elective cosmetic surgery procedures. Therefore, the Feds have raised its benchmark rate to a 22-year high of 5.4% from its peak of 9.1% in June 2022. Inflation has decreased to 3.2%, which is still above the Fed’s 2% objective.
The excess cash built up during the pandemic is dwindling. Over the past two years, consumers have drawn down the more than $2 trillion in extra savings they accumulated during the pandemic to keep spending pace despite high inflation rates. At the same time, while the amount of savings significantly dropped from the pandemic, many consumers exchange cash for credit cards, which is skyrocketing. The Federal Reserve reported that Americans borrowed more than ever on their credit cards in the last quarter, with balances surpassing $1 trillion for the first time. Meanwhile, credit card delinquencies are at an 11-year high, as measured using a four-quarter average. Despite the elevated interest rates, some consumers are riding on shaky foundations. Household savings supplemented by pandemic-era government payments seem to be dwindling, and inflation is eroding wage gains (with real wages being negative).
Therefore, August brought a surprising twist to an otherwise promising summer for the stock market. The domino effect started at the beginning of the month when FITCH downgraded the U.S. government debt. This downgrade sent shockwaves through the financial landscape, causing interest rates to soar unprecedentedly since the Federal Reserve began its rate hiking campaign in 2022. The Fed’s streak of 11 interest rate hikes has helped slow inflation from 9.1% last year to 3.2%. Despite the relentless rise in interest rates, there is still a robust appetite for growth stocks, particularly the giants of the tech world. These stocks benefit from the AI (Artificial Intelligence) frenzy and tend to weather the storm of higher interest rates due to their vast reservoirs of cash flow and cash reserves.
That said, there is always something to fret about in the investment arena if you get caught up in the noise. Most things are black and white and not too much gray. Yet, more often than not, the market defies our worries and continues its ascent. VZD Capital Management, LLC remains vigilant and prepared for the worst while continuing to expect the best. After all, in an ever-changing environment, adaptability is a crucial factor, and opportunities often emerge in unexpected places.
Individual commodities could still be strong performers due to higher inflation and optimism in the ongoing global transition towards a greener economy. We experienced a decade in which the economy operated in a “zero-rate” environment. In 2023, rates are back to what we would historically consider a normal range, and inflation is above the 2% target that the Federal Reserve is attempting to curb. Plus, Wall Street applauded the recent monthly labor market, reflecting that the economy is showing signs of lower inflation and cooling job growth. We can not be sure, but the possibility that the Feds can ease up on its rate hikes is foreseeable in the short term. In addition, the price of U.S. crude oil climbed 2.3%, extending its weekly gain to 7.3%. The increase comes as production cuts by major producers continue to prop up the market.
VZDproudly announces that Nathan Salary has joined the Executive Mentoring Program. He brings an extensive background as a behavioral education counselor, empowerment speaker, and voice-over expert in the digital arena. As we continue to grow, Nate will assist in developing technology efficiencies, the voice behind our audiobooks, and the development of various curriculums. We want to expand our brand into the digital space, and he will guide that transition process.
Ethel J Davis received one of the highest honors as one of the top advisors in America for her dedication to excellence. Of course, she credits the firm’s success and individual recognition to the fantastic clients we serve worldwide. We request referrals for individuals and multigenerational families with at least $250,000 of investable assets. We found that customized investment management services are not offered on an individual scale like we do. Many mutual funds, third-party managers, and other investment managers utilized predetermined models to place clients due to their level of risk management and standard of living. We believe in partnering with our clients to ensure every portfolio aligns with the client’s different life cycles. Plus, we reiterate that estate planning is instrumental in protecting your wealth. If you need our assistance, please do not hesitate to contact us directly.
Thank you for the trust and confidence you have placed in us. We will be out of the office from September 29 to October 7 for a much-needed vacation, but the team is available to respond to emails on a limited basis.
Ethel, Nikisha, and Nate