I hope this email finds you well. I wanted to provide you with a brief update on the current economic landscape.
The Federal Reserve recently held interest rates steady, signaling an end to its historic tightening of monetary policy. According to the Federal Reserve’s new policy statement, inflation “has eased over the past year,” and they will watch the economy to see if “any” additional rate hikes are needed. This implies that after months of aggressive tightening and a bias towards moving rates higher, they may not need to raise them again and that it may even be prudent to start decreasing them.
The market responded positively to this decision. The S&P 500 (a measure of the U.S. stock market), for example extended its gains, which is great news for the equity side of our investments. At the same time, U.S. Treasury yields tumbled, indicating a rise in bond prices, and benefiting our fixed income positions. However, the dollar index fell, suggesting a weaker U.S. dollar. This could have mixed effects on our international investments, potentially making them more expensive but also possibly boosting profits when converted back to dollars.
Since 2020, the Federal Reserve has raised interest rates six times and is currently sitting between 5.25% and 5.50%. Federal Reserve Chairman Jerome Powell indicated that the Fed officials don’t see the need for further tightening, but they also don’t want to take it off the table at this time either. Of the 19 Federal Reserve officials, 17 project rates to be lower by the end of 2024. This is due to slowing growth and easing inflation.
This is good news for borrowers, as it means that the cost of borrowing will start to become more attractive in the foreseeable future. It also suggests that the Fed is confident that the economy can withstand the challenges of trade tensions, global slowdown, and market volatility.
Regarding our investment strategies this year, we’ve experienced some positive developments in our portfolio strategies. We’ve seen higher dividend yields on our fixed income side and strong returns on our equity side. Given the higher expected rates of volatility over the coming year, our strategies are neutrally positioned today.
Beyond these economic pieces, we’re also keeping a close eye on various other factors that could impact our investment strategies. Some of these include the upcoming presidential elections, the National Debt, and the overseas conflicts that impact geopolitical tensions and ties. We continue to monitor these situations as they evolve, understanding their potential to shape the global landscape.
In reflecting on the past year, it’s remarkable to consider the resilience of both the U.S. and most global economies. Despite numerous challenges - from geopolitical tensions to public health crises - markets have demonstrated a remarkable ability to adapt and recover. This resilience is a testament to the robustness of our economic systems and the effectiveness of the strategies we have in place to navigate such complexities.
As always, we remain committed to adjusting our strategies as necessary in response to changes in the economic and political landscape. If you ever have any questions or would like to discuss anything further, please feel free to reach out.
We hope you all have a Happy Holiday Season!