From Graham Stephan.
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THE OCTOBER INFLATION REPORT:
Inflation currently stands at 2.4%, year over year. It was found that Energy Prices dropped by 6.8%, used cars and trucks fell by 5.1%, and hotels fell by 2.3%. However, 1/3rd of the inflation report consists of housing – and when this metric is removed, inflation is below the 2% target (according to The White House).
https://www.whitehouse.gov/cea/written-materials/2024/09/11/the-role-of-housing-in-u-s-inflation/
THE STOCK MARKET:
Since 1924, the SP500 has increased by an average of 6.6% per year, or 10% with dividends reinvested. Although, as Goldman Sachs points out, there might be a scenario where market returns over the next 10 years are significantly lower than most of us have gotten accustomed to. The way they see it, valuations are some of the highest they’ve ever been when compared to earnings – as a result, historically, this tends to lead to lower stock market returns over the following decade. As they say: “Their model predicts annual returns ranging from plus 7 percent to negative 1 percent, with a 72 percent probability that stocks will underperform bonds over the next decade.”
HOUSING PRICES:
It was reported that “existing home sales are on track for the worst year since 1995— for the second year in a row.” This is because, despite lowering rates, mortgages went higher. As far as what this means for the future, Zillow believes that Home Sales are only on pace to climb “2% in 2024 and 0.9% over the next 12 months,” with the main culprit being: rising inventory.
In fact, it was said that a “quarter of first-time buyers are Holding Off Until After the Election” – or, more specifically: “26% said they are waiting to see if Harris’ housing affordability plan goes into effect; and 15.9% are waiting to see if Trump’s housing affordability plan is enacted.” Another culprit could simply be that mortgages are expensive, housing is largely unaffordable, and some sellers are asking way too much money for what they could realistically get.
THE FEDERAL RESERVE RATE CUT:
As of a few hours ago, the Federal Reserve made the decision – as expected – to cut rates another 25 basis points, mainly because THEIR “preferred” metrics of inflation are coming back down. Besides this, Jerome Powell ended up giving us more of the same: That they’re committed to restoring price stability, that they’re monitoring the labor market, and that they’re basing their decisions on the most recent data.
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