Broker Check

Weekly Market Update April 12, 2024

April 12, 2024

Fed Funds 5.25% - 5.5%, US Ten Year 4.521%, Oil $85.50

Investors reaction to every release of economic data is causing ever more extreme swings in stocks. This Wednesday’s release of the Consumer Price Index for March inflation was 3.5% year-over-year, the second month in a row above expectations, while the month-over-month figure of .4% annualizes to 4.9%. The odds of lower interest rates coming out of the June FOMC meeting dropped from 52% before the announcement to 17%. The likelihood of three rate reductions this year declined further because Fed easing late in a presidential year might appear politically motivated, something the central bank strives to avoid. Interest rates “higher for longer” will continue.

Stubborn inflation has a very detrimental effect on people’s finances. From Investment News magazine’s April 8 edition, we can see how serious it is:  

The New York Federal Reserve Bank Quarterly Report on Household Debt and Credit indicates that total household debt rose by $212 billion to reach $17.5 trillion in the fourth quarter of 2023. Credit card balances increased by $50 billion to $1.13 trillion over the quarter, while mortgage balances rose by $112 billion to $12.25 trillion. Equally alarming is people withdrawing from retirement accounts just to fund living expenses.

Outside periods of extreme inflation, such as the double-digits rates during the “stagflation” of the late 1970’s, equities have provided the best protection against inflation. Even very conservative investors should own a core portfolio of stocks. There is a rule of thumb that says equities should make up one’s investment portfolio based on the formula of one hundred minus one’s age. A 30-year-old would have 70% of their portfolio in stocks, while a 70-year-old will have 30%.

In fact, the “efficient frontier” of return versus risk indeed shows that a 26% allocation to stocks with the rest in bonds has the lowest risk of any balanced portfolio and provides a higher return with less risk as measured by volatility than the all-bond mix. While 5% interest on low-risk, short-term bonds may look appealing, hold on to that portfolio of quality stocks for balance and return.

Have a Wonderful Week