Last week the Federal Reserve Open Market Committee did exactly what 90% of Fed watchers were expecting and lowered interest rates by 25 basis points (1/4 of 1%). The Fed-funds rate now stands at 3.50% to 3.75%. But it was something ELSE that the Fed announced that garnered quite a lot of the attention on Wednesday. The Fed will be re-instituting its bond-buying program (formerly known as Quantitative Easing) with a series of purchases of short-term bonds. The point of this program is to create demand for bonds, pushing prices higher and yields lower. In other words, the Fed is working to make its rate cut real.
Oracle stock, part of the AI-related group of darlings pushing market indices higher, hit a snag last week when it released second-quarter earnings. The earnings topped analysts’ expectations but Oracle also announced that it was increasing its spending forecast for the coming year – spooking investors who worry about AI bubbles.
So that’s the two big stories in investments last week: the Fed and AI. The Standard & Poor’s 500 and Dow Jones Industrials closed at record highs on Thursday, but pulled back on Friday. The Oracle news dragged down the Nasdaq Composite Index; Oracle lost $100 billion in market capitalization. Then followed by a rout in Broadcom, a chip maker, which also missed investor expectations.
We’re still waiting to learn if Netflix’s bid for Warner Brothers Discovery, which seemed like a done deal, will be usurped by Paramount’s unexpected hostile bid for WBD. Shareholders will decide.
Was it only two weeks ago that we were making fun of Kalshi, the bet-on-anything marketplace? Well, CNN and CNBC have made a deal with Kalshi to feature its data on their channels, while Yahoo Finance has made a similar deal with Polymarket, a similar betting company. It will be VERY interesting to see if large groups of individuals can predict the future as well as or better than experts. It is thought in professional-investing circles that individual investors are usually wrong when they predict market moves, buying at the top and selling at the bottom. Will Kalshi be the exception that proves the rule? (Note to readers: I have sometimes heard it said that an exception PROBES the rule. Thoughts?)
Keep an eye on “circularity”. It is a new name for an old concept. It describes a situation where company A buys (let’s say) chips from company B, which in turn buys maybe cloud-computing from company A. Both firms declare revenue, although in fact it was a trade. Probably not illegal in most cases, but when Enron did this with its own subsidiaries it led to a corporate meltdown and fraud charges.
Total U.S. government debt will be over 100% of gross domestic product (GDP) this year, while the annual deficit will be one of the biggest in the world, percentage-wise. Japan’s total debt is TWICE its GDP, which didn’t bother investors much while interest rates were kept at zero or barely above. Now the Bank of Japan is raising interest rates because there is newly minted inflation, and potential investors in Japanese bonds are nervous about Japan’s ability to pay a positive return to bondholders. Watch this space!
The Chinese trade surplus has now exceeded one trillion dollars, based on the fact that all other countries need to buy cheap stuff from China, AND China’s ability to replace American buyers, whose prices are higher due to tariffs, with buyers from other countries.
Remember when bitcoin topped $126,198 in October? That’s when Harvard decided to increase its ownership of iShares Bitcoin ETF by 257%. Bitcoin is down below $90,000 now, and yet is Harvard’s single largest public holding – worth more than $440 million. How much of the October move in bitcoin is due to Harvard’s buying, and how much is Harvard’s buying due to the October move in bitcoin?
For the week ending on December 12th, the S&P 500 finished at 6,827, the Nasdaq at 23,195, and the Dow Jones Industrials at 48,458. The yield on the ten-year Treasury Note closed at 4.194%. U.S. crude oil cost $57.97 per barrel, N.Y. gold cost $4,286.47 per ounce, and one Euro was worth $1.17.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Barron’s, The Wall Street Journal, Bloomberg, Yahoo Finance, Axios, The Washington Post, The Economist, CNN, Business Insider, Morning Brew, The AP, Reuters, and The Sevens Report. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook, at ecook@dwinvest.com. Thanks for reading!
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