Two weeks ago, stocks were hitting record highs. Last week we saw the worst week in stocks since June. Chipmakers especially, and not the delicious kind, showed weakness with their longest slide since 2008. According to Barron’s, “The week ended with a dramatic rethink of the engine driving the bull market: the AI trade.” And I would agree with Barron’s, but every couple of weeks, or even days, we are seeing a “dramatic rethink”. Thus, the recent seesaw between AI-related companies and bond yields. Money out of AI means money into bonds (yields drop); money out of bonds and into AI (yields rise). You could almost hold your breath long enough to wait out a cycle. (Don’t try this at home.)
In a related story, Harvard’s endowment rose in value by 27.1% for the fiscal year ending on June 30th. How? SpaceX stock and other AI bets. The University of North Carolina’s endowment gained 37.8% – about HALF of which came from SpaceX stock. On the one hand, good for them, I hope it means more money for scholarships. On the other hand, HAVE YOU EVER HEARD OF DIVERSIFICATION? I worry for these universities that the stocks they rode up will be the same stocks they ride down. I hope not, but will they have the will to sell?
Elon Musk just announced, “Next year, I will give one of my SpaceX shares to every kid in America. This will be the first of many.” At current prices, this would cost Musk (or SpaceX) about $10.5 billion. Hardly a dent in the value of either one. But Musk is known for exaggeration, so I would wait to see the paperwork before counting your chickens.
Yields on government bonds are critical to managing our whopping government debt. The fiscal year for the government ends on September 30th, and during this past year, our annual deficit reached $1.99 trillion. That adds about $2 trillion to our overall debt, which is how we got to $40 trillion in total. And selling ten-year bonds at 5% costs us a lot more than selling them at 2%, which we did a few years ago.
U.S. consumer prices, as measured by the consumer price index (CPI) rose 3.7% in September, versus a year earlier. In September alone, prices rose 0.6%. According to the Wall Street Journal, high energy prices and their fallout are squeezing consumers. But we knew that. Oil prices around $100 per gallon are bad enough, but it costs an additional approximately $40 per barrel to transport the oil to the refineries.
Consumers are stuck not only with higher energy costs, grocery costs, credit costs, and travel costs, but also the loss of subsidies for health insurance and food assistance. Who is not paying more? The top 1%. They will pay approximately $12,560 less in taxes and other expenses this year versus the middle class paying $1700 more and the poorest 20% paying $750 more.
Home sales actually rose slightly in September – for the first time since Spring – due to a plateau in mortgage rates. Stubborn sellers are still sitting on (in) their homes, which keeps asking prices high. The mostly-Boomers who are waiting to sell are happy with their low-cost mortgages and won’t move until rates come down. Or will they? At some point, the dam will break and the housing market will return to some normalcy, but it’s hard to tell when that will happen when the Fed is contemplating more rate hikes, not reductions.
The next Federal Reserve Open Market Committee meeting is scheduled for next week. New Fed Chairman Kevin Warsh says he is not going to telegraph the Fed’s movements ahead of time, no matter how much we wish he would. Oh, how I miss Jerome Powell.
It’s that time of year when enormous pumpkins roam the earth again. Case in point, a 3,156 -pound pumpkin in Coventry, R.I., certified by the Guinness World Records as the largest pumpkin ever weighed. Picture one of those giant balloons walking down Fifth Avenue in New York. Now picture it squashing everything in its way, and you have an idea of how big this pumpkin is. Pumpkins grown for weight competitions are babied in very important ways (we see you, hand fertilizing) and can grow more than 50 pounds in one day.
For the week ending on October 16th, the Standard & Poor’s Index closed at 7,659, the Nasdaq Composite Index at 26,140, and the Dow Jones Industrial Average at 52,002. The yield on the ten-year Treasury finished at 5.098%. U.S. crude oil cost $100.71 per barrel, N.Y. gold cost $4,108.00 per ounce, and one Euro was worth $1.12.
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) Yahoo Finance, Morning Brew, Barron’s, Axios, The Wall Street Journal, Fortune, Bloomberg, Business Insider, USA Today, The Economist, CNN, PBS, CNBC, The New York Times, Forbes, Guinness World Records, and The Hustle. Please call Diastole at 203.458.5220 if you have questions, or email me, Liz Cook, at ecook@dwinvest.com. Thank you for reading!
I have switched my usual TV watching from news and business to Hallmark now that we’re in the fourth quarter of the year. And no, it is NOT too soon. In fact, here’s some business advice from the latest warm-hearted show I watched: if your father looks like Santa, you pretty much have to take over the family’s toy business. And doesn’t your old childhood playmate look nice all grown up and wearing red?