Stocks Remain Resilient In September – Domestic Equity Overview

Domestic equity indices bounced upward in September, defying notions that the month has been a historically dire month for stocks. The Fed’s greater than expected rate cut prompted a rise in equities for small, mid and large capitalized companies, which saw their borrowing costs decline.  Stocks of smaller US companies are especially attractive at this juncture – an area we’ve steadily increased portfolio exposure to.

The Securities & Exchange Commission (SEC) approved the pricing of stocks and ETFs traded on exchanges to be quoted in half-penny increments. The change allows for enhanced efficiency of pricing actively traded stocks and ETFs, which currently trade an average of 5 to 6 billion shares per day. (Sources: Securities & Exchange Commission, Dow Jones, S&P, Nasdaq)

Rates Hesitate To Fall Further – Fixed Income Overview

Bonds reacted cautiously to the Fed’s initial rate reduction, anticipating that the Fed may not reduce rates as quickly as hoped. The yield on the 10-year Treasury ended September at 3.81%, not much lower than where it ended the previous month at 3.91%. Yet numerous analysts and economists believe that growing uncertainty surrounding the economy, hurricane losses, the Middle East conflict, and the election may lead to a gradually evolving lower rate environment.

The Fed signaled that it may move slower with future rate reductions should the employment market and inflation continue to expand. Recent developments such as the effects of the port strike and aftermath of Hurricane Helene, may impose new challenges and duress for hundreds of thousands of individuals and businesses directly affected by the storm, as well as indirectly affecting millions across the country, as disrupted supply chains may cause price changes. (Sources: Treasury Dept., Federal Reserve)

More Workers Think That They’ll Be Unemployed – Labor Market Update

Primary objectives of the Federal Reserve include securing the value of the dollar by ways of countering inflation, and maintaining a healthy and robust labor market by encouraging employers to hire and workers to find favorable positions. Workers’ expectations of what their job prospects might be in the future is closely tracked by the Fed and economists. Such data gives the Fed insight as to where the labor market might be headed.

The recent data also identifies that more workers are becoming unhappy with their current jobs and transitioning more frequently between jobs. More workers nearing retirement are also inclined to work longer and foregoing retirement until later years. Economists and the Fed believe that lingering inflationary pressures have imposed additional burdens on employees requiring them to work longer due to heightened living costs. (Source: Federal Reserve)

Nuclear Power Generation Expected To Increase As A.I. Requires More Energy – Energy Industry Overview

The tremendous onset of Artificial Intelligence (A.I.) has brought about an enormous increase in the demand for energy. A.I. encompasses a multitude of numerous electronic components that consume enormous amounts of electricity as well as generating vast amounts of heat. Expanded use of air conditioners and temperature controlling equipment is also consuming energy past levels seen in the past.

Natural gas powered stations as well as nuclear fueled generation facilities are becoming the most viable sources of energy to meet the rapid expansion of A.I.

The infamous Three Mile Island nuclear reactor in Pennsylvania, is scheduled to reopen in 2028 under a 20 year contract to power new and expanding data centers involved with the expansion of A.I. Numerous other facilities across the country are also undergoing upgrades and expansions in preparation for increased power demand and for growing revenues.

Sources: Dept. of Energy, Office of Nuclear Energy

The Fed Has Been Raising & Lowering Rates For Years – Fed Funds Rate History

The Federal Reserve attempts to address inflation and the employment market via increasing and decreasing short term rates via the Fed Funds, yet long term rates are established and set by the enormous fixed income market, which essentially determines nearly all other bond maturity prices and yields. Some analysts and economists believe that the Fed may just be transitioning back to historical Fed Fund rates in the range of 2.00% – 3.00%, which is where rates hovered before the Covid-19 outbreak.

During the pandemic, the Federal Reserve shifted into crisis mode as millions of Americans weren’t working, businesses shuttered, and economic growth reversed into economic contraction. The Fed Funds Rate fell from 2.00% in 2019 to 0.0% in March 2020 in order to provide critical liquidity and attainable consumer loan rates to fortify the financial system.

The rapid increase in the Fed Funds Rate during the post pandemic environment was meant to alleviate inflationary pressures and to protect the U.S. dollar from an earlier drop. The question many analysts and economists have now is, how low will the Fed take the Fed Funds Rate, and how long will it take until it finds the optimal rate range.  My current expectation is for a slow and gradual rate cutting campaign.

Source: Federal Reserve Bank of New York