Fed Hikes, the Market Response & a Book Recommendation

Markets Down: Markets worldwide were down sharply this week, with the S&P 500 Index finishing over 3% lower for the fourth week in the past five. There is concern that given Q3 earnings warnings and other signs of a slowing economy, the Federal Reserve will steer the economy into a hard landing as they attempt to curb present price pressures. Additionally, many market participants believe that Q3 estimates, which have been slashed over 6% from the end of June, will have to be cut further amid a deteriorating macroeconomic landscape. It’s a tough market out there, but our Investment Committee consistently evaluates our allocations and changes to adjust to conditions as needed. Thankfully, a liberal dose of non-traditional bonds and alternative investments has helped to substantially cushion the defensive side of our portfolios.

The $1.50 Hotdog: Inflation may be high and the macroeconomic landscape deteriorating, but one piece of good news is that CEO Richard Galanti reiterated that the cheap price point on the fan-favorite deal of a foot-long hot dog and soda would stay in place during the company’s fourth-quarter earnings call this past week. Galanti estimated that price inflation at Costco was about 8% during the last quarter, with increases “a little higher on the food and sundries side.” Costco executives have famously avoided hiking prices in their food courts, especially for the hot dog-and-soda combo. Regardless of changes in the economy.

Benefits for Vets: On Thursday, Congress finalized their plans to guarantee that veterans’ checks see the same cost-of-living boost as Social Security payouts. Federal officials aren’t expected to announce the adjustments until mid-October, but early last week, the Senior Citizens League predicted a cost-of-living increase of about 8.7% for 2023 based on inflation data through the first eight months of the year. If that estimate is correct, it would be the highest annual increase since 1981. So a veteran receiving about $1500 in monthly payouts would mean an additional $130/month.

Business Briefing

• Raising Interest Rates: On Wednesday, the Federal Reserve announced it would raise its benchmark short-term interest rate by three-quarters of a percentage point in its ongoing effort to fight high inflation. It was the third unusually large rate increase in a row by the Fed, after 0.75-point increases in June and July. The higher rates increase borrowing costs, such as mortgages and business loans. The goal is to get consumers and businesses to borrow and spend less to ease inflation, but the Fed acknowledges that it could come with significant costs to the economy. (The Associated Press)
• Oil Prices Falling: This week, oil prices fell as continuing concerns about an economic slowdown that is weakening demand. West Texas Intermediate, the U.S. benchmark, fell 1.8 percent. Crude soared earlier this year as Russia’s invasion of Ukraine disrupted the market and stoked supply concerns. (Reuters, The Wall Street Journal)
• Returning to the Office: U.S. workers are returning to their offices “at the highest rate since the pandemic forced most workplaces to temporarily close in 2020,” The Wall Street Journal reported last week. Office use hit 47.5 percent of early 2020 levels. The last time the rate was that high was March 2020, when coronavirus shutdowns were ramping up. Office use is highest on Tuesdays and Wednesdays. (The Wall Street Journal)

Book Recommendation: September is back to school for many of the families we serve. If your kids or grandchildren are in 8th-12th grade, it’s time to build your awareness & understanding of the college process. Ron Lieber’s book, The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make is the best resource for students and parents. Ron did his homework and knows the system and process. Stream a copy on your favorite e-reader, or better yet, reply to this email, and we’ll send you a copy of this helpful guide!