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Go to http://www.getroman.com/Graham for $15 off your first order + free shipping! In just the last week, it was revealed that The Federal Reserve is preparing to taper their stimulus, the housing market could be losing steam, mortgage rates are beginning to trend back up, and Cathy Wood defends her belief that the market isn’t in a bubble – Enjoy! Add me on Instagram: GPStephan
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THE TAPER TANTRUM:
With inflation coming in higher than expected, the Federal Reserve is backed into a corner: on the one hand, they initially told us that they weren’t planning to REDUCE their treasury purchase until 2024…but, on the other hand…the economy is heating up faster than expected, and NOW – they might start tapering off as soon as the end of THIS YEAR.
The result is that – IF that happens – The FED will start boosting the economy a little less…Treasury Yields won’t be artificially suppressed as much as they are now – interest rates will be free to move back up – and pretty soon, borrowing will get slightly more expensive.
THE SEPTEMBER EFFECT
According to Investopedia… September is the worst month for the stock market, and since 1950…the Dow Jones has declined an average of 0.8% in September…and the SP500 drops an average of 0.5%…and, what’s even stranger is that this “Average” drop happens even in absence of an election year, AND it occurs throughout the worldwide market, as well.
Now, it’s important to mention that – because these are “AVERAGES” – it doesn’t ALWAYS mean the market is going to drop every single September….IN FACT, 45% of the time…the market goes UP…but, it DOES point to the concern that – OVERALL – this could paint a negative picture that some investors are aiming to get ahead of, today.
THE US HOUSING MARKET
According to the National Association of Home Builders, “Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” but – those construction costs are beginning to come back down. Lumber prices have already fallen 71% from their peak, while Home Depot sales growth slowed to 3%, after increasing 30% within the first 3 months of this year.
Or, more simply put: in terms of the housing market, prices have seemed to reach a point where buyers are out-priced, and sitting on the sidelines waiting for things to start cooling down. This could be the point where the housing market BEGINS to normalize as building costs decline, and more inventory comes on the market.
THE STOCK MARKET BUBBLE
Cathie Wood says we're not in a bubble…because, too many people are skeptical that IT IS a bubble. In fact, she says that “in the late ’90s, our strategies would have been cheered on. You remember the leap frogging of analysts making estimates one higher than the other, price targets one higher than the other. We have nothing like that right now. In fact, you see a lot of IPOs coming out and falling to earth. We couldn’t be further away from a bubble.”
In addition to that, the worse news come out…the more appropriately stocks are priced, which gives better deals for her to buy…so, in that sense…if enough people THINK it’s a bubble…they’ll probably behave under the conditions that…it WON’T be a bubble.
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