Financial and Economic News: November 8, 2023Nov 08, 2023
Big News For Bonds
Let’s start with the latest news from the bond markets. Investors are challenging central banks' commitment to higher interest rates by betting on potential rate cuts in the US and Europe. The markets are now anticipating the Federal Reserve's first rate cut in June next year, with nearly 100 basis points in cuts expected by the end of 2024. It’s also worth mentioning that similar rate cuts are anticipated for the European Central Bank, possibly starting as early as April. And meanwhile, the Bank of England is expected to reduce its benchmark rate by around 70 basis points.
Looking at the big picture, this shift in market sentiment creates a real dilemma for central bankers who have emphasized the need for higher borrowing costs to cool the economy. And while some experts believe central banks won't cut rates for at least another nine months, bond yields have already responded to economic data and job growth concerns.
So, let’s get into how this might impact you. Despite the recent rally in bond markets, people are still uncertain because of the unknown direction of the Federal Reserve's rate policy and its influence on bond yields. Investors are cautiously hopeful that the rally will provide relief after facing significant losses in recent years, but there’s no way to know for sure. Global economic worries, including the fear of a euro area recession and challenges in China's housing market also contribute to this optimism. Ultimately, the evolving policies of central banks will be the thing to keep an eye on as the situation develops.
Why Are Stocks Mixed?
Next up, market experts at BlackRock and Morgan Stanley aren’t seeing eye-to-eye on how rising interest rates and economic factors are affecting the world of stocks. Let’s look at what they each said.
For starters, Jean Boivin of BlackRock is feeling cautious about the impact of higher interest rates. Despite a recent stock market rally, Boivin is concerned that global growth might slow down in the coming year, and believes that stocks haven’t fully adapted to this new environment. Boivin and his team are cautiously optimistic, and will continue watching to see how the economy performs and how interest rates change in the new year.
On the other hand, Morgan Stanley’s Michael Wilson is more pessimistic, saying he sees the recent S&P 500 rally as a "bear market rally," citing weak earnings forecasts, worsening macroeconomic data, and a declining outlook from other analysts. And while there was a boost in sentiment after Fed Chair Jerome Powell's recent comments, Wilson remains concerned about how higher interest rates might affect overall demand.
If their viewpoints sound a little contradictory, that’s because they are. The reality is, there is currently a lot of uncertainty in the stock market. Some experts are hopeful about the potential for a year-end rally, while others remain cautious due to ongoing economic challenges.
For individuals like you, this just underscores the importance of staying well-informed and diversifying your investments. The impact of rising interest rates on stocks can vary, but there’s no need to live in fear. Assess your risk tolerance and investment goals, and keep an eye on how central banks and economic conditions evolve to make sure you’re responding in a way that works best for your situation.
Too Old To Work (But Too Young To Retire)
Something else that’s got my attention this week has to do with the US labor landscape. Specifically, it turns out that there are over 2 million more individuals stepping away from the workforce than were originally projected. Whew. And as you may have already guessed, this has a significant impact on the labor workforce and the jobs market.
For context, before the pandemic, the labor force participation rate for workers aged 65 and older was around 20.8%. However, it experienced a decline of 2.5 percentage points by July 2021. Now, while there has been a marginal recovery, with a 1% increase, it still remains below those pre-pandemic levels.
For many older Americans, retirement often represents a one-way street. Reentering the workforce can be a complex journey, especially when a person is struggling with potential skill atrophy, and a declining professional network. In 2022, it took an average of 31.6 weeks for individuals aged 65 and older to secure employment, 9 weeks longer than the overall average.
The shortage of older workers obviously comes with its own challenges, and has prompted legislative adjustments in some states. For example, in Michigan, state laws were amended to ensure retired teachers could return to the workforce without any pension-related concerns.
For our economy, the unexpected increase in retirees hints at possible job shortages in specific fields, and highlights some of the very real challenges that come with trying to reenter the workforce. However, there's still a silver lining for you younger people out there, who might find new job opportunities in these sectors due to the labor shortages. So keep your eyes peeled and your spirits high!
Inflation: Are We Out Of The Woods?
Neel Kashkari, the head of the Federal Reserve Bank of Minneapolis, recently weighed in on the ongoing inflation debate, and he's urging caution. Essentially, he's saying that we're not in the clear just yet.
Kashkari's stance revolves around the need for more data before celebrating any victory over inflation. While the last three months have shown promising data on the inflation front, he’s emphasizing the importance of ensuring that inflation is genuinely under control. Specifically, Kashkari is concerned about the risk of being overly cautious with monetary policy, and he believes that a cautious approach is best if we ever want to reach that sweet 2% inflation target.
As we know, in the most recent meeting, policymakers opted to maintain existing interest rates at their 22-year high. Looking ahead, Chair Jerome Powell hinted that they might even be done with rate hikes, and some Fed officials believe that the recent increase in Treasury yields is contributing to stabilizing the economy.
Kashkari, however, is standing his ground. Saying it's too early to determine whether additional rate hikes are in the pipeline. And to make things more complicated, data from the Bureau of Labor Statistics indicates a cooling labor market, with hiring dropping from 297,000 in September to 150,000 in October. So, it's a waiting game, and the story of inflation is far from its conclusion.
Bankman Won’t Be Freed
Next up on my radar, everyone’s talking about Sam Bankman-Fried, the founder of FTX, who was officially found guilty on seven serious charges last week. The case revolved around his actions in defrauding FTX customers and Alameda Research lenders, as well as his involvement in securities and commodities fraud against FTX investors. Tisk Tisk. And to top it all off, the allegations also included conspiracy to commit money laundering.
If you don’t know the details, Bankman-Fried's conviction stems from the collapse of his crypto empire, and the jury's unanimous verdict suggests a strong case against him. While the statutory maximum sentence for these offenses is around 115 years (ouch!), experts predict that he might face a softer prison term, possibly 20 to 25 years or more. Nonetheless, Bankman-Fried's relatively young age and the non-violent nature of his crimes may be factors that influence his ultimate sentencing.
In addition to these legal challenges, another set of charges is looming for SBF in March 2024, creating further uncertainty surrounding his potential incarceration. The Department of Justice has until February 1 to decide whether to proceed with a second trial, which could have additional implications for Bankman-Fried's future. You can be sure I’ll keep you updated when we know more.
Musk Prepares for Robot Surgery
Musk’s latest business venture, Neuralink, is at the forefront of an extraordinary breakthrough. This time, rather than the usual rockets or electric cars, they're delving into groundbreaking brain surgery. Here’s the crazy part: the surgery would involve a surgeon-assisted robot implanting a bunch of tiny electrodes and ultra-thin wires directly into the brain. These wires are designed to read and analyze brain activity, and wirelessly transmit the data to a nearby laptop or tablet. This is absolutely crazy, I feel like we’re living in 2053.
Neuralink is also actively working on a spinal implant aimed at restoring movement and sensation in individuals with paralysis. Their bold journey is driving progress in the brain-computer interface realm, with plans to conduct hundreds of surgeries in the coming years, and potentially rake in annual revenues of up to $100 million. But it's not just about the financial prospects. While it's an unconventional and challenging journey, its success could transform the lives of countless individuals suffering with paralysis, stroke, and other neurological conditions. It’s a huge leap for innovation, healthcare and technology.
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