📚 The week ahead

Good morning investors! In this issue, we’ll look at the upcoming economic reports and expectations from them, in addition to the possible impact of a rate cut on investments.

Today we cover:

• What to look out for this week.

• How the rate cut could impact your investments.

• Why the 4% rule sucks.

📊 Economy and News 

Key Market Trends to Watch This Week

Investors are bracing for a busy week as key inflation data and comments from Federal Reserve officials are set to provide insight into the economic landscape. Global economic data and gold prices are also in focus as markets react to recent monetary policy moves.

Here's what to watch in the week ahead.

Inflation Update

On Friday, the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index for August, will be released. Economists predict a 2.5% year-over-year increase, signaling moderated price pressures as the Fed steps back from its previously restrictive monetary policy. The Fed projects inflation will fall to 2.3% by year-end and to 2.1% by the close of 2025.

Fed Remarks and Economic Data

Several Federal Reserve officials will make key speeches this week, providing insights into the Fed's stance on interest rates. Fed Chair Jerome Powell is scheduled to speak on Thursday, with markets closely monitoring his remarks. Additional economic reports will be released, including GDP, consumer confidence, and durable goods orders, giving investors further context on the state of the U.S. economy.

Global PMI Data and Gold Prices

Flash PMI data from the eurozone and the UK will offer a snapshot of global economic strength. While some economies, such as Germany, show signs of contraction, the overall outlook remains resilient. Meanwhile, gold prices continue to surge, reaching record highs, driven by central bank actions and geopolitical uncertainties. Analysts predict prices could hit $3,000 per ounce by mid-2025. Remember that gold can be a part of your retirement account and help secure your future.

Global hits:

• Brazil's government improves fiscal outlook for the year.

• Fed to cut rates by 25bps in Nov and Dec, approach neutral level sooner - Reuters.

• Bank of Canada: AI could boost inflationary pressures in short-term.

Good to know: Family offices are the most bullish they’ve been in years, survey says.

📈 Stocks

S&P 500 5,702.55 (-0.19%)
DJIA 42,063.36 (+0.091%)
NASDAQ 17,948.32 (-0.36%)
BRENT CRUDE 74.49 (-0.52%)
* Prices as of Sep 22nd, 12:20 AM UTC

Navigating the Fed’s Rate Cut: What It Means for Your Investments

With the Federal Reserve cutting interest rates by half a point, it's time to reassess our financial strategies. This marks the first rate reduction since 2020, after years of aggressive rate hikes aimed at controlling inflation. Lower rates can be a mixed bag for investors, households, and businesses, so it's crucial to understand how this shift affects our financial landscape.

Impact on Investments and the Economy

Historically, lower interest rates can fuel stock market gains by reducing borrowing costs for companies, allowing them to reinvest and increase shareholder returns. This week, we’ve already seen positive market movement—the Dow is up 1.3%, the S&P 500 1.1%, and the Nasdaq Composite 1.2%. However, the outlook is more complicated than just stock market performance. The Fed’s actions signal that the economy might be softening, which could bring volatility in the coming months.

For investors, lower rates typically push defensive sectors like healthcare and utilities to outperform. Technology stocks, which thrive on growth, have also benefited. Companies like Tesla, Meta, and Apple have seen significant gains since the rate cut. But it’s important not to overexpose ourselves to one sector. Small-cap stocks, which benefit from lower rates, are another opportunity worth exploring, as they often carry floating-rate debt that can thrive in these conditions.

Looking Ahead

The Fed may not cut rates as aggressively going forward, but additional reductions are expected in 2024. This could mean lower borrowing costs for us, but also smaller returns on savings. As the economic outlook remains uncertain, now might be a good time to diversify investments, stay cautious, and keep an eye on market developments.

Something about Boeing: Boeing machinists on the picket lines said they have saved money for the strike and plan to pick up temporary jobs to make ends meet. A lot seems to be changing inside as well as Boeing’s defense unit chief Colbert is departing. The defense unit accounted for about 40% of Boeing’s revenue in the first half of the year.

Sponsored by Net Picks

Join Net Pick Webinar For Trading and 20 Top Trades with Up To 100% Profit

Sign up for NetPicks Special Webinar Event and discover How to Trade the BEST Names, starting this week!

Target returns of 25% to 100% per trade.

Learn the secrets to trading straight forward puts and calls.

Set your exits at predetermined levels - so you always know when to exit.

Users don’t only learn trading but also receive the best setups in favorite stocks with 20 trades over the next 20 days - pending market set-ups!

💵 Personal Finance

Why the 4% rule sucks

The 4% rule, which proposes that retirees can safely withdraw 4% of their retirement portfolio's initial value annually, adjusted for inflation each year, is a reasonable place to start, but it doesn't fit every investor's situation.

In some cases, it might be a better option to go for a higher or lower rate. Here’s why:

• You might have more or less years: The formula is based on a 30 year horizon. However, retirement age is changing. People are living and working longer, which means you may have more or less than 30 years to enjoy retirement. The average remaining life expectancy of people turning 65 today is less than 30 years, which means you might be able to go for a higher rate. Similarly, people who retire at a very young age may have more than 30 years to enjoy after retirement, which makes the 4% rule not suitable.

• Unreliable data: Analysis by Charles Schwab Investment Advisory, Inc. (CSIA) projects that market returns for stocks and bonds over the next decade are likely to be below long-term historical averages. Thus, it doesn’t give a true picture of what’s to come. Most experts agree that this data offers an unreliable or high withdrawal rate.

• It's a rigid rule: The 4% rule is based on assumptions, i.e.: that you will increase your spending every year by the rate of inflation. It doesn’t link spending to your portfolio performance. Furthermore, it assumes that you never have years where you spend more, or less, than the inflation increase. Most people do not follow this formula and it is common for expenses to change year after year during retirement.

• It applies to a specific portfolio composition: The rule is for people who have invested 50% in stocks and 50% in bonds. There are very few such people. Most investors have a diversified portfolio, which makes the rule unsuitable for most.

• It neglect costs: The rule presumes that any applicable taxes or fees are expenses covered by the withdrawn funds. For instance, if you withdraw $50,000 and incur $4,000 in taxes and fees by the year's end, these costs are deducted from the $50,000, resulting in a reduced amount available for spending. 

So, look at your situation and think of a rate that works for you. Also, do not shy away from changing the rate as your situation changes.

Here’s a video with some interesting information:

💰 Be a Better Investor

Resources:

• Calculators

• Retirement Resources

• Dividends

• Make Money in Retirement

• Side Hustle Ideas

• Stock Deep Dives

• Investing 101 videos

👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.

Advertise with Us