Treasury rates have surged to their highest levels in recent years due to a combination of concerns around inflation, oil prices, the national debt, and the Fed. The 10-year Treasury yield is once again above 4.6% and the 30-year has been above 5% for the longest streak since 2007.1 In general, this is positive for long-term investors since higher yields support portfolio goals such as income and stability.
In our modern world, computers and cell phones have become everyday necessities that are expected to simply work. Yet, there is unbelievable complexity behind not only the engineering that makes them possible, but also in the supply chains that allow millions of devices to be manufactured.
The baseball player Yogi Berra once said that “a nickel ain’t worth a dime anymore.” With inflation still elevated, many investors and consumers may be feeling this way as well. Not only are everyday costs higher due to energy prices, but short-term interest rates have fallen over the past two years.
This means that investors who have a significant portion of their portfolios in cash are seeing the purchasing power of their savings decline both as prices rise and as cash yields fall. With money market fund assets near record highs at $7.9 trillion, it’s likely that many investors have cash allocations that exceed what is appropriate for their financial plans.1 What do investors need to understand about the role of cash in their portfolios today?
The U.S. dollar affects all aspects of financial markets, the economy, and everyday life. Not only is the dollar an important unit of currency used to purchase goods and services, but its value is also affected by expectations around interest rates, inflation, trade, and more.
There is a saying that smooth seas do not make skillful sailors. When it comes to investing, at no time has this been more true than during the first half of the year. Investors faced major events including the war in Iran, oil prices pushing inflation to multi-year highs, and questions around artificial intelligence (AI). And yet, markets have climbed to new all-time highs, corporate earnings have grown at a double-digit pace, and many asset classes have performed well. The first six months have been a reminder of the importance of staying invested and maintaining a longer time horizon.
The S&P 500 has reached a new all-time high, coming full circle in just two years, despite growing uncertainty around the economy, the path of Fed rate cuts, and rising interest rates. Outside of traditional asset classes, Bitcoin also reached its highest level in two years recently following last year's run up.
The battle over the federal budget in Washington is adding to political uncertainty at a time when investors are already nervous about the economy and financial markets. Lawmakers are running out of time to agree on and approve a new budget after kicking the can down the road twice since last September.
Stock and bond markets struggled during the first trading week of 2024 as investors questioned the probability of a "soft landing" and what it may mean for the timing and size of Fed rate cuts later this year. The S&P 500 and Nasdaq fell 1.5% and 3.2%, respectively, driven by a decline in large cap tech stocks, while the 10-year Treasury yield climbed to 4.05%.
The bond market has had a better year in 2023 despite ongoing swings in interest rates. The U.S. Aggregate bond index has rebounded 2.7% year-to-date after briefly hovering in the red a few months ago. This is because inflation continues to improve and many investors believe the Fed is not only done raising rates but may begin cutting next year.
Rainer Wealth Management
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