Long time readers of our newsletter know that we are not fond of market narratives – stories built on an ounce of truth and a pound of nonsense. They are the modern equivalent of ghost stories… but for old(er) people.
The latest narrative involves rising interest rates in the US. The story tellers begin with a 6-week chart showing rapidly rising rates and they tie the rise in rates to a new fear of fiscal deficits and tariffs. This is the ounce of truth and it is compelling. The pound of nonsense, however, is the notion that these concerns didn’t exist until six weeks ago, and not ironically, that they began at exactly the point where US interest rates hit their lowest level in over a year.
The simple explanation is this: For months, long term inflation expectations (gold line) have bounced between 2.25% and 2.50% (its long-term average range). Real yields (gray line) oscillated as the market wavered over a soft- landing. However, when the Fed failed to deliver a rate cut at the July meeting, recession fears kicked in, markets faultered, and interest rates plummeted. Economics Professor Jeremy Siegel (MIT) and Massachusetts Senator Elizabeth Warren famously demanded emergency rate cuts. Finally, at the September meeting, the Fed delivered what the market wanted, the panic ended, and rates returned to their July levels.
Your treat is that you now have one less thing to be fearful about in November.
Comperio Retirement Consulting has been named one of the largest 100 Investment Consultants in the United States according to Pension & Investments (P&I) for the past 7 years