September 21, 2024

 

The S&P 500 rose 1.4% this week after the Federal Reserve announced a 0.50% interest rate cut. The Fed's first rate cut in in over four years weakened the dollar, helping drive gold and bitcoin up 1.7% and 5.2%, respectively. The iShares Core US Aggregate Bond ETF lost -0.3%. 

One reason why the Fed cut rates is to help unlock the frozen housing market. Existing home sales data released this week showed a 2.5% decline, near a 14-year low. August's Leading Economic Indicator was also released, ticking down 0.2% after a fall in new orders. Weaker economic data has shifted the Fed's priorities. Chairman Powell and company still want to fight inflation, but they also want to preserve stable employment. Will they be able to stick a "soft landing" in the economy? That would be a historical rarity, but it's possible.

 

 

 

What Do Rate Cuts Mean For You? 

 

 

When the Fed cuts short-term interest rates, it impacts asset markets and the real economy. History suggests that Fed easing can boost stock market returns, particularly if there isn't a recession.

Economic "soft landings" are when the Fed cuts rates early enough in a slowdown to preserve a stable economic environment. Since 1971, the S&P 500 has averaged a 25.2% annualized return after non-recessionary Fed cuts. The average return is still 11% including recessionary periods, but with more downside variance. The macro picture is too muddled to make a high conviction call on whether there will be a soft landing. But independent of that important nuance, this week's rate cut should be viewed as a marginal liquidity boost that helps risk assets into year-end.

What else might rate cuts mean for you? If the rate cut leads to a lower dollar, which is often the case, it should be a tailwind for international stocks, commodities, and bitcoin. Lower rates should also modestly help the real estate market. Many homeowners locked in very low rates during the pandemic, and now feel locked into their homes. If mortgage rates go lower, it should help transaction volume recover and buoy prices to a degree. Credit card rates won't likely change much, so if you're carrying a credit card balance at an APR over 20%, pay it off ASAP! 

 

 

 

Is Inflation Really Falling As Much As The Fed Says?

 

 

The price of a haircut rose 4.5% this year and 7.2% in July. According to ace macro strategist at StoneX, Vincent Deluard, that implies the true inflation rate in the economy is still much higher than the Fed's 2% target.

Vincent writes, "In the age of deep fakes, unreliable statistics, and relentless disruption, haircuts are a wonderfully boring exception. They still employ the same technology – a pair of scissors and human hands – as they did a century ago. Their supply is not impacted by trade wars, chip shortages, and OPEC shenanigans. Their prices are not hedonically adjusted or impacted by seasonality. No cartel can manipulate their price because hairdressing is a rare competitive sector in modern America. The price of a haircut is simply the cost of hiring someone who has not gone to college, renting a small commercial space, and paying utilities. Forget trimmed mean, median, and super-core CPI: the price of a haircut is the best measure of the economy’s underlying inflation rate. From 2011 to COVID, haircut inflation exactly matched the average inflation rate of 1.8%. Since COVID, haircut inflation has reset to a stable plateau of 4 to 5%."

There are only two ways the government can solve the long-term fiscal debt problem: austerity or inflation. The latter is more politically palatable, so we expect inflationary policies to remain in place throughout this decade. For this reason, all Silverlight managed accounts have inflation protection hedges built into the portfolio. Forget whatever the Fed says about inflation. Barber bills tell a different and more believable story. 

 

 

 

Apple Rolls Out A New Password App

 

 

Do you have trouble remembering all your passwords? If so, you aren't alone! According to Security.org, only one in three Americans uses a password manager app.

Using archaic methods to manage all your digital credentials can feel like banging your head against the wall. Apple unveiled a new solution this week to help solve login nightmares. Wired.com summarized the benefits of Apple's new encrypted Passwords app, which is automatically included with iOS 18.

If you own an iPhone and hate managing passwords, try the app!

 

 

 

Constellation Energy Revives Three Mile Island To Power AI

 

 

There was a landmark deal in the energy sector this week. Constellation Energy and Microsoft agreed to restart Pennsylvania's Three Mile Island nuclear power plant to help power new data centers for AI. For those who don't recall, Three Mile Island is the site of the country's worst nuclear power accident. 

This move is part of Microsoft’s strategy to secure reliable and sustainable energy sources for its growing AI infrastructure. The plant, which was previously shut down, will undergo necessary upgrades to meet current safety and operational standards. The initiative highlights how important energy infrastructure is to the AI story. Data centers for AI consume massive amounts of power that renewable energy sources like wind and solar cannot reliably meet. Nuclear is an attractive alternative because it has low carbon emissions and is relatively more reliable as a source of baseload generation. It takes a very long time to build new nuclear power plants, so Constellation is in an enviable position as the owner of the nation's largest nuclear fleet. The pricing structure of the deal is attractive from Constellation's perspective, which explains why the shares surged 22% on Friday and are up 118% year-to-date. Constellation is a core holding across Silverlight managed portfolios and we maintain a bullish long-term outlook. 

 

 

 

Cat Travels 800 Miles And Reunites With Owners

 

 

An estimated 10 million dogs and cats are lost or stolen every year, according to the American Veterinary Medical Association. Only one in 50 cats in a shelter returns to their original owners. If they're implanted with a microchip, however, nearly 40% of shelter cats are reunited with their owners. 

This week, a story emerged about one family who is very glad they implanted their cat with a microchip. Benny and Susanne Anguiano were vacationing in Yellowstone National Park in June with their beloved cat, Rayne Beau. The cat became startled by a sound in the woods and ran into the trees to hide. The owners searched for him day after day to no avail, and eventually had to return home heartbroken. "That was the hardest day because I felt like I was abandoning him," said Susanne. In early August, Rayne Beau's chip came in handy after Pet Watch found the cat roaming aimlessly, 800 miles from Yellowstone. No one knows how Rayne Beau made it that far. But thanks to his microchip, he's now back with his owners.     

 

 

---

This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​