By: YBB Personal Finance
SENTIMENTS
AAII Bull-Bear Spread +11.5% (above average)
$NYA50R, NYSE %Above 50-dMA 71.63% (overbought)
$SPXA50R, SP500 %Above 50-dMA 69.8% (positive)
Delta MSI 65.0% (positive)
ICI Fund Allocations (Cumulative)
OEFs & ETFs: Stocks 60.59%, Hybrids 4.53%, Bonds 17.88%, M-Mkt 17.01%
INTEREST RATES
CME FedWatch
FOMC 7/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 9/18/24+ cut
Treasury
T-Bills 3-mo yield 5.38%, 1-yr 4.79%; T-Notes 2-yr 4.36%, 5-yr 4.06%, 10-yr 4.20%; T-Bonds 30-yr 4.45%;
TIPS/Real yields 5-yr 1.93%, 10-yr 1.93%, 30-yr 2.20%;
FRNs Index 5.259%.
US Savings I-Bonds, Rate from 5/1/24 – 10/31/24 is 4.28%; the fixed rate is 1.30%, the semiannual inflation is 1.48%.
For current banking rates, see https://www.depositaccounts.com/
Stable-Value (SV) Rates, 7/1/24
TIAA Traditional Annuity (Accumulation) Rates
Restricted RC 5.50%, RA 5.25%
Flexible RCP 4.75%, SRA 4.50%, Newer IRAs 4.75%
TSP G Fund 4.500% (previous 4.635%).
MARKETS
US market ROTATION to small-caps (SCs) & cyclicals continues. Reasons may be lower inflation & interest rates, rising SC revenues & the upcoming Fed rate cuts. Large AI capex has been a drag on big tech earnings when the expectations remain high & that may pressure the SP500.
Expanding INDIAN stock market & recent stock rally will lead to 20%+ weight for India in the MSCI EM Index next month; about a decade ago, it was only 6-7%. The Indian government bonds have recently been included in the JPM Global EM & Bloomberg EM Local Currency Government indexes. These developments should benefit the Indian capital markets.
Reelection of the European Commission (EC) President Ursula LEYEN is good for the EU. She has been a good crisis manager. The European stocks are also cheaper than the US stocks & there are several attractive European companies.
The CHINESE PBOC cut rates to provide a boost to the weak economy. But there weren’t any major developments at the “Third Plenum”, a meeting of senior leaders that is held about every 5 years.
ECONOMY
The US elections may have a profound impact on the FEDERAL RESERVE. Issues: Fed’s dual mandate, Fed independence, whether the new Administration would be hands-OFF or hands-ON, & the Fed Chair appointment in 05/2026.
Marc CHANDLER (Bannockburn/FFBC) notes that the supply of DOLLARS isn’t just from the US, but also from other countries that get dollars from trade. The dollar is overvalued now, but the current US fiscal policies are negative for the dollar, & the US fiscal & monetary policies haven’t been in sync. The Fed may start cutting rates in 2024 & the easing cycle may last through 2026 with the total cuts of about 2% (i.e. the fed funds in the range 3.25-3.50%). Falling dollar will benefit the US exporters, the US holders of foreign funds, the foreign issuers of the dollar-denominated debt, Eurozone, & EMs.
Thinktank Heritage Foundation’s PROJECT 25 document (900+ pages) is a wish list of hardcore conservatives. It has become an election issue, but it hasn’t been endorsed by TRUMP or the GOP. It covers many areas: Eliminating Fed’s dual mandate; eventual elimination of the Fed; slashing Medicaid (especially, LTC for the poor); return to the gold standard; freewheeling banking, etc.
RETIREMENT
The IRS has issued the final SECURE 2.0 that has good & bad news for INHERITED IRAs (& 401k/403b). The good news is clarity in very confusing rules & that minor children include stepchildren & foster children. The bad news is that most nonspouse beneficiaries (designated-noneligible) must resume annual RMDs starting in 2025 if the RMDs had begun but empty the account in the 10th year. If the RMDs had not begun, then designated-noneligible beneficiaries must empty the account in 10 years in any way they like.
Charles BLAHOUS (George Mason U & Hoover/Stanford) said that both the right & the left are wrong about SOCIAL SECURITY. The solution to underfunding is that the payroll tax receipts & the benefit payments need to be aligned. If nothing is done, then there will be sudden & substantial cuts in benefits around 2035.
FUNDS
Higher inflation is bad for ALLOCATION 60-40 portfolios, according to BoA. The stocks & bonds have higher correlations now, & in 2022, both tanked. Adding alternatives to the 60-40 mix (i.e. multi-asset funds) may improve performance.
Alison SHIMADA (Allspring EMGAX) said the Fed rate cuts & weakening dollar will benefit the EMs. She likes China, INDIA, Turkey, Brazil. India is a positive long-term story, but it’s important to get the sectors & companies right in this expensive market. PM MODI had to form a coalition government, so he will have to scale down his ambitious plans.
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