Complacency?

Over the weekend, Trump killed the tentative Hormuz deal (which had basically just re-stated the previous memorandum of understanding from earlier in the summer) that had sparked a rally in equities the previous week and disappointed global markets reacted by sending interest rates and energy prices spiraling higher again, pulling stocks lower in Asia and Europe. Despite reported apparent broad investor confidence (complacency?), Wall Street was on edge and suffered the same fate on Monday as US stock indexes and bond prices tumbled. Consumer sentiment has plunged to levels not seen in years according to data released on Tuesday with persistent deep worry among Americans about the current cost of living and the outlook for inflation, their job security and general economic conditions. The latest Job Openings and Labor Turnover Survey (JOLTS) revealed a worse-than-expected decline in job openings ahead of Friday’s employment data. Stocks spent the day treading water, closing essentially unchanged but interest rates continued to rip higher with the 10-year Treasury rate back at pre-Great Financial Crisis levels. Long-dated bonds experienced a nightmare session with the 30-year interest rate soaring to its highest level in almost a quarter of a century as bond traders continued to dump on Treasury Secretary Bessent and his recent pitiful efforts at interest rate manipulation in time for the midterms. The only major Treasury maturity with a rate below 5% is now the 2-year and even that may not last much longer. Energy prices eased with persistent rumors of backchannel negotiations between Iran and the US maybe getting somewhere in spite of Trump’s public intransigence as the supposed “three-week skirmish” moved into its eighth month. Wednesday’s PCE inflation reading came in cooler than feared at 3.4%, which was a relief for markets. We also learned that consumer spending rose in August at the fastest pace in over a year. Stocks went nowhere on the final day of the month and Q3 although Wall Street did interpret the PCE data as reducing the probability of a Fed Funds Rate increase at the October meeting. Index heavyweight Micron released a sensational earnings report after the close, shattering estimates. October and Q4 kicked off on Thursday with traders really wanting to carry the stock market nicely higher after the benign PCE numbers and Micron’s blowout earnings but were mostly unable to do so in the face of the onslaught of the bond vigilantes who are wrecking bond prices by relentlessly pushing longer dated interest rates higher, although short end rates reversed lower on cooling expectations for a Fed rate increase. The indexes did eventually squeak out small gains for the session with a late-day charge after bond traders took their foot off the gas, but the rabid enthusiasm for equities does seem to be stalling. Friday was Jobs Day and the report showed a weakening labor market and didn’t add any urgency for the Fed to imminently raise rates. Far fewer jobs were created than expected and prior months’ data was adjusted lower. The unemployment rate inched higher to 4.2%. Even bond traders need to book profits at some point and dip-buyers finally crawled out from their hiding places and took advantage of the data on Friday to buy bonds and drive down interest rates. Stocks responded positively to the sound of the door starting to close on the probability of a Fed hike later this month (see INTEREST RATE EXPECTATIONS below) and a dip in energy prices brought about by the decision of G7 countries to release 100 million barrels of crude oil and diesel from their reserve stockpiles, to finish nicely in the green for the session. For the week, the S&P 500 and US small caps finished fractionally lower and international stocks fell by more but the NASDAQ-100 moved higher. Some other things I’m thinking about .. * Like a chihuahua yapping at a polar bear, US Treasury Secretary and Trump sock puppet Bessent arrogantly boasted to the bond market on September 9th; “I am the house now. Bet against me if you want” in an attempt to engineer a reversal of the tide of rising interest rates in order to try and boost the president’s plummeting approval ratings and the Republicans’ chances at the midterms. Bond traders rolled up their sleeves, took him up on his challenge and have completely kicked his ass (as they always do with any politician dumb enough to take them on) by taking interest rates much higher since then. * The average 30-year mortgage rate blew through 7.50% last week (see below) and the number of applications fell by 6% month-on-month. The housing market is grinding to a halt with homeowners with COVID-era and other lower rate mortgages more incentivized than ever to stay put which is crushing supply and first-time buyers still frozen out by both spiking mortgage rates and lofty prices which is impacting demand. * Skyrocketing interest rates are not just an issue in the US. The world’s other major economies are having the same problem. I JUST SENT OUT MY QUARTERLY MARKET REVIEW FOR Q3 WHICH YOU CAN VIEW HERE. Anglia Advisors clients are now able to access customized model portfolios in managed investment accounts which exclusively use ETFs, many of which carry no management fee - contact me for more details. If you are not yet a financial planning or investment management client of Anglia Advisors and would like to explore becoming one, please feel free to reach out to arrange a complimentary no-obligation discovery call with me. ARTICLE OF THE WEEK: Twelve financial rules to live by. .. AND I QUOTE: “Change before you have to.” Jack Welch, former CEO of GE. LAST WEEK BY THE NUMBERS: * SPY is a US Large Cap ETF that tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. * Down by 0.2% last week * Up by 0.6% over the past month * Up by 2.4% over the last three months * Up by 12.9% so far this year * QQQ is a US Large Cap ETF that tracks the NASDAQ-100 index, made up of the largest 100 non-financial companies listed on the tech-heavy NASDAQ exchange. * Up by 0.7% last week * Up by 5.7% over the last month * Up by 3.7% over the last three months * Up by 22.0% so far this year * IWM is a US Small Cap ETF that tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. * Down by 0.2% last week * Down by 4.3% over the last month * Down by 5.8% over the last three months * Up by 14.4% so far this year * VXUS is an International Non-US ETF that tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. * Down by 1.1% last week * Down by 2.0% over the past month * Down by 2.2% over the last three months * Up by 13.2% so far this year * BRENT CRUDE OIL .. $102.61 (down by 1.7% last week) * GOLD .. $4,172 (down by 3.4% last week) * BITCOIN .. $ 84,810 (up by 0.1% last week) Data courtesy of finviz.com as of Friday’s close. S&P 500 INDEX: WALL STREET ANALYSTS’ 2026 YEAR-END PRICE TARGETS: Average: 7,970 .. 3.2% above Friday’s close of 7723 (last week: 2.9% above) Data courtesy of LSEG Datastream. AVERAGE 30-YEAR FIXED MORTGAGE RATE: Data courtesy of Mortgage News Daily which calculates a daily average 30-year fixed mortgage rate from several different sources including surveys from Mortgage News, Freddie Mac, the Mortgage Bankers Association and the Federal Housing Finance Agency. INTEREST RATES: * FED FUNDS RATE * 3.875% (3.875% a week ago) * PRIME RATE ** 7.00% (7.00% a week ago) * 3 MONTH TREASURY 4.19% (4.24% a week ago) * 2 YEAR TREASURY 4.83% (4.81% a week ago) * 5 YEAR TREASURY 5.06% (5.01% a week ago) * 10 YEAR TREASURY *** 5.28% (5.18% a week ago) * 30 YEAR TREASURY 5.63% (5.50% a week ago) Data courtesy of the Federal Reserve and the Department of the Treasury as of Friday’s market close. * Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates. ** Wall Street Journal Prime Rate as of Friday’s close. Moving in lockstep with the Fed Funds interest rate, this measure is used as a basis for determining certain consumer loan interest rates such as credit cards, auto loans, personal loans, home equity loans/lines of credit and securities-based lending. *** Used as a basis for determining mortgages. INTEREST RATE EXPECTATIONS: Where will the Fed Funds interest rate be after the next rate-setting meeting on October 28th? * 0.25% higher than now .. 22% probability (64% a week ago) * Unchanged from now .. 78% probability (36% a week ago) * 0.25% lower than now .. 0% probability (0% a week ago) What is the most commonly-expected number of 0.25% Fed Funds interest rate changes over the next twelve months? * 3 increases, 32% probability (a week ago: 4 increases, 30% probability) Data courtesy of the CME FedWatch Tool and is derived from futures market pricing as of Friday’s market close based on the current Fed Funds interest rate of 3.875%. FEAR & GREED INDEX: “Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffett. Data courtesy of CNN Business as of Friday’s market close. The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand. Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment. Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal. 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