Rates are the Story

Falling Rates and Market Implications Recent jobs data came in weaker than expected, which pushed long-term interest rates lower. The 10-year Treasury yield dropped from around 4.3% to below 4.1%, a significant move that reflects market forces rather than direct Federal Reserve action. This decline is important because most businesses and households rely on long-term borrowing. When long-term rates fall, mortgages and housing markets can benefit, creating positive momentum for the broader economy. In contrast, last year when the Fed cut rates, long-term yields rose, limiting the intended economic boost. Markets are now pricing in two to three potential rate cuts before year-end. However, this outlook is highly dependent on upcoming data, particularly the Consumer Price Index (CPI) and Producer Price Index (PPI). The Fed’s dual mandate, promoting full employment and keeping inflation under control, creates a balancing act. Weak jobs data supports cutting rates, but stubbornly high inflation could limit the Fed’s flexibility. The results of this week’s economic reports will be crucial in determining whether falling yields have staying power. September Market Seasonality September is historically considered the most challenging month for market performance. Since 1950, average returns in September have been negative more than half the time. However, when markets enter September trading above their 200-day moving average, as they are today, the picture looks much brighter. In those instances, the S&P 500 has historically averaged a 1.3% gain in September and posted positive returns more than 60% of the time. With markets currently above their long-term moving average, combined with falling rates and steady earnings growth, there is reason to believe this September could defy the negative seasonal trend. Consumer Spending Trends Consumer spending remains a critical driver of the U.S. economy, accounting for roughly 70% of GDP. Back-to-school shopping provided encouraging signs, with spending up 2.5% year-over-year positive indicator heading into the holiday season. That said, not all data points are optimistic. A recent PwC survey of 4,000 U.S. consumers indicated that holiday spending may fall 5.3% this year, averaging about $1,500 per person. If realized, this would represent the sharpest decline since the pandemic. Concerning concerns about inflation, economic outlook, and generational differences in spending patterns, particularly among Gen Z, are cited as contributing factors. Taken together, the consumer picture is mixed. Back-to-school data points to resilience, while survey data signals caution. With the holidays approaching, tracking consumer behavior will be essential to gauge the health of the economy.   Greg Powell, CIMA® President and CEO Wealth Consultant Email Greg Powell here Bobby Norman, CFP®, AIF®, CEPA® Managing Director Wealth Consultant Email Bobby Norman here Trey Booth, CFA®, AIF® Chief Investment Officer Wealth Consultant Email Trey Booth here Ty Miller, AIF® Vice President Wealth Consultant Email Ty Miller here   Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth in this presentation may not develop as predicted. No strategy can ensure success or protect against a loss. Stock investing involves risk including potential loss of principal. Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.The post Rates are the Story first appeared on Fi Plan Partners.