Tune in Wednesday, 6 PM for a pre-recorded “Your Financial Choices” show on WDIY 88.1 FM. Laurie will address questions submitted online during the next live broadcast.
Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.
#TeamVNFA is Celebrating 38 years this week, let’s look in the rearview mirror, back to 1985!
Essential Cybersecurity Measures for Clients (a five-part series)
By: Rob Ziobro, VNFA Assistant Vice President, Technologies
As they say, you get what you pay for, so let’s discuss Public Wi-Fi this week and how it can be a potential pitfall. While convenient, public Wi-Fi networks can be risky. Hackers can intercept data transmitted over these networks, potentially compromising your personal information.
If you must use public Wi-Fi, consider using a virtual private network (VPN) to encrypt your data and maintain your privacy. VPN settings can be used on your laptops, as well as on iPhones and Androids. It is always better to take a few minutes to set up your connection than to leave yourself open in a public setting. Stay safe out there and check back next week for another topic.
The equity market ended the week mixed as a rally in tech stocks propelled the NASDAQ and S&P 500 Index higher but failed to pull along the broader Dow Jones Industrial Average. For the week, the Dow Jones ended down 0.45%, the S&P 500 up 0.82%, and the NASDAQ higher by 2.26%. The focus remained heavy on the Federal Reserve to see what monetary policy would come out of their Jackson Hole conference, and spoiler alert, Chairman Powell implied that rates would remain elevated until inflation approaches the 2% target and maintains that level. Across the pond, the Eurozone is struggling to combat inflation, which is still above 5%, suggesting the ECB may have to be more aggressive in its policymaking. Finally, the effects of China’s post-pandemic slowdown are beginning to be felt by trade partners and are causing a net detraction in global growth.
Global Economy
Federal Reserve policymakers met last week in Jackson Hole for their annual conference, focusing on monetary policy. Fed Chair Jerome Powell said that the central bank is ready and willing to continue raising rates if inflation does not sustainably trend down towards its 2% target. U.S. inflation printed last month at 3.18%, while it peaked last August 2022 at 9.1%. Remember that the Federal Reserve raised rates consistently in 2022 and through most of 2023—just recently pausing its tightening cycle, which greatly aided in bringing inflation down to 3.18% from 9.1% during that time period. While we have seen some commentary suggesting that the Fed will begin cutting rates by the end of the year, the news from Jackson Hole suggests that we may be in for an extended period of higher rates through at least mid-2024. Chart 1 below shows U.S. quarter-over-quarter (QoQ) GDP plotted against personal consumption QoQ.
Chart 1:
While the U.S. received somewhat clear direction from the Fed last week, Europe faces relative silence from Christine Lagarde and the European Central Bank (ECB) leading up to the bank’s Sept. 14th meeting. Inflation has continued to run rampant in the Eurozone and is the core focus of the ECB’s data-dependent policymaking. For reference, EU core inflation (ex-Energy) remains above 5% versus the central bank’s 2% target (the same as the Fed’s target). See Chart 2 showing European inflation data. However, the recent release of Europe’s Purchasing Managers’ Index (PMI) signaled the contraction of private sector activity, meaning there is now more significant downward pressure on inflation. See Chart 3 for both components and composite of PMI charted against each other from 2002 through the present.
Chart 2:
Chart 3:
This year, China’s economy was supposed to drive 1/3rd of global economic growth. For reference, for every 1% gain in China’s growth rate, global expansion is boosted by 0.3%. Unfortunately, the country’s post-pandemic reopening has been fraught with weak data seeping into its trade partners. So far this year, more than $10B has been pulled from China’s stock markets in the longest stretch of net outflows in the country’s history. This does not mean there are no benefits from an economic slowdown in China. For example, China’s slowdown will depress oil prices and lower prices for exported goods. This is good news for other places, such as the U.S. and Eurozone, which are still battling elevated inflation and will benefit from falling Chinese demand. Chinese imports have fallen as demand dropped from pandemic-era highs. See Charts 4 and 5 for Chinese import data. Chart 6 belowshows export prices falling with the Producer Price Index (PPI) and import prices.
Chart 4:
Chart 5:
Chart 6:
What to Watch
Federal Reserve policymakers signaled that they remain vigilant in their fight against inflation with the end goal continuing to be a 2.00% target rate. We believe Chairman Powell sees the impact of the aggressive tightening in 2022-23 and hinted that the impact of these hikes has yet to be fully felt across the economy. We think a continued pause in rate hikes at the September FOMC meeting is plausible but, of course, all actions are data dependent. U.S. economic growth remains resilient with a solid jobs market which is boosting consumer spending. The bond market continues to modestly sell off, especially in the short end of the curve, but this move is also offering investors a yield component on bonds that we have not seen in many years. Summer is nearing a close, back-to-school shopping is underway or already done and Wall Street will be getting back from the Hamptons and elsewhere. “Sell-in-May and Go-Away” means traders and portfolio managers will be hitting the floor looking to cement positive returns for year-end bonus season. Also, pay attention to the shifting climate in China as this will impact the global economy. Please reach out to your advisor at Valley National Financial Advisors with questions or concerns.
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five- and 10- year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
Success is the sum of small efforts, repeated day in and day out. – Robert Collier
Tune in Wednesday, 6 PM “Your Financial Choices” on WDIY 88.1FM. Laurie will be discussing: Tax Savings and Updates from the Inflation Reduction Act of 2022.
Questions can be submitted at yourfinancialchoices.com during or in advance of the live show. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.
For 38 years, #TeamVNFA has been committed to building a service team you can count on for all your financial needs.
GET TO KNOW OUR TEAM: https://valleynationalgroup.com/advisors-and-team/
Essential Cybersecurity Measures for Clients (a five-part series)
By: Rob Ziobro, VNFA Assistant Vice President, IT
Be Wary of Phishing Attempts: Cybercriminals often use emails or messages that appear legitimate to trick you into revealing sensitive information. Be cautious when clicking on links or downloading attachments from unknown senders. Always verify the sender’s email address and avoid sharing personal or financial information through email.
Keep Software and Devices Updated: Regularly updating your operating system, software, and apps is more than just a chore – it’s a vital security measure. Updates often contain patches for known vulnerabilities that hackers can exploit. Ensuring your devices are up to date helps seal potential entry points for cyber threats.
Check back next week for additional tips.
The Dow Jones Industrial Average ended the week down 2.21%, the S&P500 index lost 2.11%, and the NASDAQ fell 2.59%. Global stocks declined due to concerns about China’s economic conditions and rising global rates. Investors also continue to grapple with inflation concerns. Additionally, the CBOE Volatility Index (VIX) reached its highest level since May 2023 last week, indicating increasing market anxiety. The Federal Reserve is meeting in Jackson Hole, WY, this week—we will be watching this symposium to gauge the Fed’s policy stance going forward. We still believe that the Fed will be able to gently land the economy and avoid a recession despite being seemingly bombarded with news to the contrary.
Global Economy
According to a recent survey, the projected 3Q GDP growth has surged to 1.8%, a notable increase from the earlier estimate of 0.5% in July, as seen in Chart 1 below. The economy’s strength is driven by resilient consumer spending, supported by recent retail sales data and a strong job market. Economists’ revised projections depict an average U.S. economic growth of 2% this year and 0.9% in 2024, exceeding previous estimates and aligning with more positive global forecasts. Despite inflation concerns, economists foresee a prolonged period of higher interest rates without any imminent rate hikes, as seen in Chart 2 below. The possibility of a rate cut has been pushed to the second quarter of the following year, reflecting their confidence in a more resilient economy.
Chart 1:
Chart 2:
Chinese banks have maintained the key five-year loan prime rate (LPR) at 4.2%, defying predictions for a 15-basis point cut, while ten basis points reduced the one-year LPR to 3.45% (see Charts 3, 4). This unexpected move reflects China’s dilemma in balancing the need to stimulate economic growth with the imperative to ensure the banking system’s stability. The decision is seen as an effort to protect banks’ net interest margins and profitability, which are crucial for financial stability. The Chinese government is grappling with the challenge of bolstering borrowing demand amidst deflationary pressures and waning confidence, all while trying to avoid instability in the financial sector.
Chart 3:
Chart 4:
What to Watch
While the market has had negative returns in the past few weeks, we remain cautiously optimistic about the U.S. economy and the markets for 2023. Please reach out to your contact at Valley National Financial Advisors with any questions.