Ladies and gentlemen, the weekend! In this space each week, Greg and I share some of our favorite articles, notes, and graphics from the past week along with our commentary. Please feel free to provide feedback and forward along to others if you enjoy. We appreciate you taking the time to read. 

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Are markets more in line with Fed rate expectations?

“The Federal Open Market Committee (FOMC) voted unanimously to raise the Federal funds rate target range by 0.75% to 3.00%-3.25%. The tone of the committee remains hawkish given policymakers are ‘highly attentive’ to taming inflation that runs well above its 2% target. Strong job growth and persistent excess demand for labor suggest a soft landing is still possible. However, aggressive Federal Reserve (Fed) tightening keeps the probability of recession sometime next year elevated…

The statement language was nearly identical to July and notably reiterated that “ongoing increases in the target range will be appropriate”, keeping the door open for another 125 bps in increases by year end.

At the press conference, Chairman Jerome Powell repeated his Jackson Hole messaging, noting that restoring price stability will keep rates restrictive for “some time”, but at some point, a slower pace of rate hikes ‘will become appropriate’. For now, the FOMC remains laser focused on inflation and keeping inflation expectations anchored. Interestingly, Powell never made use of the word recession, but did acknowledge that there will likely be a period of ‘sustained period of below-trend growth’. When asked about cutting rates, Powell stated that the FOMC would need to see below-trend growth, a more balanced labor market and clear evidence that inflation is heading back towards its 2% target before considering such a move.”

We had another Fed policy meeting this week and another 0.75% increase in interest rates. That’s 2% over the last 3 meetings, which is the fastest pace of interest rate hikes since a single 4% hike in May of 1981 (no official announcements back then).

There was no notable change in outlook; however, stocks reacted negatively, credit spreads widened, commodities dropped, and the dollar rose.

When Will Stocks Hit Bottom? Rate Cuts May Be the Best Signal

“As evidence piles up that the stock market is caught in a bear market, the focus inevitably turns to analytics that will signal a high-confidence forecast that the selling has reached exhausted itself and a bottom has arrived. There are many possibilities for crunching the data and all come with caveats. But perhaps the leading first approximation is the start of interest-rate cuts...

[Mark Hulbert, editor of Hulbert Ratings] finds that the market hit its low ‘an average of 57 days prior to the end of the Fed’s rate-hike cycle — about two months.’ Good to know, but keep in mind that ‘there is quite a range, from no lead time at one extreme to almost the entire six-month window on which I focused. Given that it’s hard to know when the Fed will actually begin to pivot, this wide range illustrates the uncertainty and risk associated with trying to reinvest in stocks in anticipation of a pivot.’

In other words, there’s (still) no silver bullet for calling bottoms. But the start of easing policy cycles is on an obvious tool for your short list.”

The market and risk assets have been completely focused on Fed activities, so what clues can be taken from historic rate cycles? James Picerno went through research from Hulbert and Bank of America, which pointed to the very end of the rate hiking cycle for market bottoms.

Please don't take this as an endorsement to try to time the market; it's approximate timing.

Does Money Make You Happy? The Latest Research Might Surprise You

“Our collective understanding of the relationship between money and happiness has taken an about face in recent decades, as researchers increasingly uncover close ties between individuals’ earnings and their day-to-day happiness.

The old adage ‘money doesn’t buy happiness’ in recent decades evolved to an understanding that individuals’ happiness increases with income – up to a point of roughly $75,000 annually, thanks to a wildly popular 2010 Princeton study. In 2021, new research from the Wharton School at University of Pennsylvania that revealed there is no such plateau changed the public's perception.

This research, led by Wharton School Senior Fellow Matthew Killingsworth, collected 1.7 million emotional snapshots throughout the days of more than 33,000 participants and found that all measured forms of well-being continued to rise with income, regardless of the dollar amount.

‘Money provides people with a sense of autonomy and freedom to live the life they want to live,’ Killingsworth says. ‘It’s not necessarily because they’re buying fancier cars and having nicer meals, though they may be, but a lot of what money is doing is allowing them to carry out their intentions and desires as agents in the world as opposed to being overly constrained by resources.’

Another study released this January and led by Jon M. Jachimowicz, assistant professor at Harvard Business School, further confirms the many ways money can be used as a problem-solving tool that results in more overall happiness.”

I wish that Biggie Smalls was still around to see this new study from Wharton. Instead of Mo Money Mo Problems, we are getting to a point of Mo Money Less Problems.

It’s intuitive. Financial wherewithal allows people to achieve their goals, and financial independence creates the time and opportunity for self-actualization – the top of the pyramid in Maslow’s hierarchy of needs.

“Investors may be surprised to learn that in the last 69 years, on average, stocks did worse in the year before a recession began than during the recession itself. Here's how the S&P 500 performed before, during, and after past recessions.”

Thanks for reading. Have a great weekend!