What Happened: Hamas / Israel war

What’s It Mean: By now, you’re all aware of the tragic events that have unfolded this week within Israel. The events have created global uncertainty in a variety of markets. Ironically, for the majority of the week, stocks traded higher as a direct result of interest rates declining. Typically, when there is global uncertainty, capital runs into safety which remains the US treasury market. Consider for a moment, if you run a sovereign wealth fund in the Middle East and are concerned about your risk exposure. You may quickly shift money into US Treasuries for safety even if it is for a short period of time. When money flows into the US Treasury market, this creates increased demand for our bonds which then reduces the interest rates. A reduction in interest rates is a positive for stocks and is why, in our opinion, markets traded higher most of the week.

Why do we care? While the situation within Israel and Gaza is a day-by-day event, we feel this may give the Fed even further excuse to pause their rate hikes in the face of inflationary concerns. The US stock market seems to be much more concerned about inflation and interest rates than geopolitical issues, at least at this point in time. There is much speculation surrounding whether or not Iran will become more involved, and what the US response would be in that instance. Oil markets have been moving higher as has Gold.

For the last several years, it hasn’t proven beneficial to be diversified among various different asset classes such as Gold; however, that seems to be changing very quickly. I will be writing more about our positive outlook into year end and specifically into 2024, but for now, clients can feel comfortable in the fact that portfolios remain well diversified and in the areas we see great opportunity.


What Happened
: Inflationary reports from PPI Producer Price Index and CPI Consumer Price Index.

What’s It Mean: Surprisingly, we got a very hot PPI number this week which would have recently increased rates and hurt stocks. Ironically, this did not happen which we feel is due to the shift in focus from US Inflationary concern towards the war overseas. CPI was in-line with expectations; however, still quite a bit higher than the FOMC target of 2%. Again, interest rates were not impacted and stocks reacted favorably.


Why do we care?
It seems that investor concern is shifting away from the interest rate markets and inflationary concern and more on the geopolitical events unfolding abroad. As global capital moves into the safety of US Treasuries, the demand for our bonds is a boost for equities. Should this continue, we expect rates to decline further while stocks continue to benefit. We will watch this relationship closely.

Until next time

~ Quint

 

Disclosures

Joule Financial, LLC is registered as an investment adviser with the SEC. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability. A copy of Joule’s current written disclosure brochure filed with the SEC which discusses among other things, Joule’s business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov

 

This does not constitute an offer or solicitation. This information should not be considered investment advice. Opinions expressed reflect the judgment of the author and are current opinions as of the date appearing in this material only. While every effort has been made to verify the information contained herein, we make no representations as to its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance does not predict future results. Content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. All investing involves risk, including the loss of some or all of your investment.

 

Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.

 

Hyperlinks in this letter are provided as a convenience, and we disclaim any responsibility for information, services or products found on websites linked hereto.