June 2024
Here are some key takeaways from their conversation:
- The Dow Jones and NASDAQ have reached new highs; however, clients and consumers feel nervous.
- Clients often react emotionally to investment performance, wanting to sell underperforming assets and buy high-performing ones.
- Jenn and Chris emphasize the importance of rebalancing portfolios and diversifying investments to manage risk, avoid chasing growth blindly, and align one’s portfolio with their personal goals, not just trends.
- Consumer behavior has shifted due to inflation; more people prioritize value over luxury.
- Credit card balances are near all-time highs, and personal savings rates are down, reflecting financial strain.
Watch previous episodes here:
Ep. 87 529 Plans: How to Maximize Benefits
Ep. 86 The Risk of Taking Social Security Too Early
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski, joined by wealth advisor Jenn Caruso. Jenn, thank you for joining us.
You know, just a couple of weeks ago, the Dow Jones hit new all-time highs at around 40,000. It's since pulled back a little bit. But then the NASDAQ last week hit 17,000 for the first time. And it's come back a little bit. But it's still at or near there. And the S&P too. It caused us to kind of look at it and say okay let's reflect here.
Most real estate is at all time highs. Gold's at or near all time highs. Stocks are at or near all time highs. But that's not the feeling that we get from talking to clients and people and friends and family in terms of what's really going on out there right now.
Most of our clients are feeling a little nervous, either because things have gone so high or because they just don't agree with some of the growth.
One of the things that we often see as we talk to investors, especially as investments are doing well, they typically look at their statements and they want to sell most of the things that are doing poorly and buy most of the things that are doing well.
So, you know, when we see stocks hitting all time highs, even though it's just a select few stocks that are causing, you know, the new highs, specifically Nvidia, being one of those names, you know, you're taking on a lot of risk by chasing that growth and just continuing to buy into buy into new highs. Right.
Yeah. And one of the things we always talk about with clients is why are you chasing the growth? Does it come back to your investment objective that you've always had? So, you know, we need to consider that as well.
And we would make the opposite decision. I mean, if we look at investments and we saw that, you know, something is doing really, really well, we'd like to objectively trim that and go to other areas that maybe haven't performed as well.
Right. Yeah. Yeah. Because that's where the opportunity is most often. Right. It's the things that are underperforming or have had a nice pullback. I think portfolio management rebalancing and diversification. These are words that people hear often. They're just not always sure how to take action on it or what that actually means.
And so when most firms look every balancing they are analyzing, okay. If my target for stocks or gold or real estate or bonds is X and I'm above or below a certain threshold, I want to start trimming that back down to where I'd like and then taking those proceeds and going somewhere else. And it's so important to stay within the target.
Yeah. And to stay on pace with what it is that you intended to do.
Right, right. And as we looked at, you know, I call it the NASDAQ hitting new all time highs. It made us think and talk about 1999. Yes. The tech bubble that burst in 1999. And it took 15 years for the Nasdaq to get back to those all time highs.
So from 1999 all the way to 2014, that's a long time, almost 15 years, in order to get back to even.
And so the question is it worth that risk? Yeah. You know, and so it's better to make sure that you're allocated appropriately and that you're weighted according to where you need to be. Right. I think that that's one of the challenges because we oftentimes don't understand what risk really is until we start losing money.
And that's where our emotional reaction comes into play. But even though stocks, real estate, gold, all of those things are hitting new, new all time highs, the consumer or the economy feels very, very different. Let's talk about some of the things that you've noticed or headlines or pieces of information that are out there that shows the strength of the US consumer or what's really happening under the hood.
Yeah. Well, you know, the the consumer sentiment out there, I think has been, one of reservation. You know, we see retail sales dipping in some areas, but stabilizing in others. Right. So it's not all doom and gloom out there, but, consumers are being very careful. We're also seeing, you know, spending changing. Right. So maybe they're still spending, but they're spending in different areas.
You know, Costco and Target and they've had a lot of, increase in their values recently because people are looking for value. maybe they're, you know, they're still spending, but they're looking for value, right. and so, yeah, it's changing, but we're still seeing solid sales out there.
I'm glad that you brought that up, because that's one thing that I think we're seeing across the board, not only in companies reporting earnings, but also what we're seeing, you know, with our own decision making because of inflation, because of higher prices, because the fact that, you know, real estate at all time highs and life has gotten more expensive over the last few years.
People are making different choices. They're choosing to buy a different item than they normally would. But some consumers aren't lucky enough to do that. And that's why we're also seeing credit card balances at or near all time highs too, which is concerning. Yeah. As well as personal savings rates coming down. So we're seeing that as well. Yeah I mean look I don't have a crystal ball, but often I hear a lot of people talk about, oh interest rates are going to come down.
You know inflation's going to settle down. I don't know. I know that right now inflation has come down a little bit especially from where it was a few years ago. Personal consumption inflation is around 3.3% for Q1. And then core inflation, which means no food and no energy. It's hard for that to be core, since the core of what we have is food and energy.
And then core inflation has come down. But the the consumer isn't feeling that because food and energy has not. Yeah. And that's what we do every day. We need gas to get to our jobs and we have to feed our families.
I know, and so with those numbers still on call it the mid threes. The fed is not in any hurry to lower rates to stimulate the economy and get growth back in.
I know we're not calling for a recession, but, typically a recession is when your gross domestic product or GDP has two negative quarters in a row. the number just came out late last week. That GDP was actually at 1.3% versus the expected at 1.6, slightly lower which impacted the market short term.
But it's nowhere near two quarters and hasn't been two consecutive negative quarters. Right.
And so right now the Fed's kind of getting exactly what they want. the economy's still growing or GDP still growing. Inflation is not nearly as high as where it was. And it's, you know, coming down a little bit. interest rates are at a very healthy place.
And nothing's technically broken with unemployment being relatively low. So even though we're feeling pain is consumers and inflation is still affecting us. you know, it's very hard for the Fed to be in a position to lower rates to stimulate the economy.
And really they need to be increasing the rates potentially, potentially. But I don't think we'll see that for a little while.
They're in a tough spot. I could see a number of reasons why the fed should probably, you know, increase rates. maybe that they, they know something that I don't, I know I would love to see rates come down only because it's nice as a consumer. It's nice as a consumer to be able to borrow at less.
Absolutely. Absolutely. But we're we're just in an interesting situation. And so I just want to address with the fact that, you know, the the stories in the headlines and the feeling of your investment balances hitting, you know, all time highs not might not correlate to how most people are feeling about the economy and what's going on. But as we're in this situation and we're reflecting on all the positive things that are out there, but some of the signs of weakness now more than ever, it's probably a good time to rebalance, take some risk off the table and look for some other opportunities.
Yes, absolutely. And, you know, I think that people need to understand that they're not alone in how they're feeling. you know, a recent poll actually showed that more than half of the nation are feeling this way. So, it's, you know, it is normal to feel that, you know, things are not as rosy as they appear, but, you know, in the interim, I think it's important just to, take a look at the portfolio, what changes need to be made.
you know, what can you do as an investor to get ahead of whatever may be next? And oftentimes that's rebalancing the portfolio, just making sure that you're staying on track with your investment strategy.
If I heard you just summarize it, it's making decisions based off your personal goals and needs and not somebody else's, or reacting emotionally. Correct.
Because no two investors are the same as we know. No. So they definitely are. It's important not to chase the you know, the AI returns if you know, you just need value returns.
Look, a lot of us got very spoiled from 2009 to 2023 with, you know, very cheap debt, very low inflation. I mean, life felt pretty good, even though looking back, you look at and go, man, maybe the economy didn't feel that great, but we did have low rates and we did have lower inflation.
There was a reason why rates were as low as they were for as long as they were. They were. And now we might be in a situation where rates continue to stay high for the foreseeable future, with inflation numbers and GDP still relatively strong. Yeah. And we still have a lot of uncertainty for the rest of the year.
A lot of, you know, geopolitical concerns out there and coming into an election year. So, you know, I think we're going to see continued, volatility, whether that be minor or not. But you know, it's important to stay the course. And that's why our investments are so important.
You know, any, any investments that you can get that are not correlated with markets. You know, this is an opportune time to do that.
And I love the non correlation, the consistency of returns, things that are going to be resilient regardless of what happens with interest rates or corporate earnings. That's something that we obviously feel very strongly about and, you know, have tools available to help our clients.
Jenn, thank you so much for joining us.
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