Three Takeaways for Investors

Last Edited by: LPL Research

Last Updated: September 13, 2023

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You can find Econ Market Minute on the LPL Research YouTube channel and Apple Podcasts.

Jeff Roach (00:02):

Hi, I am Jeffrey Roach, Chief Economist at LPL Financial, and in this edition of the Econ Market Minute, I'll share three key takeaways for investors. First, markets will shrug off inflation for now. The rise in gas prices in August was the largest contributor to headline inflation, but will not likely show up again next month. Annual core inflation decelerated to 4.3% in August from 4.7% the previous month. Prices for hotels, used vehicles, and recreation all declined in August. And I think the decline in prices for hotels could indicate consumer demand is starting to wane on travel-related services. Here's the bottom line. Markets will likely look past the rise in headline inflation since the largest contributor should not be a big factor next month. Yields on the two-year treasury are trading below the previous day's close, indicating, I think that markets are taking the latest inflation report in stride as the Fed is expected to keep rates unchanged at its upcoming meeting.

 

Jeff Roach (01:10):

Second, housing imbalances will likely last for a while. The Fed publishes what they call the beige book eight times a year, and these survey data are helpful since comments from businesses and individuals could provide a sneak peek into the trajectory of the economy. And that's before the hard data pick up, the rotation. And one of the latest nuggets from the beige book is that housing affordability will likely be a nagging problem for quite a while until the supply of homes comes into balance with demand. Delinquencies and credit demand are good leading indicators for assessing the economic trajectory and given the cloudiness of the outlook, investors will likely experience some choppy markets in the near term, and investors are definitely seeing that in the bond markets. Third, input costs rose in August, unfortunately. The services industry reported paying out more for operating expenses last month, approaching levels last seen in April.

 

Jeff Roach (02:17):

Bond yields temporarily spiked in the news that inflation could be stubbornly elevated throughout this year. Illustrating what I think is that investors should expect a bumpy ride in the markets. However, business activity has been growing at a slower pace since the end of 2021. As consumers spend down their excess savings and the slowdown in activity will eventually dampen inflation pressures. So, I think the two big challenges facing the Fed right now are the risks that inflation could become entrenched and the risks that the consumer could falter when excess savings dry up. Investors should still find opportunities in domestic equities, especially large caps, but it could be for a bumpy ride. Well, that's all for now. Follow me and the LPL Research team on social media and take care.

In this week’s Econ Market Minute, LPL’s Chief Economist Jeffrey Roach gives us an update on inflation, housing imbalances and rising input costs, and suggests investors should expect a bumpy ride in the markets.

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You can find Econ Market Minute on the LPL Research YouTube channel and Apple Podcasts.

 


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IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.

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The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.

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