The S&P 500’s (.SPX) forward price-to-earnings ratio— a commonly used metric to value stocks— rose to 20.4 times this week, a level last reached in February 2022, according to LSEG Datastream. That puts it far above the index’s historic average of 15.7.
It isn’t unusual for valuations to climb along with stock prices, and equities can stay expensive for a long time before returning to more moderate levels. Still, some investors believe the index’s growing multiple has made buying into the broad market a less enticing proposition. The S&P 500 has surged 21% since late October, making new record highs along the way.
It briefly crossed the 5,000 level at the end of Thursday’s session, before closing just below the mark.
– Lewis Krauskopf reporting for Reuters
The classic example of a soft landing is the monetary tightening conducted under Alan Greenspan in the mid-1990s. In early 1994, the economy was approaching its third year of recovery following the 1990-91 recession. By February 1994, the unemployment rate was falling rapidly, down from 7.8% to 6.6%. CPI inflation sat at 2.8%, and the federal funds rate sat at around 3%. With the economy growing and unemployment shrinking rapidly, the Fed was concerned about a potential pick-up of inflation and decided to raise rates preemptively. During 1994, the Fed raised rates seven times, doubling the federal funds rate from 3% to 6%. It then cut its key interest rate, the federal funds rate, three times in 1995 when it saw the economy softening more than required to keep inflation from rising.
– Sam Boocker and David Wessel writing for Brookings.edu, Sept. 14, 2023
They all turned out to be wrong— those economists and money managers that opined a year ago that we would have a recession here in the United States by now.
The year is almost out, and jobs are still being added to the economy.
Seattle is reportedly dead last on a list of large cities for spending on holiday gifts, per person. (The city’s 10.25% sales tax and relatively few shopping malls are given the blame.)
Nevertheless— I trust that the the profits from retailers had moved from the red to the black by this Black Friday.
The US economy added 336,000 new jobs to payrolls in September: about double what analysts had expected.
The stock market fell at first (the Fed may have to keep hiking interest rates), but by the early afternoon, the stock market decided that the initial sell-off was overdone, and by the end of trading the Dow Jones Industrial Index was up by 288 points (0.87%).
The estimated $1.55 billion Mega Millions jackpot for the Tuesday night drawing is one of the largest in U.S. history.
The odds to win the big prize is about 1 in 302.6 million.
Yes, you could buy 10 tickets and make it 1 in 30.26 million, but you would still be much more likely to be killed by an asteroid (1 in 1.6 million).
Update Tue 8/8: The largest jackpot in Mega Millions history, worth an estimated $1.58 billion, was secured in Florida on Tuesday night.
The winning ticketholder can choose between the massive $1.58 billion jackpot paid in annual payments or a one-time cash option worth an estimated $783.3 million.
The winning numbers were 13, 19, 20, 32, 33, and the gold Mega ball 14.
– From the New York Post.
The Federal Reserve raised the federal funds rate by a quarter percent today, to a range of 5.0-5.25%.
From the Wall Street Journal: Powell didn’t rule out another rate rise at the central bank’s September meeting, but he emphasized how much the central bank had already done along with the amount of time it can take for monetary policy to cool inflation. “We’ve come a long way. Inflation repeatedly has proved stronger than we and other forecasters have expected, and at some point that may change,” Powell said. “We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute, as we let this unfold.” Fed officials have been concerned that underlying price pressures may prove more persistent as a solid labor market allows workers to bargain for higher pay, making it harder to get inflation down further.
We skipped the light fandango Turned cartwheels ‘cross the floor I was feeling kinda seasick The crowd called out for more The room was humming harder As the ceiling flew away When we called out for another drink The waiter brought a tray And so it was that later As the miller told his tale That her face, at first just ghostly Turned a whiter shade of pale
– From ‘A Whiter Shade of Pale’, song by the English rock band Procol Harum that was issued as their debut record on 12 May 1967.
10.58 pm, Washington DC
From the New York Times:
The legislation passed the Senate by a vote of 63-36, ensuring the federal government will not run out of money to pay its bills on Monday. It now goes to President Biden to be signed.
If you’re not afraid yet, you should be.
-Catherine Rampell, writing in the Washington Post about the latest debt-ceiling increase showdown in Washington (Treasury Secretary Janet Yellen raised the alarm earlier this week, saying the U.S. government could be out of options to pay its bills by June 1)
Apparently it was not enough that the Republican Party had pushed t**** and his now-convicted seditionist supporters on us for four years.
Now the House Republicans and Speaker Kevin McCarthy want military veterans, social security recipients— and really every American in some way— to pay for the previous Republican administration’s tax cuts.
Here are some scenarios that that will likely play out if the United States indeed defaults on its debt (as reported by Catherine Rampell in the Washington Post): 1. U.S. Treasurys get downgraded — as does virtually every other asset on earth. 2. Interest rates rise further for U.S. consumers, businesses and the government. 3. Global investors likely would sell U.S. dollar-denominated assets as confidence in them evaporates; the dollar might lose value in foreign-exchange markets. 4. Stock markets plummet. 5. Companies holding Treasurys suffer hits to both revenue and balance sheets. 6. There might be a scramble to close out trades that people would otherwise hold. 7. Some of the infrastructure underpinning large parts of the financial system (called “central counterparty clearinghouses”) could essentially get overwhelmed and go down.
“We feel like we’re getting closer or maybe even there.”
-Federal Reserve Bank Chairman Jerome Powell today, on whether more federal-fund rate increases are in the offing
The Federal Reserve Bank increased the federal-funds rate by another 0.25% today.
(So another message to the consumer to stop borrowing money, and to stop buying stuff that is not really needed.
The average credit card interest rate is now 24.25%, according to Forbes Advisor’s weekly credit card rates report. Inflation here in the States is now at about 5%.)
From the Wall Street Journal: With the latest increase, the Fed has raised its benchmark federal-funds rate by a cumulative 5 percentage points from near zero in March 2022, the most rapid series of increases since the 1980s. The rate influences other rates throughout the economy, such as on mortgages, credit cards and business loans.
It was a rough week in the US stock market last week, and today went better.
Still, the uncertainty around inflation and a recession in 2023 is not going to be resolved for several more months.
Writes James McIntosh for the Wall Street Journal under a heading ‘Markets History 101: It’s Time to Buy Bonds‘: Even after their big falls, stocks still look very expensive compared to bonds. The optimism that started this year has faded, but investors continue to bet that long-run inflation will come back under control and profit margins will stay high. And many remain wary of bonds, even as yields approach 4% on the 10-year Treasury and are above 5% on six-month bills.
The central lesson of financial history is that, over the long run, U.S. stocks beat bonds. But buying stocks when they are expensive—at 18 times estimated earnings for the next 12 months, they have rarely been pricier outside the dot-com bubble and the post-pandemic boom—is a recipe for substandard returns.
The largest lottery winnings ever is the Powerball payout of US$2.04 billion recorded just last year on Nov. 7, 2022.
As of today, and for tonight’s drawing, the Mega Millions prize is up to $1.35 billion.
From thelotter.com: The biggest jackpots in the world, both starting and awarded, belong to US Powerball and Mega Millions. Both of the lotteries jackpot prizes reset to an estimated US$20 million each time they’re won. This is larger than many lotteries’ biggest payouts! The second-biggest starting prize belongs to Europe’s transnational star: The EuroMillions. The top prize starts at €17 million and can grow with each rollover until it reaches the prize cap.
Update Sat. 1/14: The second largest jackpot in Mega Millions history was sold in Lebanon, Maine (pop. 6,000) at the Hometown Gas & Grill. The winner hasn’t come forward yet.
Fed officials voted unanimously to lift their benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008. Nearly all of them expect to raise rates to between 4% and 4.5% by the end of this year, according to new projections released Wednesday, which would call for sizable rate increases at policy meetings in November and December.
– The Wall Street Journal
My shipment of stamps from a seller in South Africa that I had bought in July, arrived today— in a sturdy envelope covered with South African stamps.
(Very ‘meta’ to use stamps to send stamps .. and so much nicer than using a bland computer-generated postage paid label).
‘Goodbye 50, hello 100’
– Financial analyst, commenting on the expected Fed hike rate next week (in basis points)
Inflation was still above 8% in August, and pervasive, found in service sectors as well as consumer goods. Gas prices were down, but not nearly enough to offset the increases everywhere else.
I took the Wall Street Journal’s quick survey to estimate my personal inflation rate. The Bureau of Labor Statistics (BLS) has a CPI basket of 80,000 items which are grouped into categories broad (such as food) and narrow (like bananas).
The BLS revises what it tracks every two years based on the spending habits of volunteers who keep a purchase diary. Everyone’s inflation rate is a little different, of course, because we buy different things and services.
We will keep at it until we are confident the job is done.
– Federal Reserve Chair Jerome Powell, at the end of his speech in Jackson Hole, WY today.
It had to happen, of course: Fed Chair Powell reminding investors that there are several interest rate rises and probably some pain ahead, before the Federal Reserve Bank will be sure that inflation is under control.
Hopefully the selling today was mostly done by fund managers— not individual investors. The best advice on down days like today: do nothing.
The House passed the massive piece of legislation called the Inflation Reduction Act today (the Senate had already passed it). There are lots of really good stuff in it.
John Cassidy writes for The New Yorker magazine: The Inflation Reduction Act contains the biggest effort to tackle climate change that the U.S. government has taken. Right now, thanks largely to the retirement of coal-fired electricity plants, the country is on track to reduce its carbon emissions by about thirty per cent by 2030, compared to 2005. By providing about $370 billion in tax credits over ten years for solar and wind producers, as well as for the purchase of electric vehicles, the new bill will increase the emissions reduction to about forty per cent, according to several expert analyses. The House gave final congressional approval on Friday to a spending bill which would attempt to tackle climate change, the high cost of prescription drugs and lower the deficit by roughly $300 billion. It was passed without any Republican support and now goes to President Biden for his signature.
July’s 0% inflation and last week’s booming jobs report underscore the kind of economy we’re building – an economy that works for everyone.
– President Biden @POTUS on Twitter
Well. Technically there was month-over-month deflation in July (going from 9.1% in June to 8.5% in July). Also, this has happened before: March 8.5%, April 8.3%.
The July number means that year-over-year, consumer prices are still up a whopping 8.5%, and the Federal Reserve Bank still has its work cut out. It’s a long way down to the 2% long-term target for inflation.
June’s inflation came in at 9.1%.
It seems that the Fed will definitely raise the Federal Reserve rate another 75 basis points at the end of July, and it could very well be 100 basis points (1.0%).
The Gross Domestic Product (GDP) number for the second quarter will come out just the day after the interest rate hike.
GDP growth in Q1 was -1.6%.
Goldman Sachs now says the GDP growth number for Q2 will come in at 0.7%.
The Atlanta Fed is way more pessimistic: its latest forecast for Q2 GDP growth is -1.2%.
A negative Q2 number would mean we are in a recession: two consecutive quarters of negative GDP growth.
It seems we need to have our recession sooner rather than later, so that inflation can be tamed.