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☆ The Perils of the Fed’s Vast Bond Holdings
▼ + stars: | 2024-05-03 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +2 min

But even after two years of quantitative tightening, the amount of bonds and securities that the Fed still retains is stupendous. Quantitative tightening is a perilous operation. Earlier attempts — notably, in 2019 — disrupted financial markets. The slow pace of quantitative tightening is partly responsible for the Fed’s inability to contribute to the national budget. That’s because the Fed has also raised interest rates, which move in the opposite direction of bond prices.

Persons: — Organizations: Fed, Treasury, Silicon Valley Bank Locations: United States

☆ Don’t Put Your Eggs in One Basket. That Investing Principle Still Holds.
▼ + stars: | 2023-12-01 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

I’m talking about the 60/40 portfolio, which has sometimes been considered the living heart of investing. They are merely a convenient starting point for thinking about investing and not an exact, general-purpose prescription for everyone. While it’s more complicated, it comes down to this: Don’t keep your eggs in one basket. Diversification in investing is as important now as it ever was, even if it hasn’t paid off lately. If you held a broad portfolio of stocks and bonds in 2022 — whether your mix was 60/40 or some other variant — you probably lost money.

☆ In the Stock Market, Don’t Buy and Sell. Just Hold.
▼ + stars: | 2023-11-24 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

Selling all of your stock just before the market falls, and buying shares just before the market rises, is a brilliant strategy. And if you could repeat the feat over and over again, you would be fabulously rich — a true stock market wizard. Without question, it’s so hard that the vast majority of professional traders can’t do it, as countless studies have shown. Most of us are better off living with the reality that the stock market moves down as well as up, and that we can’t beat it. And the study implies that a simple, unspectacular strategy — buying and holding the entire market through low-cost index funds — is probably the best bet for most people.

☆ The Fed’s Decisions Now Could Alter the 2024 Elections
▼ + stars: | 2023-11-17 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

What’s happening in the economy now will have a big effect — perhaps, a decisive one — on the presidential election and control of Congress in 2024. Right now, that model, created and run by Ray Fair, a Yale economist, shows that the 2024 national elections are very much up for grabs. The economy is strong enough for the incumbent Democrats to win the popular vote for the presidency and Congress next year, Professor Fair’s projections find. Persistent — though declining — inflation also gives the Republicans a reasonable chance of victory, the model shows. Both outcomes are within the model’s margin for error.

Persons: Ray Fair, it’s Organizations: Yale

☆ The Betting on the Presidential Election Has Begun
▼ + stars: | 2023-11-10 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

Financial journalists love Wall Street aphorisms. “The stock market climbs a wall of worry” is useful whenever investors are fretting. That hallowed saying could be repurposed today, except for a formidable problem. It refers to the betting on elections that took place on Wall Street, which was commonplace back then — and covered extensively in The Times and other major newspapers, as an important source of information about national, state and local political contests. Today, except for indirect and elaborate financial hedges on the policy implications of election outcomes, outright betting on elections is no longer a core part of American finance.

Persons: “ Don’t Organizations: Wall, The New York Times, The Locations: The Times

☆ In a Warming World, Clean Energy Stocks Fall While Oil Prospers
▼ + stars: | 2023-11-03 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

But the stock market doesn’t seem to have gotten the memo. Instead, the shares of a broad range of clean energy companies have been crushed lately, in a rout that encompasses just about every alternative energy sector, including solar, wind and geothermal power. At the same time, rather than weaning themselves off oil, Exxon Mobil and Chevron, the two biggest U.S. oil companies, are doubling down. The evidence that carbon emissions are warming the planet is persuasive. Yet the stock market, which is supposed to be forward-looking, is treating alternative energy companies with disdain and big oil companies with respect.

Persons: Hess Organizations: Exxon Mobil, Chevron, Exxon, Natural Resources

☆ The Bond Market, a Sleeping Giant, Awakes
▼ + stars: | 2023-10-27 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

The bond market is stirring. After years of low interest rates, yields throughout the vast global bond market are soaring. And in the bond market, traders and central bankers drove longer-term yields below 1 percent. Those depressed bond market yields fluctuated but never reclaimed their past heights. Interest rates were so low for so long that businesses and investors barely needed to think about them.

Organizations: Federal Reserve, Bear Locations: Washington, Bear Stearns

☆ The Gems Hiding in Plain Sight in the Treasury Market
▼ + stars: | 2023-10-20 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: 1 min

You didn’t have to be a financial wizard to get a safe return of more than 7 percent on your money for decades to come. All you had to do was buy a 30-year U.S. Treasury bond in the last nine months of 1994. There were treasures elsewhere in the investment-grade bond market. Tax-free municipal bonds were paying more than 6 percent, and corporate bonds carried rates that were even higher. While interest rates have risen appreciably, I’m not confident that we are experiencing a 30-year peak with bargains galore, as the fortunate bond buyers of 1994 did.

Organizations: Treasury

☆ The Dollar Still Has Plenty of Swagger
▼ + stars: | 2023-09-22 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

Earlier this year, before the rebound, spot currency traders made good money wagering that the dollar would decline from the 20-year highs it reached in 2022. And while the dollar dominates world trade, a host of nations, including China and Russia, are maneuvering to unseat it. But the Federal Reserve’s decision on Wednesday to hold rates at an elevated level is likely to buttress the dollar in foreign exchange markets. Still, an underlying truth abides: The dollar remains the linchpin of the global economy. It is the currency around which nearly all others revolve, the world’s haven in times of trouble — even when that trouble emanates from the United States itself.

Persons: — Locations: China, Russia, United States

☆ The Market Is Stuck Until the Fed Is Done
▼ + stars: | 2023-09-16 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +2 min

But the short-term interest rates the Fed controls directly have already risen sharply since early 2022 — from near zero to a range of 5.25 to 5.5 percent now. And while a rate increase may be unlikely this month, for short-term traders, the big questions remain: Is the Fed done, and when will interest rates finally decline? An Unheralded RecordFor one thing, the interest rate environment is unusual. Short-term rates — specifically, for 3-month Treasuries — are higher than those of longer duration — particularly, for 10-year Treasuries. In financial jargon, this is a classic “inverted yield curve,” and it often predicts a recession at some point in the future.

Organizations: Blue, Economic, Wolters Kluwer, Wall, Investment

☆ Why the Stock Market’s Summer Doldrums Are Not a Problem
▼ + stars: | 2023-08-25 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +2 min

Briefly put, short-term rates — those embodied in money-market funds as well as credit cards — are a direct consequence of the Federal Reserve’s campaign to reduce inflation. The Fed has been tightening monetary policy, mainly by raising the short-term rates it controls, the best known being the federal funds rate. The downgrade of U.S. Treasury debt by the Fitch Ratings agency also contributed to the run-up in rates on Treasury securities. In addition, the balance of supply and demand in the bond market has been tilting in a way that is contributing to higher rates. The Treasury has been auctioning an unusually large amount of debt, bulking up its resources after the brinkmanship of the debt ceiling crisis this spring.

Persons: Jackson, Jerome H, Powell Organizations: Federal, Treasury, Fitch Locations: Japan, China

☆ The Outlook for the Economy Has Improved. And Yet.
▼ + stars: | 2023-08-18 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +2 min

The U.S. economy continues to be buffeted, if not battered, by supply and labor shocks induced by the pandemic and by commodity shortages set off by Russia’s war with Ukraine. Oil prices have been rising again, partly because of restrictions on Russian oil, and partly because of voluntary production cuts by Saudi Arabia and other members of the OPEC Plus consortium aimed at squeezing more profits from fossil fuel. Furthermore, China’s slowdown is weighing on the global economy. Still, on the positive side, falling prices there can be expected to contribute, even if only marginally, to disinflation in the United States and elsewhere around the world. In addition, political polarization in the United States is beginning to dim the country’s financial luster.

Persons: Carl Hulse Organizations: OPEC Plus, Treasury, Fitch, reconvenes Locations: U.S, Ukraine, Saudi Arabia, disinflation, United States

☆ Why Bonds Are Still Essential Investments
▼ + stars: | 2023-08-11 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

Give the stock market half a chance and it will dominate the financial headlines. That was certainly the case for the month of July, with the S&P 500 powering upward and bonds barely treading water. But August has been different, with the stock market hitting a speed bump and the bond market getting attention for an unwelcome reason: a downgrade of U.S. Treasury debt by the Fitch Ratings agency. Because the enduring appeal of bonds comes from their relative safety — and not from spectacular gains and losses that define the stock market’s flamboyant brand — the Fitch downgrade can’t be easily dismissed. Yet it makes sense to hold U.S. debt anyway, despite tremors in the bond market.

Persons: Fitch Organizations: Treasury, Fitch, can’t Locations: United States

☆ The Risks Hidden in Public Pension Funds
▼ + stars: | 2023-08-04 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

And he now says that, on average, the risks being carried by public pension funds are at least 20 percent greater than they are reporting, largely because they aren’t taking account of the true risks embedded in private equity. Private equity returns exhibit low volatility because they are based on infrequent appraisals of private companies. “When you adjust for the stale pricing in private equity funds, the risks are much greater,” he said in a telephone conversation. Unlike with 401(k) retirement accounts, workers in public pension plans don’t get to decide where their money is invested. Instead, academic studies suggest that the vast majority of us need diversified holdings of the entire public stock and bond markets through cheap, well-regulated funds, mainly index funds, invested with horizons of a decade or longer.

Persons: ”, don’t Organizations: Securities, Exchange Commission Locations: Oregon

☆ The Markets Are Counting on the Fed to Solve a Tricky Puzzle
▼ + stars: | 2023-07-21 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +2 min

The remarkable thing is that, at the same time, the labor market remains strong. For a while, the Fed said high inflation was “transitory” and would ebb on its own. But by the end of 2021, the Fed had deemed inflation unacceptably high, and it began signaling that it would not continue its expansive monetary policy indefinitely. In January 2022, the Fed made its intention to tighten absolutely clear, and the markets plummeted. How much, exactly, will be a subject for academic papers, dissertations and books in the years ahead.

Persons: —, it’s Organizations: Fed Locations: Ukraine

☆ Stock Market Returns Are Deceptively High
▼ + stars: | 2023-07-14 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

For another, bond returns, which are positive for the calendar year, have flagged recently. Only money market funds — often dismissed as a form of “cash” and not included as one of the major asset groups — are in an unequivocally positive position. As the Fed raises its benchmark federal funds rate, money market fund rates follow. The good times for money market funds aren’t over quite yet. The stock market over long periods tends to outperform bonds and cash investment, but at the cost of much greater volatility.

Persons: Bonds, —, ” Peter G, Crane, Daniel Wiener Organizations: Federal Reserve, Crane Locations: Newton ,

☆ Look at the Stocks Leading the Market Now
▼ + stars: | 2023-07-07 | by ( Jeff Sommer | More About Jeff Sommer | ) www.nytimes.com time to read: +1 min

Many top performers in the stock market for the first half of this year were exactly what you would expect, if you’ve been following the news. Tesla, the electric vehicle champion, wasn’t far behind. But what were cruise ships doing near the very pinnacle of the stock market listings? At midyear, three of the big cruise companies — Carnival, Royal Caribbean Group and Norwegian Cruise Line Holdings — were among the top 10 stocks in the S&P 500. Consider that only three years ago, in the first months of the coronavirus pandemic, all cruise lines suspended operations and that in the ensuing months, the shares of publicly traded cruise companies were devastated.

Persons: you’ve, Tesla, wasn’t Organizations: Nvidia, Meta, Facebook, Royal Caribbean Group, Cruise Line Holdings

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