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☆ 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

☆ How Sweet It Is, if You’re the Boss
▼ + stars: | 2023-06-30 | by ( Jeff Sommer | ) www.nytimes.com time to read: 1 min

It’s good to be the boss. But you get paid more than everybody else — vastly more, as the latest numbers remind us. What’s more, companies must compare the rich earnings of their leaders with the pay of ordinary workers. For the leaders of corporate America, the sums almost always range from large to hard to believe. Consider that the highest paid chief executive in this year’s report, compiled by the executive compensation research firm Equilar, was Sundar Pichai of Google’s parent, Alphabet.

Persons: Dodd, Frank, What’s, I’ve, Sundar Pichai Locations: America

☆ Yes, There Are Alternatives to Stocks
▼ + stars: | 2023-06-23 | by ( Jeff Sommer | ) www.nytimes.com time to read: +1 min

Now, though, it’s a different world: Interest rates, or yields, have risen significantly. It is debatable whether it’s wise to lock in higher interest rates now, or stick with shorter-term holdings until it’s clear that the Federal Reserve is done raising interest rates. But the time to appreciate the benefits of fixed-income holdings like money market funds and Treasury bills is already here. For the moment, it’s possible to get safe returns that are beating inflation. But Stocks Are BoomingStill, the returns on short-term fixed-income investments are likely to be in the mid-single digits, at best.

Persons: it’s, That’s, Tesla Organizations: Federal, Nvidia, Microsoft, Meta

☆ A Bull or a Bear Market? It Doesn’t Matter.
▼ + stars: | 2023-06-16 | by ( Jeff Sommer | ) www.nytimes.com time to read: +1 min

The headlines and market analyses of the last few weeks, saying that stocks are in a bull market, may be a comfort even if they are potentially misleading. News that the Federal Reserve expects further interest rate increases this year has weighed on the market. But is this really a bull market? First, if a bull market means to you that stocks are trending unequivocally upward, then, no, the bull market label is being misapplied right now. Second, even as a retrospective measurement of how the market has performed, this bull market designation is premature, using a stricter definition, one that seems much more sensible to me, as I’ll explain.

Persons: It’s Organizations: Federal Reserve

☆ Former Fed Chair Ben Bernanke on Inflation, Bank Runs and More
▼ + stars: | 2023-06-09 | by ( Jeff Sommer | ) www.nytimes.com time to read: +1 min

I called Ben S. Bernanke, the former chairman of the Federal Reserve, late in the debt-ceiling standoff. In 2014, he stepped down as Fed chair, after leading it through the global financial crisis. Now, at 69, he is a scholar at the Brookings Institution in Washington, devoting himself mainly to research and writing. His research, showing “that bank crises can potentially have catastrophic consequences” and illustrating “the importance of well-functioning bank regulation,” earned him a Nobel Prize in economics in 2022. That academic work, and the changes he made at the Fed, have altered the way we understand financial news, even if he is making fewer headlines himself.

Persons: Ben S, Bernanke, hadn’t, ” Mr, ” Organizations: Federal Reserve, Brookings Institution Locations: Washington

☆ The Treasury Paradox
▼ + stars: | 2023-06-02 | by ( Jeff Sommer | ) www.nytimes.com time to read: 1 min

Treasury bonds have been at the heart of the debt ceiling drama. But as the deadline for an agreement to avert a U.S. debt default loomed, Treasury bills due in early June were priced as the near equivalent of junk bonds. In the credit default swaps market, Treasury bonds were suddenly deemed riskier than the sovereign debt of countries like Mexico, Bulgaria and Greece. But in the nick of time, President Biden and Speaker Kevin McCarthy reached a deal to suspend the debt ceiling. The Senate gave final approval on Thursday to legislation ensuring that the Treasury won’t run out of cash.

Persons: Biden, Kevin McCarthy Organizations: Treasury Locations: Mexico, Bulgaria, Greece, United States

☆ It’s Not Just the Debt Ceiling
▼ + stars: | 2023-05-26 | by ( Jeff Sommer | ) www.nytimes.com time to read: +3 min

These include:The potential for economic drag from the more restrictive fiscal policy that House Republicans are demanding from President Biden as a prerequisite for an increase in the debt ceiling. Oddly, the debt ceiling crisis provided temporary relief for many of the nation’s banks, economists for Moody’s Investor Service found in a recent study. “The debt ceiling impasse has been a tailwind for the banks,” Jill Cetina, associate managing director for Moody’s, said in an interview. But once the debt ceiling is lifted and the Treasury begins to raise money by selling large quantities of bonds, those purchases by investors in the open market will drain money from banks. “This may not be what you would expect, but the resolution of the debt ceiling crisis will be a headwind for banks,” she said.

☆ What the Markets Are Saying About the Risk of a Debt Default
▼ + stars: | 2023-05-19 | by ( Jeff Sommer | ) www.nytimes.com time to read: +2 min

First, the markets believe there is a real risk of a default in early June. Second, the possibility of a protracted failure of the United States to pay its bills is seen as extremely low. The markets will supply the United States government with all the money it needs, if only Congress grants the authorization to borrow it. Demand for Treasuries is robust and is likely to remain so, as long as the credit of the United States is unimpaired. But a U.S. debt default could change all of that, and another downgrading of U.S. debt, as was the case in 2011 when the United States came close to default, could increase U.S. borrowing costs.

☆ The Debt Ceiling Dispute Raises the Risks for ‘Risk-Free’ U.S. Bonds
▼ + stars: | 2023-05-12 | by ( Jeff Sommer | ) www.nytimes.com time to read: +2 min

The ImpassePresident Biden has begun discussing the debt ceiling with Speaker Kevin McCarthy and other congressional leaders without making much progress. As things stand, the Treasury says it will exhaust its trove of “extraordinary measures” and bump into the debt ceiling sometime in June. But if there is no resolution of the debt ceiling dispute until the last minute, a sharp decline in the stock market would not be surprising. But now, one-month Treasury bills due in June are being seen in the markets as potential trouble spots. In two or three months, the logic goes, the debt ceiling crisis will be behind us.

☆ Worried About a Recession? Patient Investors Can Ride It Out.
▼ + stars: | 2023-04-28 | by ( Jeff Sommer | ) www.nytimes.com time to read: +2 min

We won’t know for sure that we’ve had a recession until well after it’s started, and, quite probably, not until long after it’s ended. But the bureau waited 15 months, until July 2021 to declare that a recession happened. The economic research bureau “dates recessions only after they’ve begun,” Marlena Lee, the global head of investment solutions at Dimensional Fund Advisors, said in an email. I find these averages reassuring:One year after the starting dates, the S&P 500 returned 6.4 percent. Three years after the starting dates, it returned 12.1 percent.

☆ The Fabulous Yields, and Lurking Risks, of Money Market Funds
▼ + stars: | 2023-04-21 | by ( Jeff Sommer | ) www.nytimes.com time to read: +1 min

What’s painful for borrowers is great for people who need a place to park money they have put aside to pay the bills. That’s given money market funds magnetic appeal. Money market funds are likely to keep growing if the Fed holds rates at their current level, or raises them further. I’ve used money market funds on and off for decades with no problems, and consider them to be fairly — though not entirely — safe. When interest rates started to rise, money market rates started levitating immediately, opening up a wide gap with bank deposit rates.

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