School’s back, and so is the latest CPI data. What does it mean for you?
By Here in Lexington, we’re back to school, and with that comes some order and balance for all of us with children. We survived summer, vacations, and waking up every day figuring out which camp or pool we were dropping our kids off at that day. Less than two weeks ago, I was taking beach walks in the morning and enjoying afternoons at the pool in Florida. Now I’m back to morning workouts before carpooling kids and finding myself back in the office.
I know that most of you don’t want to hear about how wonderful my summer was, but in reflecting, I was reminded that while trying to spend the last day of our trip relaxing, I woke up to financial markets seemingly imploding. Talk about a “let’s get back to work moment.” We later found out it was simply a yen vs. U.S. dollar carriage rate gone wrong.
We’ve noted that the majority of U.S. companies are still growing, are well-capitalized, and still have a bright outlook. But at this point in the economic cycle, the American consumer is starting to slow spending. Even on Walt Disney’s latest call, they noticed less foot traffic in the theme parks, but it’s simply due to a more frugal consumer who, rather than spending $300/night at Disney, is spending $100/night on a cruise (which is probably why they just announced four new ships to their fleet).
The consumer is still spending; they’re just doing it differently. We expect this to be the prevailing theme going into the end of 2024 and the beginning of 2025. Against that backdrop, economic reports say that housing is still staying relatively strong while the price of used cars continues to fall. That’s the economic cycle as inventories of new cars have been built, thereby creating less demand for used vehicles.
According to recent polls, experts believe the Federal Reserve will begin cutting rates after its September meeting. That’s been a long time coming, and the data seems to show they’re at a good place to begin to reduce the high interest rate cycle we’ve been in. The concept is that we will have a perfect Goldilocks situation emerge where the porridge is just right.
Within our overall Envestnet portfolios, we’ve continued to tweak and trim throughout the year, with our last big rebalance coming toward the end of June. Since then, there’s been little change in the overall market. We still hold a reasonable amount of cash on the sidelines that, as we continue through earnings season, we expect to deploy into companies with positive outlooks for the remainder of 2024 and 2025.
The most recent consumer price index reports show inflation dropping quarter over quarter and year over year, which is positive. The only disappointing part of the CPI report is that shelter costs are still ticking up month over month. None of us would like to see the value of our home go down, but it would help the consumer if the cost of rent and owners’ equivalent rent were to slow in its increase as that is putting pressure on consumers as they renew their leases.
While it might feel a bit volatile out there, we seem to be in a really good place heading into this fall, even with a contentious election coming down the pike (don’t worry about it). Just take this time to enjoy the routine, and before you know it, we’ll be into cooler temps and football.
And by the way — this time of year is also a great reminder that those of you with young children should be thinking about saving for college. We can give you a free estimate of what you’ll need and help you come up with a plan for saving wisely. Reach out today!
Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.