Don’t look now, but the 10-year Treasury rate has begun climbing again. It’s risen over the last few days and is hanging around the 4.25% level, last seen in July1. This has been received with a collective groan of the markets, including the Nasdaq, which has shed 1.6% just today and the Dow falling 400 points and turning in the worst day since early September.
Many have adjusted their expectations of rate cuts upwards to land between 3.5% and 3.75% judging from the October 2025 CME Group Fed Watch Tool where 28% believe the rate will be in a year (October 29, 2025)2. We’re hyperaware of this retracement development and are actively discussing it in our Investment Committee for many reasons including a possible rerating of the overall bullishness of stock market pundits and investors as well as the obvious implications of what can happen in the fixed income space. For now, at least, we’ll hold firm to our stance that interest rates will continue to head downward judging from the Fed Funds Futures. The price of oil has stabilized over the last couple of weeks since the Middle East turmoil earlier in the month. It’s this stabilization that gives us the most instruction as it was mentioned two weeks ago in our report that much of the trajectory of the CPI hinges on what happens with oil. If fears in the Middle East at least somewhat subside and demand remains where it is, it’s very possible we won’t see the re-emergence of inflation and the Fed gets the soft landing of Jerome Powell’s dreams.
We also observe that our rates remain higher in the US than in almost all other major economies. Japan, Switzerland, Sweden, China, South Korea, the Eurozone and Canada all have lower rates than the US and their CPI trends are headed downward3. Other than the UK, countries with higher rates are developing economies, which reduces the competition for global fixed income investment. The bottom line is: the US, from a competitive standpoint, has room to cut, so we think they will (eventually).
(For Clients) Speaking of rates elsewhere, international investment just can’t keep up with the US in terms of the returns of the major indices. With that in mind our investment committee has recast our Extended Equity ETF portfolio to eliminate two international ETF investments, one small-cap investment and lean into what is working, which is the S&P 500, technology, dividend growth and even gold. We’ve run an exhaustive set of backtesting and modeling to try to bring to our clients the most optimized ETF portfolio, with the lowest expense ratio (0.06%) and best risk-adjusted potential returns we can manage.
We know that nearly everyone is more concerned at present about the potential effect of the upcoming election, which is finally here (excepting of course the month it will take them to count the votes everywhere). Other than some stocks which we perceive to be big political volleyballs and whose fortunes seem to rise and fall on which candidate is perceived to be ahead, we haven’t detected any big trends specifically related to that. If we do, you’ll be the first to know. For now, let’s get out and vote, so whatever happens – at least we have the right to complain about it!
(For Clients) If you have any concerns or thoughts about how we can improve our services, please share them with us. We have a core value at The Wealth Training Academy called “Continuous Improvement”, so if you can think of anything at all that would fall into this category, please don’t be shy about sharing that with us. We are always seeking to optimize, through our investment process, but also in the areas of taxes, insurance, estate planning and business coaching and consulting. We want to serve you to the best of our abilities.
Sincerely:
The WTA Investment Committee
1 CNBC.com, https://www.cnbc.com/2024/10/23/us-treasurys-yields-closely-watched-putting-pressure-on-stocks-.html
2CME Group: FedWatch, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html
3Charlie Bilello, @charliebilello, 10/23/2024
