Ever wondered how the economic climate might be shaping your finances and investments? On this episode of A Wiser Retirement™ podcast, Casey Smith and Missie Beach, CFP®, CDFA® talk about the Fed target rate, consumer price index, US GDP, housing, employment rates, and interest rates. They also go over the impact of economic indicators on various sectors.
Podcast Episodes Referenced:
- Ep 169: How the 2024 Election will Affect Your Portfolio
Youtube Videos Referenced:
- Sticking to Your Budget During the Holidays
Learn More about Wiser Wealth Management:
- Our website
- Schedule a complimentary consultation (learn more about our services)
- Click here to download one of our free guides that covers financial planning topics like retirement, investing, taxes, divorce, and more!
Connect With Wiser Wealth Management:
- YouTube Channel
- Facebook
- LinkedIn
- Instagram
- Twitter
- Casey Smith's Twitter
- Podcast
- Blog
This podcast was produced by Wiser Wealth Management. Thanks for listening!
Ever wondered how the economic climate might be shaping your finances and investments? On this episode of A Wiser Retirement™ podcast, Casey Smith and Missie Beach, CFP®, CDFA® talk about the Fed target rate, consumer price index, US GDP, housing, employment rates, and interest rates. They also go over the impact of economic indicators on various sectors.
Podcast Episodes Referenced:
- Ep 169: How the 2024 Election will Affect Your Portfolio
Youtube Videos Referenced:
- Sticking to Your Budget During the Holidays
Learn More about Wiser Wealth Management:
- Our website
- Schedule a complimentary consultation (learn more about our services)
- Click here to download one of our free guides that covers financial planning topics like retirement, investing, taxes, divorce, and more!
Connect With Wiser Wealth Management:
- YouTube Channel
- Facebook
- LinkedIn
- Instagram
- Twitter
- Casey Smith's Twitter
- Podcast
- Blog
This podcast was produced by Wiser Wealth Management. Thanks for listening!
So there are people who believe that when you're flying, that smoke clouds that come out of the back of the engines at high altitude is chemicals being dispersed amongst the population to lower the population or treat the population, and the government does it. It's a whole thing.
Speaker 2:Oh, it's the government.
Speaker 1:Yes, the government.
Speaker 2:Yeah, okay.
Speaker 1:And so somehow every commercial pilot is on it, in on it, and it was never told a soul.
Speaker 2:Wow, what a great secret.
Speaker 1:So, but the whole conversation was just framed as Kim trails are real.
Speaker 2:Yeah.
Speaker 1:The question is which airplanes?
Speaker 2:are doing it, but your family member knew about it.
Speaker 1:He was in on the secret. He was in on the secret right. So why is your retirement podcast? We believe the best financial advice should always be conflict free. I'm your host, casey Smith, guiding you to financial freedom. Today's my co-host, missy Beach. Hey, missy.
Speaker 2:Hey Casey.
Speaker 1:So now we are entering, or already have entered, holiday season, when we go to holiday parties and family gatherings of the ones we love and the ones we have to love, and everybody in between everybody in between.
Speaker 1:You know, I just I feel like that this is something that we owed everyone is. Let's talk about the economy, because all through 23 and 23, everyone said, oh, this recession is coming, this big recession is coming in 2022. People saying there's a 75 essay. People analyst were saying there's 75% chance of a recession in 2023. But let's talk about recession numbers. Let's just talk. This is going to be a little, a little data heavy.
Speaker 2:Yeah, numbers don't lie.
Speaker 1:Numbers, but numbers don't lie. We normally have Andrew sitting in here with us, but he decided to have a fourth child. So he's, we miss Andrew. He's at home being a good dad. So we we're. We got left the log in to white charts with tons of data in it and I thought, huh, andrew's not here. Let's, let's have a little fun with the, with the reporting system.
Speaker 2:Fun with numbers.
Speaker 1:So a couple of a couple of things. The fed target rate so this is the fed rate that is used to lend money out to banks, right. So it's kind of the benchmark of interest rates. Fed target rates 5.25% right now and it's up 75% over the last year and that's because they've been raising interest rates to help cool down the economy. Consumer price index so people make fun of this. But the CPI Yep. So CPI is made up of basically a representation of different, different parts of the of things you can purchase Oil, goods, autos, right State consumer staples, all those things. Consumer price index over the last 12 months sits at 3.12%. That means the inflation rate is 3.12. Now you might be saying, oh, that's not right.
Speaker 2:It doesn't feel right. It doesn't feel right.
Speaker 1:Just doesn't feel right. So their food has definitely gone up. If you, if you break down CPI by individual category, there's probably some that are in double digits. Oh yeah, there's got to be but there's also some that are not in double digits. So the average is 3.12%. The CPI number is important because if you have, if you collect social security, this is what you're going to go up by each year.
Speaker 2:What's it? 3.2 for next year. Yeah, that's right.
Speaker 1:So that's relatively unchanged since the last reporting. So 3.12%. Now, remember this number hit eight and people said it was really 15. Right so, so anyway, but the official numbers 3.12. So if the crazy uncle saying inflation's going crazy, it's up 20 for 25%. You know, technically it's not, according to the CPI.
Speaker 2:Bring out the wiser podcast.
Speaker 1:That's right.
Speaker 2:Press play.
Speaker 1:Exactly so. The US GDP now this is a. This is a moving target because there's been a lot going on with the economy, obviously, but it's up 6% over the last year. It doesn't mean the economy is growing by 6%, just the number went up by 6%. So we're still growing the economy at 2.15%. That's relatively low. They said 4% to 5% annually could not be done. The Trump administration did it. Then COVID hit.
Speaker 2:Yeah.
Speaker 1:And now it's. Now it's back around 2%, which is kind of where we were prior to 2017. A little weak. A little weak, but also to rising interest rates slows down the economy. So some of it is planned. It's on its own purpose. Some things you probably already know US housing starts are down 4%.
Speaker 2:Casualty of interest rates.
Speaker 1:Yeah, yeah. Yeah, that's a lot of different page, but we can talk about that now. 7% is the 7.03 is a national average for a 30 year loan. So that's the big difference over over the last couple years, us manufacturing new orders. So, looking at US manufacturing Down 2%. So that's a sign that there's a cooling economy down yeah. I US personal consumption expenditures. How much we're spending? Is that 5.3%?
Speaker 2:So people don't think a recession is coming. No, they're not sucking it away.
Speaker 1:No, they're not. I think it has a lot to do with unemployment rate, which is really low. So if you have a job, you're gonna spend money. If you don't have a job, then probably gonna stop spending money. Us retail sales over the last year now this is not include December, this was last reported 1114. So it's gonna be about another few days before they report new retail sales, but it's up over 1.6% over the last year and US total non-farm payrolls is up 1.8% of the last year. So those are just some economic Key indicators that are really all in the green, except we see a slowdown in housing starts and we're seeing less people ordering from manufacturing and you know, the housing is not really a huge surprise.
Speaker 2:There was such a boom post pandemic that I feel like this is just kind of a cooling off anyway correct Unemployment rate sits at 3.7%.
Speaker 1:So, to go back to 2017, at the beginning we were around 4.4% unemployment. Prior to COVID, we got down to 3.5% Wow. And then the peak during COVID was 14% unemployment. Oh, and then it came all the way back down. Now it's sitting around 3.7 for a while. 3.4 to 3.7 that number would, I think I think, the trigger recession. That number would have to go up. You probably need to get something closer to 5% unemployment to really say that okay, something's wrong here. But even with all the layoffs in the tech sector, we're not seeing a big jump in that people are being Are able to find jobs.
Speaker 2:Mm-hmm, and that's. I think what it boils down to is the labor and unemployment which is going to push us into that recession correct and then, you know, just looking at overall, see the housing situation, so case Schiller home price index.
Speaker 1:Basically, this is a indicator of where the housing market is headed and and it's at three point, a growth rate of three point nine five percent, but that's since 2021, so there's really not an indication there I would. What I focus on is the 30 year on a 30 year mortgage.
Speaker 1:Mm-hmm and where we think interest rates are going to be going forward. So at the beginning of 2022 you can still get a three point one. Two percent 30 year mortgage. The highest it had been prior to that was in 2018 about four point nine four percent in 2018. Wow, how soon we forget, right yeah, and then it came trucking all the way down to 2.6, which is weird because we actually well, this is the average. But I we have clients that I know did one point five and one point nine percent.
Speaker 2:Yeah, I've seen a one point nine.
Speaker 1:Not crazy. So seven, seven percent is actually cooled off from the average of seven point seven, nine, just a few, just a few months ago, yep. So I don't know. I mean, that's a lot of information to digest, but what I see is a housing market that's not crashing, it's flattening out. I see low unemployment. I see earnings continue to increase. That's on a different page, but it's 4%. 4% increase in earnings year over year for most people.
Speaker 2:Yeah, you know, and I think people are projecting doom and gloom because of their. They anchor on mortgage rates for some reason, and even people who are set in their homes. They have nowhere to go, nowhere to be.
Speaker 2:They have a great rate, but they're like, oh my gosh, what are these people going to do that have to buy houses? Well, no one has to buy a house. Renting is still a great option, you know. In fact, lately it's less to rent than buy. So you write it out on the sidelines. For a few years you rent, you sock away down payment money in a high yield savings account and it's fine. So that's kind of a non-issue right now. So mortgage rates are not why we're going into a recession.
Speaker 1:Going back to the case-shiller index, I wanted to make sure I was going to pick that correctly, but basically that is a composite of single family home price indices for nine US census divisions and calculated monthly. So the reason why that is important, that that's positive. It shows that overall across the country that prices of homes are continuing to increase.
Speaker 2:Right. Yeah, it looks like there's a little dip over the late spring summer, and now it's on the upswing again, so we're on the right trajectory.
Speaker 1:If you look at the last five years, it's yeah, it's increasing again. So it's again another positive indication that there's nothing really supporting this big crash that everyone keeps talking about. No, I mean for a lot of people, not our clients, but a lot of people. I talk to oh no, I'm sitting on the sidelines until after recession, like it's just going to happen.
Speaker 2:And then they're going to know. It's like the.
Speaker 1:Kimtrails, the Kimtrails, right. So let's go back to the stock market. I mean, let's just talk about year to date, because this was the year that everything was going to fall apart.
Speaker 2:So what if you just sat on the sidelines?
Speaker 1:Casey. So what if you sat on the sidelines?
Speaker 2:Because you were thinking, hey, it's going to be a recession, I'm not going to put my money in.
Speaker 1:You missed out on the NASDAQ year to date up 37% Wow.
Speaker 2:For a year where people thought it was going to be a recession.
Speaker 1:The S&P 500 is up 20%. And what? Normally you see the S&P, you see the Dow right next to it. Dow doesn't have a lot of growthy companies like the. S&p would, so the Dow is only up about 9.8%. Call it 10%.
Speaker 2:And that's what's winning these days the growth stocks.
Speaker 1:That's right. And you know, when you're talking to somebody at the holiday party and they're in the growth stocks, the dividend stocks, oh yeah, by dividend stocks. Really, really smart. Your dividend stocks are up 4.6% year to date. The low vol stocks, those are like utilities. They're actually down, down, 0.45%. Collect your dividend, casey, you got to focus on total return.
Speaker 2:Oh amen. At the end of the day, it's all about total return. Who cares about the dividend.
Speaker 1:Almost for the last 20 years. You have to be total return.
Speaker 2:And that's something we really try to educate our clients about is it's not the dividend that it pays, it's about the price appreciation and the income. It's the whole package.
Speaker 1:It's a mix. The S&P 500 is a mix. There are dividend aristocrats in the S&P 500, but also the companies are growing quickly will filter to the top, like your Teslas, like your Apples, your Googles, right? So you see that when you break it down by sector, the growth stocks total return year to date is up 26%, Just to grow stocks in the large cap S&P 500.
Speaker 2:You know, yeah, and this is another example of why perhaps dollar cost averaging is not really your best friend a lot of times, because, look, it just went up consistently throughout the year and you missed out on all this great growth and appreciation throughout the course of the year.
Speaker 1:Well, if you want to talk about dollar cost averaging, I was shocked I had to read the report twice. It came out a couple of years ago, but Vanguard did this big study on do you invest all your money at once or do you dollar cost average it out? Now to be clear when you get paid and the money goes into your 401k plan, you are a part of the. I invested as soon as I get it category. That's not dollar cost averaging.
Speaker 2:That's true, because you didn't have the money.
Speaker 1:Yes, you didn't have the cash before you got the cash and then you invested it right, so you're participating in the right side of the study. But basically, if you had invested at all the all time highs, you still came out with a positive return over the long term, where, if you had just dollar cost average in over like a year period, you had a smaller rate of return. Now, if you pick the worst day to invest every single time, you had the additional cash. It was a very small difference versus dollar cost averaging, but dollar cost averaging still won. So what it told me is if you have the cash, if it's supposed to be invested long term, then do it.
Speaker 2:Yes, exactly Like the bullet, put it in there.
Speaker 1:So yeah, but if you were holding, if you had sold in 21, which 21 was a really good year, so that would have been a hard year to sell at the end. But if you had sold at the end of 22, because 23 was going to be worse, you missed the rebound. You missed your chance to make up for 22. If you look at the last 12 months, you missed your chance to make up for 22. The S&P is up 17, Dow's up 8.5 or 8.75 and the NASDAQ's up 31% over the last 12 months. Now here's what I like to tell people when you have really bad years, I like to say but the 10 year was great.
Speaker 1:If you look back 10 years. If you've been investing for 10 years or you started investing in 10 years, there's a lot of crap that's happened since 2014.
Speaker 2:Since 2014,.
Speaker 1:Yes, there has been a lot of crap. That's happened. Your NASDAQ's still up 260%.
Speaker 2:That's crazy.
Speaker 1:Your S&P's up 159% and the Dow's up 129% in the last 10 years. So people get so worked up over these short term movements and it's kind of like you know who cares if there's a recession in the next year. I want that 10 year return.
Speaker 2:Yeah, I want to be part of it, I want to end. So yeah, just Google missing like the 10 best days in the market.
Speaker 1:Oh yeah.
Speaker 2:Yeah, Google any of those studies and you'll see why you can't afford to be out at all.
Speaker 1:No, no, you can't. Now I will say that you don't need to be in so much that if something happened in your life, you'd have to withdraw the money.
Speaker 2:Oh, exactly, oh yeah.
Speaker 1:So you always want to make sure you follow the core steps to our financial planning process, which is one is little to no debt. Two is enough emergency reserve Absolutely. And after you have all the after you have that, those two things, taken care of, then you can be a good investor. Much easier, so that I mean, that's a great 10 years.
Speaker 2:Oh yeah.
Speaker 1:I mean, I don't, it's like magic.
Speaker 2:I mean, it takes money for you, but it's looking back with no emotion.
Speaker 1:It's looking backwards with no emotion and you didn't sell during all the craziness.
Speaker 2:Oh yeah, it wasn't a not painful 10 years Right.
Speaker 1:Even look back three years. How's the great time to do that? Because you get to absorb 2022 into it. So over the last three years, the S&P still up 21%. I'm sorry, S&P is up 26%. It's the winner Now. Nasdaq was up 21. And the? Do I have that right? Let's see. Nasdaq is up 16. And the Dow was up 21. S&p up 26%.
Speaker 2:Yeah, and we were just kind of writing off. We're like, yeah, 22 is a bad year, right.
Speaker 1:But that's included in that great, included in that in your dividend stock still only did 4.6% over that over that time period. So the bottom line is you know, I hear so many people in casual conversations saying oh yeah, we're definitely in a recession. There is no indication that we're in a recession.
Speaker 2:No.
Speaker 1:There's indications of a slowdown in economics. If you talk to some of our FedEx pilots and they're saying they're flying around empty airplanes and these guys are freaking out like get my money out of the market, everything's going to crash. But when you listen to their to their the last quarterly report, they're basically they're saying that they're back to 2019 levels. So that seems pretty normal, because the whole entire world stayed home and we had to ship a lot more product than what we're having to do now and I think sales have come down to a pre pandemic level which makes sense.
Speaker 1:So there is a chance that you're in an industry that has having a pullback, but it doesn't mean we're in an economic recession overall. What's that saying? It's the recession if your neighbor loses his job. It's a depression if you lose yours yeah. That's kind of what's going on over there, I guess, is seeing the reduction in shipping, or you might be working to the company that's in a sector that's not selling well right now. It was hot during the pandemic and maybe it's pulling back. Yeah, if you make face masks Right.
Speaker 2:I just threw all of ours away.
Speaker 3:I had to say and not going back.
Speaker 1:And there are some other things in the news. I mean, there's supposed to be a new virus in China right now, that people are calling for stoppage of flights, and I think we learned our lesson the first time. I don't think we would shut down the economy again.
Speaker 2:Well, yeah, looking at all these charts, look what it does.
Speaker 1:Yeah.
Speaker 2:Double digit unemployment.
Speaker 1:Right, right. So what do we think about 24? This is not our 24 prediction podcast, but I think what everyone can do is make sure that your financials are on solid footing. So, as I tell people, a lot is you want to start moving forward, always on a rock solid foundation. So, do we have debt paid down? Do we have savings built up? And if that's the case, then I'd say whatever happens in 24, you can weather it If it were to be bad.
Speaker 2:Exactly. Once the foundation is laid, you're fine to weather any storm.
Speaker 1:Vanguard comes out every quarter with their market perspectives. This one's a little dated now, november 27. What do they think about going forward? They're seeing US equities with a 4% to 6% rate of return with a 17% deviation of being volatility, so they're slowing down in growth stocks, potentially with maybe a 1% to 3% rate of return, and this is over a 10-year period. So they're trying to absorb a lot of stuff that could happen in 10 years. They're showing higher rate of return, potentially from foreign investments, and they've been saying that for five plus years and I haven't seen it yet?
Speaker 2:Wow, yeah, they are.
Speaker 1:Sometimes I read these things, I'm just like I don't understand where this is coming from. We just removed emerging markets from our portfolios. We don't see any bright future there, really. And they're calling for a 6% to 8% rate of return, but 26% volatility. I was just going to point out that huge volatility.
Speaker 1:Huge volatility out of emerging markets. But bonds are back pretty much across the board domestic, foreign high yield anywhere from 4% to 6% rate of return coming out of bonds, with much less volatility around 5% up and down on that. And then, as far as interest rates go, the forecast is by the last half of 24, we could see reduction in the Fed rate. Reduction in Fed rate at this point is only going to do one thing it's going to send home skyrocketing. If you went back to a 3% interest rate or yield or loan rate for a 30-year mortgage, that $800,000 house is going to be a $1.5 million house. That's exactly what Tom Townsend told us in the last episode of this podcast. Tom's with Keller Williams and came in and did a real estate market update. But rates probably should stay where they are for a little while longer. It makes sense.
Speaker 2:Wow, yeah, we don't need that.
Speaker 1:So anyway, there you have it. I mean, that's kind of your market and data update. Those are real numbers coming from our partner here, ycharts. That allows us to see economic data almost real time as they come out and get reported. It's been a great 10 years. It's been a great three years. It's been a great one year. It's been a great year to date. I mean, we have a lot of things to be grateful for as investors, but we do go through periods where things aren't looking so good. In the middle of this year and it's still mid to late December we have several more trading days to go, so it takes one news article to freak the market out. Right, we see that. So we're not going to claim victory on 23 just yet.
Speaker 2:You know, and I think we should mention, that the technical definition of a recession is not putting us into a recession. Two negative quarters of GDP does not make you in a recession.
Speaker 1:I went into a deep dark hole one day trying to figure this out, because this is back in 22. We had two negative GDP quarters, which triggers a recession.
Speaker 2:Yeah, one and two.
Speaker 1:That's what I was always taught. I said, ok, this is a recession. But then the administration came out and said oh no, this is not a recession. You have to have job loss too. And I'm like no one has ever said that, and it's weird is I don't think it was always looked at that way.
Speaker 2:It's a little new spin maybe.
Speaker 1:But now when you go to BlackRock or State Street or Vanguard and you look at definition of recession, it says in the US it's two negative quarters of GDP.
Speaker 3:And the jobs, the jobs on top of that, it didn't used to be the jobs.
Speaker 1:But if it's a foreign country, it's only two negative GDPs, but jobs don't matter, yeah.
Speaker 2:I know.
Speaker 1:So am I. Am I wrong in thinking that's new?
Speaker 2:I was surprised that that's not the same definition.
Speaker 1:Yeah, we changed the definition. We changed the rules of the game.
Speaker 2:Yeah, so I wanted to point that out.
Speaker 1:So Um economic data and stock market data looks pretty good and I think that um you know if you're at your holiday party and someone's being a doomsday or and saying that things are just terrible and the state of the country is terrible economically um, not so bad.
Speaker 2:No, it's really not. So be positive yeah, absolutely Stay invested.
Speaker 1:Of course there's always somebody's industry, somebody's individual industry that uh could be suffering, and that's totally different when you know I'm sure after um you know they made a hundred or so cars that the person who made the buggy whip was pretty depressed at the family dinner Cause the buggy whip is going out. So there's always going to be situations like that. But I think, as a broad statement, that the economy is in a in poor footing, um, I just I don't know if I could support that um based on the data that I'm seeing here now. You still have much higher level uh things you could talk about, like, uh, the deficit that we run in in our country.
Speaker 2:Oh yeah, there's that Right, so that's an issue.
Speaker 1:That is an issue and it's something that's going to be addressed. The chips won't fall on that uh in 23, for sure, uh, probably not 20, 20, 33, honestly, but um, that that is a uh a problem that needs to be addressed. But as far as uh Americans and what they're earning and what um they're purchasing and the the movement of the overall economy, uh, I think we're in pretty good shape and hopefully, um we have a strong finish to 23 and we go into 24, uh with um a lot of uh uh wind in our sales.
Speaker 2:Yes, just don't talk about the deficit and you'll be fine.
Speaker 1:Exactly, or politics in general. Um, that is something that I probably concerns me, not from a portfolio standpoint, just from morale standpoint. Is that 24 elections going to be nasty? It's going to be nasty.
Speaker 2:I don't know why you'd say that.
Speaker 1:I'm hoping we can just turn a page and there's like new people to vote on, but no one's running. That is new. No, they're all um, they're all retreads at this point on on. Uh. Well, on the Republican side, the Democrat side does have his new faces, but I don't think they're going to be permitted to run. Yeah, Cause Democrats don't actually elect their, their candidate, they have the super delegates, If you remember.
Speaker 2:Oh, that's right yeah.
Speaker 1:I was, I was. We've had different people in the past, but the super delegates went in the end, so that's going to be um, I don't think it's going to be a toll on the portfolios. I think these are two separate things.
Speaker 2:Yeah, the markets don't care about elections. No they don't.
Speaker 1:In fact, if you want to, we have a whole episode on that. Actually, we should put that in the show notes heavily um politics in your portfolio. If you, if you want the best rate of return, you want a Democrat at president, you want a Republican house and Senate yes, split it. If you do, if you do that with a moderate Democrat, uh, you're going to have, um, good things happen and and things get done, but uh, typically one whole party controls both. Um, we don't see the best. Uh, the best stock market returns.
Speaker 2:Mm, hmm.
Speaker 1:All right, missy um Merry Christmas, merry Christmas.
Speaker 2:Casey.
Speaker 1:And I'll see you on the other side.
Speaker 2:All right.
Speaker 3:Thanks for listening to a Wiser retirement podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review If you have any questions about anything that was discussed today at the wiserinvestorcom and reach out.
Speaker 3:This episode was produced and edited by Ken Hoteley. This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles, or a basis to make any financial decisions. Wiser wealth management incorporated is a registered investment advisor with SEC. The host and or guests may personally own securities, digital assets or other investment vehicles mentioned on this podcast. Neither the host nor guest of the show are compensated for their participation and no referral fees are paid to or received by any host or any other guest, by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.