Our financial markets continued to retreat over the past week as the near-term bullishness remains on the sidelines for now. We don’t find this to be alarming, in fact, it is a healthy sign in many ways. As much as we’d like to see our markets quickly move higher, any move in one specific direction without taking some time to pause is never healthy. In many ways our markets are reacting in a much more technical than a fundamental pattern at the moment. You can see the recent run upward from the middle of June in this YTD S&P 500 chart:
Although some of that weakness can be attributed to the stronger dollar and higher bond yields as of late. In the recent past it’s been difficult for equities to successfully sustain a 3% 10-year Treasury yield without some short-term pain. Along with high inflation and the looming threat of a recession, concerns over the European energy supplies heading into the fall and winter, continue to push the dollar and bond yields higher. The ongoing Ukraine/Russia issue continues to cast a long shadow at this point.
President Biden announced on Wednesday that many Americans will receive some relief from their student loan debt. This has long been a hotly contested discussion and was considered one of the pillars of his campaign from the beginning. Many Democrats view this as a big win for their party in hopes that it may fuel younger voters to head to the polls come November. The announcement indicated that up to $10,000 will be forgiven for most borrowers holding Federal loans and up to $20,000 for those with Pell Grants. The earned income limit to qualify for the forgiveness will be $125,000 for individuals or $250,000 for married couples or heads of households. The President will also extend the payment pause on most federal student loans “one final time” through Dec. 31, 2022, according to the announcement. The counter arguments have already begun including what the “true” cost will be to taxpayers moving forward. With the real numbers now being put out for debate, this story is long from reaching a conclusion in our opinion. The fact of the matter is this is only a band-aid on the true issue of continually increasing cost of higher education.
A lot of attention over the week was placed on the outcome, or more specifically, the headlines that come from the annual Federal Reserve, Jackson Hole Summit. Today, we heard Fed Chairman Jerome Powell reiterate the central bank’s tough stance on inflation. Powell pledged that the central bank will “use our tools forcefully” to bring inflation back down to the 2% target level. He noted that this will not happen without households and businesses enduring some level of short-term pain. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain”, said the Fed Chairman. The Fed is reliant on lessons learned through previous high inflationary times to steer policy changes. One big lesson comes from the early 1970s when the Fed failed to act forcefully enough which caused perpetually higher inflation throughout the decade only to have the economy slammed into a lengthy recession in the 1980s. Powell believes that if the Fed can move their policy stance to a sufficiently restrictive level, then a recession is not necessarily inevitable. It’s a job we’re all counting on him to successfully achieve.
Get out and enjoy the last weekend in August!
Steven C. Dengler, CFP®
Financial Advisor / Director of Planning
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS. Disclosures. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.