Articles authored by Sonu Varghese
Should You Hold Bonds in a Portfolio?
This is probably one of the biggest questions we are getting, and with good reason. The Bloomberg US Aggregate Bond Index is set for two consecutive years of negative returns and is currently amidst its worst ever peak-to-trough drawdown, a 15.3% pullback from its most recent high (back in July 2020). While we expect equities …
The Fed Wants to Get Inflation Behind Us, But There Isn’t a Painless Way to Do That
An aggressive Federal Reserve (Fed) raised their target policy rate by another 0.75%, taking it to the 3.0-3.25% range. This was the third successive 0.75% rate hike by a Fed looking to get on top of inflation. While it was largely expected, the big surprise was how high they projected the interest rate to go …
What Real Interest Rates Can Tell Us About Equity Valuations
The change in the price of a security (or index) can be broken down into contributions from earnings growth and valuation changes. The S&P 500 is down 19% this year (through September 16th) and as this chart from J.P. Morgan illustrates, that is entirely due to falling valuation multiples. Earnings growth has been a positive …
Interest Rates Have Risen a Lot, and Could Go Higher
The August CPI report was a disappointing one, especially core inflation which strips out food and energy.
Where Do Gas Prices Go From Here
I wrote last week that consumer confidence is rising on the back of falling gas prices. Gas prices have dropped for 13 consecutive weeks, from a peak over $5 a gallon to about $3.75 per gallon. The good news is that it will have a deflationary impact on headline inflation data for August (released this …
Consumer Confidence is Rising as Gas Prices Fall
It really is as simple as that, as the chart below illustrates.
The labor market is showing no signs of pain
Last week Federal Reserve Chair Jerome Powell said that the Fed is focused on its job of getting inflation down to their 2 percent target. As I wrote at the time, he also noted that there would be an unfortunate cost, as getting inflation back to target will bring pain to households and businesses. Put …
Is the Economy Growing, or Shrinking?
Depends on what you’re looking at. Economic output as measured by GDP (Gross Domestic Product) fell 1.6% in the first quarter and 0.6% in the second quarter. So, it’s perfectly reasonable to conclude that the economy shrunk in the first half of the year. In other words, we were or are in the middle of …
What the student loan cancelation means for economic growth and inflation
The Biden administration made a huge announcement regarding student loans on Wednesday (August 24th). An announcement was expected given the upcoming expiration of the moratorium on student loan payments. The moratorium was originally part of the CARES Act, as part of income relief, and set to expire in September 2020 – but it was extended …
The Fed will keep at it until the job is done
So said Fed Chair Jerome Powell in his much-awaited Jackson Hole speech. The “job” in this case refers to getting inflation down to their 2 percent target. That was really the big story.