Sonu Varghese
Will Home Prices Crash?
This is a popular question now, and not a surprise given an ultra-aggressive Federal Reserve (Fed) looking to get on top of inflation. Predictably, the housing market is one of the first economic sectors to get hit, as has historically been the case when the Fed raises rates. The 30-year fixed rate mortgage was at …
Sonu Varghese
October 21, 2022
The Fed is Spooking Economists
It’s the middle of October and that means being surrounded by Halloween themes. I put up Halloween decorations over the weekend – always a fun activity with the kids – and so being spooked was on my mind. And one doesn’t have to go far for that this year. The Wall Street Journal (WSJ) on …
Sonu Varghese
October 18, 2022
Labor Market Strength Is Not Really “Bad News”
The other day I highlighted 5 charts that illustrate the strength and resiliency of the labor market. Ironically, this was perceived as “bad news” by markets. Why? Investors believe labor market strength will prompt the Federal Reserve (Fed) to continue raising rates at a torrid pace in a bid to get on top of inflation. …
Sonu Varghese
October 12, 2022
5 Charts That Show the Strength of the Labor Market
Last Friday we got yet another strong payroll report, with the headlines showing payrolls growing 263,000 in September and the unemployment rate falling to 3.5%. The first three charts below show the strength and resiliency of the labor market this year. The last two are forward-looking indicators that bode well for continued employment gains. 1. …
Sonu Varghese
October 11, 2022
Economic Indicators Still Don’t Point to a Recession
With so much focus on the markets and the Fed, I thought it would be a good idea to take a quick look at where the economy is today. There are obviously 100’s of economic indicators we can use, including survey-based or “soft” data and “hard” data. The soft data is useful to gauge where …
Sonu Varghese
October 6, 2022
Rents are Easing (Though Inflation Effects May Lag)
Over the last couple of months, inflation numbers have come in on the softer side – the consumer price index (CPI) was flat in July and rose just 0.1% in August. But this was mostly due to falling energy prices. Excluding energy and food, “core” inflation was higher, rising 0.3% in July and 0.6% in …
Sonu Varghese
October 4, 2022
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 …
Sonu Varghese
September 27, 2022
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 …
Sonu Varghese
September 22, 2022
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 …
Sonu Varghese
September 20, 2022
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.
Sonu Varghese
September 15, 2022