Morning Market Preview for August 29, 2024

Good morning, Heroes!

Here’s your Morning Market Preview for September 11th, 2024
Read, or listen relaxingly for a few minutes – whichever you prefer!

Key Economic Reports

• Tomorrow’s market may react to new data regarding U.S. inflation, as investors await further insights into consumer price trends. The Consumer Price Index (CPI) and core CPI are set for release, key indicators used to measure inflation. These reports are critical as they will provide insight into how inflation is behaving and influence Fed decision-making.

Key Events & Earnings Reports Today

MIND Technology

• MIND Technology, Inc. specializes in providing advanced technology solutions primarily to the marine survey, defense, seismic, and security industries.
  
  

• Importance: The earnings report underscores MIND Technology's role not just as a company reporting financials but as a trendsetter in technology adoption, operational efficiency, and market expansion strategies. This makes their earnings not only a reflection of past performance but a predictor of future market trends and investor sentiment in the tech sector.
  
  
• Expectations: Investors and analysts are likely expecting MIND Technology to report on several key metrics including revenue, earnings per share (EPS), and possibly updates on gross margins, given the mention of 77% gross margins in recent discussions. There's an anticipation of continued or improved profitability, especially with hints of cost-cutting measures and operational efficiencies.

The Fed

• The Fed's next meeting is scheduled for the 17th and 18th. Expectations of whether they will continue or pause rate hikes will depend on tomorrow’s CPI report, which will provide clues on inflation’s trajectory.

Stocks

Year-to-Date Performance:

• Up Most: Utilities & Information Technology continue to lead the way at 20.32% and 19.27%, respectively.
  
  
• Down Most: Energy and Consumer Discretionary trail all other sectors still at 3.39% and 4.44%, respectively.

5 Day Moving Average: This is the percent of Large Cap stocks above their 5 day average

• Up Most: Real Estate is at 90% the last 5 days, and Utilities at 74%.
  
  

• Down Most: Energy is down to 14% the last 5 days and by far the biggest laggard.

Crypto

• Bitcoin: Up to about $57,101 at the open, and is up 36.93% this year.
  
  
• Ethereum: Also up, at about $2,351 at the open, and is up 3.62% this year.
  
  
• Top Gainers Recently: Luna and Zcash are both up a good bit recently at 4.18% and 3.7% respectively.

Bonds

• 2-Year Treasury Yield: Open at 3.59%, continuing its yield decline this year.
  
  
• 10-Year Treasury Yield: Open at 3.637%, also continuing its yield decline this year.

Gold

• Open Price: $2,504.85 per ounce, up again, now up 22.07% this year, driven by safe-haven buying amid economic uncertainties.

Real Estate

• 30-Year Fixed Mortgage Rate: Around 6.22%, down a bit more than 6% this year.
  
  
• Trends: A cooling market continues its shift towards more affordable housing options.

Geopolitical Aspects

• Global markets are being influenced by ongoing concerns surrounding U.S.-China relations, with trade and supply chain issues still in focus. Additionally, rising energy prices are a key global concern impacting market sentiment.

Worldwide Market News

• In global news, China’s economic slowdown continues to be a focal point for investors. Global supply chain disruptions and inflation concerns are still top of mind, influencing commodity prices and corporate earnings.

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.

P.S. Simple Explanations of Key Concepts to Level Up Your Financial Education

CPI: Measures inflation by tracking price changes in everyday goods. A higher CPI suggests rising inflation.

Earnings Reports: Companies release quarterly reports to show profits or losses. Investors look at these to predict future stock prices.

Treasury Yields: The interest rate the government pays to borrow money. Higher yields mean investors expect future inflation or higher interest rates.

Cryptocurrencies: Digital assets like Bitcoin are volatile but can provide high returns. Their value is influenced by market demand and adoption.

Real Estate: Higher mortgage rates make home buying more expensive, which can cool down the housing market.

Understanding these elements helps in navigating the financial markets, where each piece of information can be a puzzle piece in predicting market movements or making informed investment decisions.

You’re the Hero.
    We’re the Guide.

‍Understanding how to build and balance your investment portfolio is key to long-term financial success. The "Equity Rate" is a crucial metric in this equation, especially for anyone looking to optimize their investment strategy. Defined as the ratio of your equity investments to your total personal cash and investments, the Equity Rate helps gauge the weight of equities within your broader financial portfolio. Arena Investor Advisors, simplify the concept of Equity Rate, explaining its significance and how it can be managed effectively.

What is Equity Rate?

Equity Rate measures the proportion of your investment portfolio that is invested in equities (stocks and ETFs) relative to your total financial assets, including cash and other investments. This ratio provides a snapshot of how exposed you are to the stock market's potential risks and rewards compared to more conservative investments like cash or bonds.

Importance of Understanding Your Equity Rate

1. Risk Management: Your Equity Rate is a direct indicator of your exposure to the volatility of the stock market. A higher Equity Rate generally means higher potential returns, but also higher risk, especially in short-term market fluctuations.

2. Investment Diversification: Understanding this rate helps in assessing whether you are overly concentrated in equities or if you need to increase your equity holdings to achieve potentially higher growth.

3. Financial Planning Alignment: Your Equity Rate should align with your financial goals, risk tolerance, and investment time horizon. It guides strategic adjustments to ensure your portfolio supports your overall financial objectives, such as buying a home, funding education, retirement, and so on.

How to Calculate Your Equity Rate

Calculate your Equity Rate by dividing the total value of your equity investments by the sum of all your personal cash and investments. For example, if you have $50,000 in equity investments and a total of $100,000 in personal cash and investments, your Equity Rate is 50%. This tells you that half of your total financial assets are invested in equities.

How an Arena Investor Advisor Can Help

1. Personalized Financial Assessment: An Arena Investor Advisor will start with a thorough review of your financial situation, including calculating your Equity Rate to understand your current investment exposure.

2. Customized Investment Strategies: Based on your Equity Rate and personal financial goals, your Arena Investor Advisor can develop strategies to optimize your investment portfolio. This might involve adjusting your equity investments to either increase your potential for growth or decrease your risk exposure.

3. Ongoing Portfolio Management: Investment needs change over time with shifts in market conditions, financial goals, and personal circumstances. Regularly reviewing and adjusting your Equity Rate with your Arena Investor Advisor ensures your investment strategy remains appropriate.

4. Risk Tolerance Alignment: Your advisor will help you understand your risk tolerance and how it relates to your Equity Rate. They can guide you in making informed decisions that balance potential returns with acceptable levels of risk.

5. Educational Support: Arena Investor provides continuous education on investment principles, helping you understand complex concepts like Equity Rate and their impact on your financial well-being. This education empowers you to make more informed financial decisions.

All In All

Your Equity Rate is more than just a number—it’s a reflection of your investment philosophy, risk tolerance, and financial health. Understanding and managing this rate is crucial for maintaining a balanced and effective investment portfolio. Ensure that your Equity Rate aligns with your financial goals, providing peace of mind and a solid foundation for achieving your long-term objectives. This strategic approach to personal finance not only secures your current financial needs but also paves the way for future prosperity.

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.

What is a business cycle?
It’s the ups and downs of the entire economy's Real GDP as it follows its overall trend.

The overall trend is upwards

Note: Oddly enough the term business cycle does not apply to a business. Rather, it refers to the entire economy (keeping us all on our toes I guess). 

As the US economy works its way upward it has its ups and down. The ups exceed the downs, and over time the economy (and the stock market) climb upwards. 

This occurrence is typical of a good, and normal, economy. It represents that the US economy is healthy overall, so it grows and performs well (upward trend).

But the US economy also encounters challenges along the way (the downs markets and slowing or shrinking GDP periods).

Importantly, individuals, companies, organizations, and government responds to the declines in order to “fix” the economy by solving a present challenge.

The US has been very good at fixing its economy as it meets challenges, plus we have a huge collection of smart and hardworking businesses full of good people and resources to fix their business (their slice of the economic pie).

Economists measure business cycles

These macroeconomists measure many variables to paint a picture and understand the past, present, and future economy. An example of a variable that is measured is Unemployment. Another example of a variable that is measured is Real GDP. There are tons of variables measured. But these variables are measured at regular intervals (perhaps once per week, once per month, once per quarter, once per year, etc.) When you measure a variable at consistent intervals it’s called a time series.

When you look at the time series (collection of data for one variable taken at regular intervals), you can see trends. Real GDP, Prices, and Unemployment are three massively important trends for economists. When the Real GDP trend shows increases for two or more quarters (a quarter is a 3-month interval, or a quarter of a year) then the economy is in expansion. If that expansion lasts for a long, long time (years) it is considered a boom. 

But when the Real GDP trend shows decreases for two (or more) quarters then the economy is in contraction. Historically, if the Real GDP is contracting then it was called a recession, but nowadays many economists look at more than just Real GDP before labeling the economy as being in a recession. 

(They will look at income, unemployment/employment, etc for an overall feel before using the word recession.) 

So expansion and contraction are not debatable: either your Real GDP continues to grow every quarter and you’re expanding (your economy), or your Real GDP continues to shrink every quarter and you’re contracting (your economy). Obviously, government is interested in having tools to end contraction, avoid recession, and restore expansion/growth — more on that later. 

The NBER (National Bureau of Economic Research) can officially declare a recession, but as an improving investor gathering your data do you want to just move with the herd and wait for the NBER to declare a recession or end of a recession? Or do you want to be one step in front of it? And even if you do wait, just understanding that an expansion or a contraction is coming can keep you emotionally calm and rational (buying low and selling high takes emotional control and sound reasoning). 

I saw that coming from a mile away” is a powerful feeling as an investor. It takes time to develop that — and you will still get surprised from time to time too. But since you’re winning more than you’re losing as you improve, you deal with it better.

Note: The NBER is typically full of Nobel Laureates and past members of the President’s Council of Economic Advisors. But, you know, good investors still ensure what they are reading and hearing makes sense to them.

Many economic factors correlate

For instance, Real GDP and Unemployment rates historically correlate (move together) very, very well. In other words, when Real GDP is going up then Unemployment is going down. When things move together but go in opposite directions that is called “an inverse relationship” or a “negative correlation.” They go in opposite directions, but at the same time; this can also be called countercyclical. And a direct relationship is when two things move in the same direction at the same time; this can also be called positive correlation, procyclical, or just cyclical. 

An investor could look at it the opposite way too: when Unemployment is going down then Real GDP is going up.

The NBER looks at this closely when deciding if we are in a recession. If Real GDP is declining, but Unemployment is not changing then they may not call it a recession. 

There are indeed times when things that are highly correlated (like Real GDP and Unemployment) do not move “correctly.” This is always odd for economists and investors, and you need to pursue the reason (or at least a theory) why. 

Remember, the economy is very dynamic and complex, so there are many things that are usually true but not always true. Economists are just gathering information and painting pictures in order to understand the economy. Not every painting from economists is photo-realistic. 

There are in-between periods too, such as 2024, when the painting looks more like a Monet. You can tell what it is, but there are not a lot of clean edges. What you don’t want is a Jackson Pollock painting (economically speaking), such as the lead-up to GFC (Great Financial Crisis of 2007-2008) that wasn’t understood and turned into a crash. 

As an investor, you want procyclical investments when the economy is good (restaurants, airlines, auto-makers) and countercyclical investments (discount retail and alcohol) when the economy is bad.

So before the NBER declares a recession they look for: a decline in total GDP, a decline in income, a decline in employment, and a decline in trade. So they want to see that the economy is bad, or down in many regards — and we would tend to agree with this. The term recession should be reserved for when many bad things are happening within the economy. Otherwise, people might think every bit of bad news is a recession, which reduces their participation in the economy (less iPhones, restaurants, and Disney+) which then would lead to more problems — because they got spooked.

Note: What works really well is to have a teammate that can understand, stay the course, and make some basic pivots along the way. If you can’t do it yourself, we recommend Arena Investor investment management services.

You can be in a growth recession too

What does that mean? It means you were growing at 3% but are now growing at 2.5%. See how you are growing slower now? The growth (growth rate) contracted. But you are still growing. It is like the kid in middle school who hits a growth spurt and grows 12″ in a year versus the kid who grows 6″ in a year. Don’t worry, they are both healthy. 

Look at the data for yourself, hear what is actually happening, and don’t just listen to panicky news. Growth rate contractions happen. Should we look at why? Yes. Should you panic? No. In fact, you should never panic. 

The moral of the story

Continue to learn so you can decide for yourself what is good and bad. (Hint: there are opportunities in every market.)

What is an economic depression?

So we know what contraction is, and we know a recession is more than a Real GDP contraction, but what is a depression? Simply put, an economic depression is when you are in a recession for a long time (years and years). 

Since The Great Depression economists have been steadfastly dedicated to preventing another depression! Heck, we already covered Keynes and his effort to develop macroeconomics because the world was suffering through The Great Depression. (There are other great contributions from others too in economics.)

Economies have momentum and inertia

The momentum is how much change is happening (a lot of upward or downward change in the Real GDP for instance) and inertia is the economy’s resistance to change. This does not mean that when government takes action it is useless; instead, it means that a train slows down slowly. You won’t get a barge to turn on a dime. You can put rudder inputs in, and a turn will start, but it might not respond like a fifth generation military fighter jet.

You may think you want quick changes, but you don’t. What you want is small inputs that are on-time from the government so you don’t get a runaway train in the first place — so you don’t need to do a 180 degree turn with an aircraft carrier — but instead a little left or a little right to stay on target.

As instructor pilots say, “small corrections sooner.” The US government has been pretty good at this compared to the rest of the world, especially when you consider how big, complex, and dynamic our economy is. But let’s stay vigilant.

Note: Economic inertia that is quite resistant to change is called persistence.

Built for The One in the Arena

Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.

You’re the Hero.
    We’re the Guide.