This week, we’ll look at Wall Street analysts track records, and then, if bad sleep is making you selfish. News at 11–or later on in this email.
Here’s the thing about Wall Street analysts: they’re human beings who put their pants on one leg at a time, just like the rest of us. In fact, a 2018 study shows that not always correct at predicting the future. In early September some pundits explained that investors would accept the Feds hawkish position to reduce inflation thus markets may stabilize. Markets did indeed reverse 3 weeks of losses and some analysts believed that the Feds agenda to increase interest rates would not hinder the economy and thus easing investor worries. Then, the next week, the August Consumer Price Index report came in higher than expected and the DOW experienced its worst drop in two years.
The truth is that the stock market has fluctuated all year long, and that’s also kind of what stock markets do. Most people and analyst simply can’t predict what will happen especially in the near term and in today’s difficult environment. One trap investors can fall into is focusing on the media and what happens on a day-to-day basis with stock prices instead of focusing on longer term factors: interest rates, inflation, and the strength of the dollar. Let’s break that down:
- Interest rates: Interest rates have risen quite a bit this year in response to inflation and Fed policy. This is why both stocks and bonds have underperformed–bond prices will naturally fall as rates rise, and sudden rate increases have also historically caused stock market drops. What is unusual about this year is how large those declines have been in response to fast inflation levels.
- Inflation: Commodities prices have pushed inflation higher thanks to the rise in energy prices, in large part due to Russia’s invasion of Ukraine. It was already on the way up before the invasion, but rising energy and food prices have only worsened the situation. It’s had an interesting effect on stock prices, as energy and utilities have done well while the usual high-fliers in the tech sector haven’t been as strong as usual. However, even the worst-performing sectors have stabilized a bit.
The strength of the dollar: Tighter Fed policy and the relative strength of the US economy means the dollar is very strong right now. A strong dollar helps hold down domestic inflation by lowering the cost of imported goods. Another side affect of the strong dollar is that international goods and services become cheaper for Americans so you may get more for your buck if you travel abroad. On the flip side, other countries that import from the US, especially things like raw materials, may experience hardship within their economies.
What’s really important to remember here is that investors should focus on the long term and the factors that drive the markets over periods of months and years, not days. At Obsidian, we always ensure your portfolios are set up for the long term, while we focus on your short- and intermediate-term goals. We do this through appropriate asset allocation, diversification within that allocation, and rebalancing to ensure your risk preference is being managed.
The factors that have driven markets this year continue to evolve. Staying diversified and maintaining a long term time horizon, even with short term and intermediate term goals, are the best way to achieve your objectives
Sleep: it comes more easily to some of us than others, and the diversity of sleep aids on the market attests to the fact that if you have trouble sleeping, you’re not alone. Don’t worry, we’re not here to sell you any kind of magic potion (if we had one that worked for everyone we’d just share the recipe). While the health risks of not getting enough sleep are hard to study for everyone, it seems pretty clear that not getting enough is probably bad for you. But is your sleep deprivation also bad for other people? Maybe!
A new study shows that sleep deprivation can make you less likely to help the people around you. And of course, if you’re struggling because you’re not sleeping enough, you probably need to meet your own needs first! That said, when we have the capacity, altruism is likely to have positive effects on our physical and mental health.
So, in case you weren’t up for trying to get more sleep for your own sake, maybe prioritizing it for the benefit of other people is good motivation!
That’s it for us this week! Catch some zees, and we’ll be back in your inboxes next week.
How We Help
Obsidian developed the Lifestyle Protector Program as a tool to help you navigate your personal, business, and financial life; but sometimes those plans need to change along with whatever is going on in our life. For example, last week we spoke with a client who is now getting remarried and creating a blended family–and a blended financial plan. We used the Lifestyle Protector Program to help pivot his financial goals to match his new life experiences. We’re working with the family to change the plan to suit the new life situation, new goals, and new dreams to ensure everyone’s long-term wellbeing. Need to update your plan because of an exciting life change? Give us a call!
Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member FINRA/SIPC. Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.