As of late October, the Dow Jones and Russell 2000 averages are now negative for the year.  S&P 500 and Nasdaq still up, but really only thanks to our tech stock few leaders that have carried the rest of the market.  It has been an interesting year.  I type these emails when I have something to say and, over recent months, just have not assembled much to share other than spectating on this year’s markets like everyone else.

It’s fair to say there is “a lot” going on in the financial markets presently.  The news of Israel-Gaza Strip turmoil is both very sad and also newly relevant to markets and adds to the drama currently at play.

Interest rates – Rates have stayed stubbornly high, but the prediction remains that the Fed will succeed at calming the economic strength which is already happening, and rates will peak and then work their way back down.  As we have said several times, there is opportunity in the bond market that remains, but while we wait we get to benefit from welcomed higher rates of return on our CDs, money markets, and bond yields in the meantime.  It is nice to “get paid” 5-6% on our safe money while we wait for things to stabilize. 

Economy – Employment has remained high and this is the one indicator that has most affected things.  Most every other indicator shows either mild or real economic calming.  Interest rates at the highest levels in 20+ years are affecting credit card interest rates (over 20%), mortgage rates (near 8%) and loan rates for businesses.  Although Raymond James and several other firms see a soft landing scenario for the US economy, I do not disagree, but I tend to wonder if the slowdown might be “not as mild” as I look at the fact that all these rate increases happened in such a SHORT period of time, that it is simply taking longer for them to have a real effect.  Many businesses have medium term loans that were either late to reset OR have not yet rolled over to present day rates and so the effect yet to be experienced.  I think consumer spenders are generally late to come to grips with much higher credit card and Home Equity loan interest rates (which adjust).  Delinquencies and defaults are now elevated.  And I think the corporate real estate slowdown has sorta been limited and will still affect the broader picture to more than a small degree. 

According to things I read, travel demand is waning, theme park and Broadway entertainment demand has slowed, as well as subdued hotel occupancy and some estimates that holiday shopping will be less this year.  Signs of economic pausing and slowdown.

Politics – the government could be headed for a shutdown as things look a little bleaker for such to occur than they did last time around.  However, this does not concern me/us too much, as this threat now comes and goes almost regularly and shutdowns have tended to be short.  Markets do not have a history of major pullback for THIS type of reason.

Energy prices – Definitely a headwind and this area is so difficult to predict due to OPEC having the ability to act in surprising ways and to influence energy prices in such a large way. 

Global picture – economic and geopolitical.  Lots going on all over the world.  Europe remains in a currently bleak picture with stagnating growth and elevated inflation pressures. The middle east is now a new wildcard.  Israel is capable and expected to act quickly and with full force and could stabilize things there, although much remains to be seen.  (Baffling that “intelligence” everywhere had this nowhere on their radar. . .we are told.)  China is fragile and full of unknowns.

There just remains a confluence of reasons to be concerned right now and we continue with caution an influence on our investing.  As mentioned, it is good to have a benefit we did not have for a decade – the ability to park some safe money and collect over 5% while it sits. That said, money “sitting” on the sidelines is near an all-time high and this is good for markets that eventually will take off again.  I still like being careful.

Key