This Week’s Stock Market Sell-Off
The following are this week’s thoughts from our Chief Advisor, Thomas McCain. His thoughts on markets and their motivations for movements are invaluable to us here at Round Table Financial, and we like to stay in touch with our clients, especially when things feel more volatile. – Alex Golden
Greetings from Round Table Financial! Yes, it’s true: the Dow Jones Industrial Average sold off 4.55% yesterday. And yes, we have slowly been selling off some of our top positions as of late. But it doesn’t take the sting out of a huge sell off if you are worried about your accounts (more on this later).
Many do not realize that the largest component of the Consumer Price Index and the ugly data released yesterday was the Housing Sector. Food was up of course, but Housing is the biggest part of the Core Index, and we want you to know how it’s calculated and what that may mean going forward. This link describes the Housing component of the Consumer Price Index and how Housing is calculated: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.htm
In short, it tells us that the Housing component isn’t based on the price of Homes going up or down but:
The shelter service that a housing unit provides to its occupants is the relevant consumption item for the CPI. Most of the cost of shelter for renter-occupied housing is rent. For an owner-occupied unit, most of the cost of shelter is the implicit rent that owner occupants would have to pay if they were renting their homes, without furnishings or utilities.
-US BUREAU OF STATISTICS
It’s about the change in the cost of rent as calculated by the US Government for all housing. We believe this does not reflect the mass exodus from large cities like San Francisco, Seattle, New York, and others to smaller population areas like Idaho, Nevada, and Texas- it’s a big state, but there has been very slow movement back to office buildings and actually going to work in the office again. Young workers are resisting the pressure to come back to the cities and are happy to rent in Crested Butte, CO or Montana and work from what was cheaper housing until recently. Resort towns are tired of VRBO and AIRBNB renters and are raising prices. This information has been discussed in the media for months…. maybe a year, as companies are struggling to get their employees to work in the office or, at least without some concessions. Remember, the huge increase in prices for housing purchases in big city areas the last few years translated into, according to the US Government, higher rents. Yet we have a friend who found a flat in New York for half of what it rented for 2 years ago. The CPI number almost confirms a Federal Funds rate increase of 0.75% or 75 basis points; in which 75% of the bond traders were convinced was to happen weeks ago! (The other 25% thought it was going up 1.00%).
All we can say is that a large percentage of people in the Equities market have never seen or lived in a “rising rate environment” or a bear market, and are fleeing quickly – their risk tolerance being truly tested for the first time. A lot of folks have grown accustomed to the bull market of the previous 14 years – a long time. If prices continue to go up (rents especially), then spending for discretionary items will slow as we struggle to pay that higher rent. It’s happening now as food cost was the next highest increase in the Core CPI! Gasoline prices are not part of the Core CPI and are down (5.02%)! Actually, Alex just mentioned recently paying $2.82 a gallon for gas – I think that is pre-Trump levels!!!!
All this is unsettling to many and once again we need to be calm and willing to understand that while our retirement dollars may have declined in a chunk, we are not going to spend it all in one day. The market will ebb and flow, the government will realize their exuberance for raising rates was overdone and rates will stabilize. Short term we may see a continued decline in stocks, testing our patience, but longer term the “fast” money will come back in, provided they didn’t spend it all on Meme Stocks and Crypto Currencies – Hahaha!
On another note, we here at RTF have tried to define our process more clearly for customer service and retention and have added a way to quantify (or more clearly define) the risk a person is willing to take. Please take a look at this new page on our website (CLICK HERE) and see what you think. Also click on the link at the bottom that says “Get Started” and answer the 13 questions that will help us and our software partner determine your “Risk Number,” which we can then analyze against your portfolio and discuss with you in a whole new way. So far in the couple of customers we have tried, we are proud to say that the risk number compared well with portfolios we had formulated. This new addition to our process will allow us to monitor your portfolios in a whole new, very intuitive way. Check it out!!! We think you will be impressed!!!! But remember, we are learning this process too, so please be patient with us…. And we are providing this at NO ADDITIONAL COST!
In the meantime, enjoy the first cool weather of the fall, and find the still waters.
