Rising inflation sparks fears of hard landing for US economy (3 min read)
The CPI report released on Tuesday morning showed it rose by 0.1% for the month and 8.3% annually in August. The core inflation that the Fed is most concerned for is at 6.3% annual increase while only 5.9% in July. The S&P 500 and Nasdaq Composite plunged 3.3% and 4% respectively shortly after the news. The US 2 year treasury which is sensitive to rate changes, went up from 3.52% to 3.78%. Most economists are forecasting a 0.75% rate hike this month and agree there’s no data to support the Fed to opt for a slower pace increase.
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Dow tumbles 1,200 points for worst day since June 2020 after hot inflation report (2 min read)
Stocks fell sharply after the release of the CPI report revealing inflation higher than expected. The three major indexes S&P 500, Nasdaq Composite, and the Dow finished at 4.32%, 5.16%, and 3.94% lower respectively at market close. Tech stocks tumbled the most as this sector is more sensitive to rate changes. The sell-off erased nearly all the gains the market saw in the past week, bringing it back to the level seen earlier this month. As this is one of the last reports the Fed will see, it could lead to aggressive rate hikes longer than some investors anticipated.
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Goldman Sachs to kick off Wall Street layoff season with hundreds of job cuts this month (1 min read)
Goldman Sachs reinstated the annual performance reviews that were suspended during the pandemic. The review would result in cutting about 1% to 5% of lower performers in the firm which is expected to be around several hundreds of employees. It was reported that the reviews returned because of the steep decline in investment banking activities, especially in new IPOs, across the industry. Goldman Sachs is the first major Wall Street firm to initiate the layoffs.
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Just Four Inflation-Hedged ETFs Delivered After Hot CPI Surprise (2 min read)
Only four inflation-hedged ETFs held up after the CPI report was released. They are the ProShares Inflation Expectations exchange-traded fund (RINF), the Ionic Inflation Protection ETF (CPII), the Direxion Daily TIPS Bear 2x Shares ETF (TIPD), and the PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ). They rose less than 1% amongst the 25 inflation-hedged ETFs in the market. This demonstrates the difficulties to offer protection against high pricing pressures even when a product promises that. RINF is one of the best performing inflation-hedged ETFs with a return of 8% this year.
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Weekly ETF Flows See Net Loss of $4.2B (2 min read)
The US ETF market had an outflow of $4.2 billion last week with $3.7 billion from equity focused ETFs. Top ETFs redeemed were the Invesco QQQ Trust (QQQ), the SPDR Portfolio S&P 500 Growth 500 (SPYG), and the Financial Select Sector ETF (XLF) with an average of $1 billion outflow each. Meanwhile, fixed income inflows remained strong as investors are adjusting portfolios for higher rates and fear of recession. Fixed income ETFs had an inflow of $2.7 billion which is nearly 80% more than the prior week. Most of the fixed income inflows were in T-bills and short duration ETFs.
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Is It Safer to Pull Your Money Out of the Stock Market or Keep Investing for Now? (3 min read)
The answer depends on your financial situation. The important thing is to make sure your financial health is solid which looks at your debt, emergency fund, and time horizon for investing. Make sure most debts are paid off unless it is very low interest or serves a purpose to everyday living like a mortgage. Have an emergency fund of 3 to 6 months expenses as a safety belt. Invest only with money you don’t need in the next 5 years or longer. There are no guarantees with investing and it may need a longer time to yield positive returns. If you are looking solid in all these aspects, then now is a better time to buy than when the market was at an all time high. It’s uncertain when the market will recover but if your financial health is solid then it'll be easier to wait things out.
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That's it for today! You can reply to this email if you have any comments or feedback.
Thanks,
Thomas
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