Vladimir Lenin was a Russian revolutionary and politician. He served as the first and founding head of both Soviet Russia from 1917 and the Soviet Union from 1922 until his passing in 1924. Under his leadership, Russia, and later the Soviet Union, became a one-party socialist state governed by the Communist Party. Lenin is credited with the following quote, “There are decades where nothing happens, and there are weeks where decades happen.”
It appears that we may have just lived through such a period of time. If you happened to leave the country during the third week of June and arrived home two months later, you may not believe the headlines or what has actually occurred in just the last 60 days. I will share a few of the political and economic highlights below for our review:
- June 27th: Biden and Trump debate in Atlanta, with many Democrats panning Biden’s poor performance. Immediately following the debate, several former Democratic elected officials and political advisors suggested Biden should end his re-election bid. Source NBC News
- July 13th: Federal authorities are conducting investigations after former President Donald Trump was shot in the ear in an assassination attempt at an election rally in Butler, Pennsylvania, on July 13. The alleged shooter was killed by snipers. One spectator was killed, and two were hurt, officials said. Source ABC News
- July 15th: Trump announces Ohio Senator JD Vance as his vice-presidential running mate. Source NBC News
- July 18th: Trump formally accepts the Republican nomination in his first public speech since the assassination attempt. Source ABC News
- July 21st: Biden announces he will leave the presidential race and endorses Harris to be the party’s nominee. Source NBC News
- July 31st: Federal Reserve officials held short-term interest rates steady for the 8th consecutive meeting but indicated that inflation is getting closer to its 2% target. “The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the Federal Open Market Committee’s post-meeting statement said. Source CNBC
- July 31st: The Bank of Japan raised interest rates to levels unseen in 15 years and unveiled a detailed plan to slow its massive bond buying, taking another step towards phasing out a decade of huge stimulus. The unexpected move caused massive volatility in global stock, bond, and currency markets. Source: Reuters
- August 2nd: Nonfarm payrolls grew by just 114,000 in July, below the downwardly revised 179,000 in June and the Dow Jones estimate of 185,000. The unemployment rate edged higher to 4.3%, its highest since October 2021, triggering an economic rule on recessions. Source CNBC
- August 2nd: Vice President Kamala Harris has won enough votes from Democratic delegates to win the party’s nomination for president, Democratic National Committee Chair Jaime Harrison announced Friday. Source CNN
Those are just a few of the major highlights over a five-week period. As I write this in mid-August, we are just heading into the Democratic National Convention next week. Federal Reserve Bank Chairman Jerome Powell will also be speaking at the Feds' annual Jackson Hole Symposium this week. Everybody is looking for clues as to if and by how much the Fed will cut interest rates at its mid-September meeting. As the last few weeks have shown, we never know what will unfold or play out on the national political or economic stage.
I would like to make a couple of observations on the economic and investment side of the coin. Outside of the political data points and dates above, I will leave that commentary to the 24-hour talking heads on cable news networks and social media. First of all, there has been an awful lot of discussion about the unwinding of the carry trade between Japan and the United States. This, in large part, created much of the volatility that we saw in the global markets recently.
What is carry trade, and why does it matter? The Bank of Japan has kept interest rates in negative territory or at 0% for many years. They have been trying to recover from multiple decades of economic malaise after both the stock market and their real estate market bubbles popped at the end of the 1980s. This essentially allowed large, institutional investors to borrow yen at essentially no cost and invest them in higher-yielding assets such as treasury bonds or, for those more risk-inclined, in AI and tech-oriented stocks.
With the Fed finally looking like they're going to start cutting interest rates in September and the Bank of Japan raising rates unexpectedly, this trade becomes much less predictable or profitable. Just like somebody shouting fire in a crowded theater, everybody tried to head for the exits at once, which led to massive volatility and dislocation in multiple markets across the globe. The US stock market, as measured by the S&P 500, dropped by more than 8% on an intraday basis. Small-cap and tech-oriented indexes dropped double digits. This also led to the largest three-day drop in the Japanese stock market we have ever witnessed.
Source: CNBC
As investors unwound risky stock positions in this environment, money flooded into the bond market, causing bond prices to rise and interest rates to drop dramatically. Two-year treasury notes yielding 4.77% on July 1st traded at 3.87% on August 2nd, a move of nearly 19% in just over 30 days. If the stock market had moved that much, it would be making headlines. However, people do not understand or pay nearly as much attention to what is going on in the bond market.
Source: CNBC
What is going on? There are still 2 ½ months to go until the November 5th election. How, are we supposed to respond to these unprecedented events and the volatility they create? I am glad you asked. When you see headlines and charts like the ones above, it probably makes you feel like Scooby and Shaggy when they've just seen a ghost.
Source: YouTube
Personally, I have found that stepping back and putting things in historical context can help people put the news and noise in its proper perspective.
Source: BigCharts.com
Above is a chart of the S&P 500 since early January 2010. When you think about all the economic and political events that have occurred during this time, it is fascinating to see the continuing upward slope of this chart. Yes, it is punctuated with bouts of volatility and temporary downturns. But it is important to remember that the downturns have been just that, temporary.
Given everything that has happened over the last two months, and not knowing what may be looming on the horizon over the next couple of months, I wanted to give you a different lens through which to view the world. If your financial plan and your portfolio have been constructed properly to help you meet your long-term goals and objectives, you should feel more confident in turning off the TV and doing something fun or constructive with your loved ones instead of worrying about the day-to-day headlines.
It appears that Vladimir Lenin was right…there are weeks where decades happen. As always, the CFPs of Impel Wealth Management are here for you if you have specific questions about your or your family's financial situation. Please call if you need anything. Otherwise, I hope we can all try to enjoy life despite the distractions as we continue “Moving Life Forward.”
© 2024 Jesse Hurst
Senior Wealth Manager
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
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Featured blog image source: iStock.com/Maksim Prasolenko