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  • June 16, 2021

Market Update: June 16, 2021 Federal Reserve Announcement Analysis

Disclaimer - Read More

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.

Transcript:

Tom Vaughan:

Hello, everybody, welcome to Wednesday. The S&P 500 was down a little bit more than a half a percent today. Today was a pretty wild day, the Federal Reserve, finished their meetings. Chairman Powell came out and spoke to the reporters, and they had a couple of surprising pieces that the market reacted to.


Number one, they said that core inflation expectations for 2021 would be 3%. The previous expectations that were put out in March were 2.2%. So that’s a fairly big jump on those pieces. And obviously, we’ve seen a lot of inflationary numbers come out since March, and so that’s why. But the biggest piece was that they said again, they take essentially, it’s called a Dot Plot, it’s a survey of the 18 governors, Federal Reserve governors, and they want to see when they think interest rates will go back up. And the average was an expectation for two rate increases in 2023. Whereas that same Dot Plot showed zero, increases expected in 2023.


So, the market has been pushing on this narrative for a long time. We’ve seen the 10 year Treasury go up quite a bit in terms of yield, especially since March when that last meeting happened. And there’s been a lot of expectations that the Federal Reserve is under estimating the amount of inflation that is coming into the market. And that’s not surprising, actually, if you look all year long, almost all of the numbers that have come out have been higher than expectations. So, the Federal Reserve is kind of on that same side of really under estimating the explosive nature of this reopening. And Powell did talk about how they have to be a little bit humble here in terms of their abilities to really understand what’s happening, just because this is a pretty unique event.


He did spend some time also talking about the fact that these Dot Plots and expectations for higher increases in 2023 should be taken with a grain of salt. They’re just projections, they really respond more to actual data, and maybe shorter term in a looks. And so more of what they’re talking about this year is probably more appropriate than what they’re talking about in 2023, which makes sense. And so we’ll see how this plays out.

But the market reacted pretty, pretty aggressively to this, let me share my screen. And I’ll kind of show you what happened today. And there’s a couple of anomalies. So, first of all, this is the minute by minute S&P 500 graph, very simple. A couple days ago yesterday, kind of in a holding pattern, holding pattern this morning, and then Powell comes out and speaks and man, you can see the differential, minute by minute.


One of the things that I want to emphasize here, because this is a partially about Investor Education is number one, you can kind of tell if you look at the market in the short term periods, like what it responds to, and what’s important to the market. So first of all, understand that the Federal Reserve, and what the Federal Reserve says and does is very important to the stock market. A lot of people put a lot of weight and other things that don’t seem to have any real impact.


The political arena is one of those big areas where a lot of times I’ll be talking to somebody, and they’ll be worried about something that’s happening in the political arena, or who’s going to be president, and they’re making decisions with their investments, because of those areas, and really nothing happens. And when we had an election, everybody thought there’d be problems with the election and the transition of power, they were right. That the market went up and up and up at January 6, we had a storming of the Capitol: The market went up that day.

And so really, you have to take a look and just understand, does that particular event, or those riots in Minnesota, or whatever is happening, does that have an economic impact, especially big enough, to really affect the US or even the world? And most of times, the answer is no. But what these Federal Reserve and central banks do, obviously has an impact, so you can kind of see that here.


So that that’s my main point here is just, please understand the importance of what’s happening there, and maybe not as much importance on some of these other areas in terms of making financial decisions. Very important in the political arena, what’s happening for other reasons, but stock market tends to look at things a little bit differently. So, the next thing I think that’s kind of interesting is just what happened today.

So, generally speaking, when they say that interest rates are, inflation is coming potentially, which is kind of what they’re saying today. They’re talking about, the Gross Domestic Product for 2021 would be a 7% growth, they had previously projected 6.5%. So things are growing a lot faster than normal. And we should see value stocks doing better than growth stocks in this environment. We had the 10 year Treasury yield, jump up from about 1.5% to 1.57%. That should have hit growth stocks. Well, you can see here, everything got hit, but growth stocks didn’t get hit as poorly as value stocks, that’s really kind of backwards. But it is continuing a trend that we’ve had for the last month. And so if I go back a month here, you can see that growth stocks have done better than value stocks, so that trend continued today.


I’ll be really interested to see what happens tomorrow as to whether or not we continue, because theoretically, you got a higher interest rate, and you have inflationary pressure, that actually creates a problem for growth stocks. Because they’re already selling at very high multiples, and basically when you discount back at those higher multiples at a higher interest rate, the value should be lower, so that’s kind of the typical scenario. And you don’t have that same problem on the value side. And then also, the value side has right now a lot of the reopening stocks, the things that should come around as far as that goes.


This is one of the reasons why, we’re starting to work on broadening out the approach to the portfolio, a little bit less on the value stock side. But, I do think it’ll be interesting to see what happens tomorrow, whether or not that side starts to move, because sometimes, in the exact day, there’s a lot of movement around that doesn’t actually become the trend. So, I actually think it’ll be interesting to see after everybody has a chance to absorb this information, what does happen tomorrow, because, again, theoretically, we should see value stocks outperforming the growth stocks in this environment, as far as that goes.


But we had a lot of weird things too, because theoretically, oil should have went up and went down today. Gold, theoretically should have gone up, it’s an inflation hit, it went down today. And so there’s a lot of things that were kind of backwards, as far as that goes. So we’ll see how that plays out. Again, I would caution you to wait until tomorrow to kind of see what happens with this and hang back a little bit and let this play out and see if this trend have the kind of growth outperforming value, that we’ve had for the last month if that continues and continues to happen, so.

Very interesting day, these are the types of days that people like me kind of enjoy, just because there’s an awful lot going on and a lot of things to analyze and look at so look forward to seeing you on Friday. If you get to join us for go live with Tom, you can ask us questions about what’s happening here, because this is pretty unprecedented timeframe. Really interesting to see what’s going to happen. Thank you very much for listening. I’ll talk to you tomorrow.

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Disclaimer - Read More

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.

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