Weekly Reading Recommendations

Next Recession: Reasons to Expect it to be Mild & Short (Bloomberg)

July CPI: Inflation Continues to Cool, Paving Way for Rate Cuts (J.P. Morgan)

Time to Reevaluate Your Ultra-Short Bonds & CDs (Fidelity)

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This Week's Highlight Article

How to Stay Sane When Markets Get Wild

This week's article from the Wall Street Journal takes a look at the recent bout of stock market volatility, offers practical advice on how to control fear when fear is abundant across headlines and provides great examples of how financial marketers look to "lie with statistics."   

 Key points:

  • Fear sells, and financial marketers/media outlets are in the business of selling "clicks" to garner more advertising revenue. Thus, it's always important to maintain perspectives on fear-mongering headlines.

  • One of the most simplest tricks we see all too often is called hiding the denominator - failing to put figures in perspective through relative terms versus absolute terms.

    • Headlines such as "DOW PLUNGES MORE THAN 1,000 POINTS" or "PANICED SELLING - RETAIL INVESTORS SELL $1 BILLION" are prime examples of this trick. They fail to put into perspective what this 1,000-point drop is relative to the market value of the Dow Jones or what the $1 billion of selling is relative to the market value of what retail investors hold. 

  • By redirecting your attention to the denominator, you push yourself to do what Darrell Huff, in his classic 1954 book “How to Lie with Statistics,” called “talking back to a statistic.”

Maintaining composure during periods of market volatility is a key to successful long-term investing; emotions, not markets, are the one thing investors can control.

 Click Here to Read "How to Stay Sane When Markets Get Wild (WSJ)"

Charts that matter

Rate of Inflation Drops Below 3%

Inflation continues to cool, as evidenced in the latest Consumer Price Index report released this week, with the inflation rate dropping to 2.9%. Thismarks the lowest growth rate since March 2021 - as illustrated in the chart of the week below. 

What to make of this? The continued cooldown in inflation data should give the Fed further confidence that inflation is heading closer to its 2% target and thus bolsters the probability of the Fed cutting rates in September. However, an unexpected jump in inflationary data or a robust employment report over the next month (low probability) could alter the Fed's decision and cause them to continue postponing rate cuts. 

This Week's Highlight Article

Emotional Investing: Before Selling, Answer these Questions

This week's highlight article provides valuable insights for investors facing market uncertainty that may fuel a natural desire to sell investments or "do something" when often the best option is to stay the course.

 Tempting as it may seem, there's data and evidence galore showing that it's a bad idea to try to time the market in this fashion. Investors usually fail at it because markets are highly efficient, employing news and other information at warp speed and making short-term price moves very hard to predict. You're better off sticking with your long-term plan, which hopefully calls for wide diversification across asset classes anyway. 

 But emotion often overrides logic. With that in mind, Morningstar provides a short list of questions to consider before wanting to hit the sell button. Taken together, they form a framework that might be useful for thinking through investment decisions not just at momentous times like this one but throughout your investing journey.

 Click Here to Read "Freaking Out? Before You Sell, Answer These Questions"

If we equal-weight indexes by giving each constituent company the same percentage regardless of size, it becomes obvious how much a few giant US companies are changing perceptions. What comes as a surprise to many is that on an equal-weighted basis, the total return on MSCI’s index for Europe has actually outperformed its US Index since the beginning of 2023. 

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