Weekly Reflection for November 4, 2022

Market Update in Charts

The October rally faded this week with concern over Federal Reserve plans to keep on turning up the heat on interest rates. Markets resorted to beating up on technology and consumer discretionary stocks while elevating energy, industrials, materials and utilities. It is not exactly a classic "recession is coming" trade but it is apt for the times, considering the war and high inflation.

In the 90 minutes after the Federal Reserve announced the latest increase to the Fed Funds rate, another 0.75% in case you missed it, the markets cratered to end the trading session. There is one more meeting this year, December 13th - 14th, and rates may rise another 0.50%. The Federal Funds rate is currently 4%.

A hard or soft landing is not a recession, just a drop to the ground before a recovery, as far as economic growth is concerned. A recession is a thud to the ground and no bounce back up for some time. 75% expect the thud without a bounce.

Most economists are critical of the

Federal Reserve's handling of interest rates, thus expectations for a recession. And most expect the Fed to need to reverse course in the second half of 2023 and begin cutting rates.

Inflation in the broad Euro-area hit a new all-time high 10.7% from a year ago October and the economy is slowing. Still the European Central Bank is hiking interest rates with no end in sight; it has lifted the rate from 0% to 2% just since July to try and drive down inflation. The good economic news isthat Europe has built up an impressive cache of natural gas and the winter is expected to be milld, making the split from dependence on Russian energy supplies less harsh.

Krispy Kreme is long past its "t girl" status of 20 years ago and its follow up near-bankruptcy in the 2008-9 era. Sales are booming and the CEO says that customers are still willing to pay up for doughnuts even as they cut spending in other areas. McDonald's is piloting sales of Krispy Kremes in Louisville Kentucky area restaurants over the next few weeks.

The Election Projection

There is always a lot of chatter about the markets and “how will they react?” to elections. This chart details how the S&P 500 performed on average in every month, split up between election and non-election years. The only data excluded is every 4th year with a presidential election.

Notwithstanding all of the other, very important, current economic data dampening markets these days, volatility always tends to rise in the fall. It is highest in the two weeks leading up to election day and returns to normal by the end of November. By then investors know how Congress may, or may not, be working together and understand the potential impacts to the issues that matter most to businesses - fiscal policy, taxes and regulation. The pundits tell us that we may be shifting from a Democratic-leading congressional makeup to a mixed bag with the Republicans taking over the House of Representatives and a too-close-to-call scenario for the Senate. It is highly likely that there will be gridlock and tougher times for either party to get legislation passed.

As reported in The Wall Street Journal on

Wednesday, Goldman Sachs analysts looking at S&P 500 options pricing suggested a 3% move on Nov. 9, the day after election day. A 3% move up or down was not noted, or perhaps discerned. JP Morgan's analysis shows rallies occurring in every political scenario in 50, 150 and 250 days after an election.

No matter the results on November 8th, the 2024 Presidential election contest will probably start as soon as the midterms wrap up. The economy will be on the debate stage but the truth is that the president has much less influence over the economy than people believe. The makeup of Congress, which changes every two years, and how it aligns with whomever is in the White House at the same time, is most important.

Car Vibes

What does your car say about you? Bummer stickers aside, the type of wheels you own helps other people make plenty of assumptions about the type of person you are.

Red cars and sports cars are driven by those who don't mind a little, or a lot of, extra attention; these are the rides that also attract the most unwanted notice from police and thieves. Minivans express utter devotion to small humans and occasionally belong to a musician with big gear to haul around. Large SUVs denote a priority on safety. Messy cars suggest you either spend too much time in them or you are disorganized in general. Beside our homes, a car is usually the next most expensive asset we purchase in a lifetime. The average new gas car is now cresting $44,000 and for an electric vehicle, it is $54,000.

However, upper middle class households, those making over $250,000, have not been splurging on fancy "rich people cars".

According to Experian's survey, 61% are much more likely to drive the average Ford or Toyota. Even though it may appear these consumers can most afford leveling up in this area, do not judge too quickly. The most popular car for earners over $200,000 is the Ford F-150, which is solidly in the $40,000 range for cost. Dependability and frugality win out over excessive luxury and performance.

Plenty of people become wealthy through smart money decisions and that extends to their choice of transportation. Beyond a car's sticker price, there are plenty of other costs to consider. Deprecation on a standard new car is 49% in just the first 5 years, but is higher on luxury cars. A new Mercedes S-Class depreciates 62%; the BMW 7-Series, loses 72% in the same period. Additionally, insurance and maintenance is higher on fancier cars. Some insurers might even restrict how often a luxury car is driven - Ferrari owners are used to this. The Ferrari owner might be compelled to purchase anothercar for backup trips. As Dave Ramsey has said on his podcasts before, today's millionaires are mostly understated. They built their wealth for themselves and driving a pricey vehicle to show everyone how successful they have become just is not in their DNA.

Some pretty famous business owners have found their ego in ways other than their cars too. Mark Zuckerberg is known to drive a Honda Fit ($21,600 in 2022). The nicest car billionaire Warren Buffet has ever known to drive is a Cadillac XTS ($48,000-$60,000 in 2022). Jeff Bezos, long after he became a billionaire, continued to drive his unassuming 1997 Honda Accord, apparently because he liked the anonymity and of course, the reliability for which the Accord is known.

Whatever your ride and however you choose to express yourself is a-ok with us. However, we are grateful to see that the ultra-tacky flaunt your wealth trend, where people "fall" out of their car and spill their luxury all over has taken a backseat to more down-to-earth vibes.