THE WEEK ON WALL STREET
The overhang of Fed Chair Powell’s Jackson Hole speech the previous week carried over into last week as investors recalibrated stock valuations amid a seemingly more assertive monetary policy stance. The Dow Jones Industrial Average fell 2.99%, while the S&P 500 stumbled 3.29%. The Nasdaq Composite index lost 4.21%. The MSCI EAFE index, which tracks developed overseas stock markets, slid 4.90%.
FACT OF THE WEEK
On September 5, 1957, New York Times writer Gilbert Millstein gives a rave review to On the Road, the second novel (hardly anyone had read the first) by a 35-year-old Columbia dropout named Jack Kerouac. “Jack went to bed obscure,” Kerouac’s girlfriend told a reporter, “and woke up famous.”
On the Road is an autobiographical novel about a series of cross-country automobile trips that Kerouac made between 1947 and 1950, both by himself and with his friend Neal Cassady. Cassady (Dean Moriarty in the book) was a colorful character, a charming and good-looking hustler, occasional car thief (or not-so-occasional: he claimed to have stolen more than 500 cars while growing up on the streets of Denver), an aspiring writer who accompanied Kerouac on most of his journeys. (Cassady usually drove; after a childhood car accident, Kerouac hated to be behind the wheel.) In fact, Kerouac was inspired by Cassady’s straightforward, vernacular writing style; The poet Frank O’Hara described it as “I do this, I do that”. He adapted it to his own epic narrative: To tell the story of his journey, he just wrote down what happened.
Legend has it that Kerouac wrote, On the Road in just three weeks, typing it on a 120-foot scroll made from taped-together sheets of tracing paper. The scroll exists–in 2001, the owner of the Indianapolis Colts pro football franchise paid $2.4 million for it–but in fact, the process of writing the book was hardly as improvisational as it sounds. After typing that first draft, Kerouac spent six years revising his manuscript before it was published.
Stocks Extend Losses
Investors remained unnerved by the aggressive tone of Jerome Powell’s speech and subsequent comments from Fed officials suggesting a higher rate hike than the market expected at the Fed two-day meeting ending September 21. The probability of a 75 basis point hike in September rose to nearly 65%, up from just 28% a month ago.
Stocks moved steadily lower before finding some footing on Thursday. Friday’s employment report appeared to strike a “goldilocks” note (i.e., labor gains not so strong that it might trigger greater Fed hawkishness but robust enough to allay imminent recession fears). After early gains, stocks turned lower ahead of the holiday weekend.
Employers added 315,000 jobs in August, maintaining the labor market’s remarkable resiliency amid a contracting economy. The unemployment rate rose to 3.7%, up from last month's 3.5%. The gain followed an uptick in the labor participation rate, which expanded from 62.1% to 62.4%. Wages continued to grow, rising 0.3% in August and 5.2% from 12 months ago.
Sectors seeing the most significant increases in new jobs were professional and business services, healthcare, and retail. Lagging sectors were manufacturing, financial, and wholesale trade.
FINANCIAL STRATEGY OF THE WEEK
The real rate of return is an important personal finance concept to understand.
It’s the rate of return on your investments after inflation. The real rate of return indicates whether you are gaining or losing purchasing power with your money. So if inflation checks in at a rate of 3%, does that mean any investment with less than a 3% rate of return is losing purchasing power?
That’s where it gets a little complicated. In theory, any investment with less than a 3% rate of return may lose purchasing power. But there are other factors you want to consider as well. For example, are inflation rates likely to continue their current trend, or are they transitory effects of broader market changes?
In the end, the real rate of return is only one factor to consider when building a portfolio. Your time horizon, risk tolerance, and goals are the primary drivers.
A financial professional can help you better understand market conditions and build an investment strategy that manages the potential loss of the purchasing power of your money.
Have a great week.