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What If the Fed Doesn’t Cut Rates in 2024? Implications for Stocks, Bonds, and the Housing Market

What happens to stocks, bonds and the housing market if the Federal Reserve (“the Fed”) doesn’t cut interest rates this year?

This is what seems to be on everyone’s mind.

Investors have been betting on rate cuts since last November, and this assumption has been the primary driver of the great stock market returns through March 31, 2024.

What seemed so obvious six months ago doesn’t seem to be in the cards anymore. Why is that? Two main reasons:

For credibility reasons, Federal Reserve Board Chair Jerome Powell can’t afford to make another mistake by cutting short-term interest rates too soon.

READ: Unprecedented Impact of Soaring Interest Rates — What It Means for the Economy

His first mistake was calling inflation “transitory” in 2021, which meant they had to play catch-up to tame inflation.

The Fed raised short-term rates 11 times to reduce inflation from over 9%. Currently, the Fed is worried about cutting rates too soon, which could reignite inflation by making the economy even stronger with looser monetary policy.

Other factors playing into the Fed’s decision-making process are the geopolitical tensions between Israel and Iran and Russia and Ukraine. Both conflicts could cause oil prices to go even higher and the U.S. dollar to get stronger. Higher oil prices are inflationary, and a stronger dollar hurts foreign sales for American exporters.

Stock market

In the middle of this month, the stock market gave back 6% of the 10% year-to-date returns at the end of the first quarter of 2024.

If the market does fall 10%, this would be considered a correction.

A lot will hinge on first-quarter corporate earnings beating expectations. More importantly, companies giving optimistic earnings guidance going forward.

Today the stock market is expensive, trading at a 20 Price to Earnings multiple when the average is 16. Inflation reports will be key to whether the Federal Reserve can cut short-term rates. Investors will be closely watching the Consumer Price Index (CPI), Personal Consumption Expenditures (PCE) and the monthly employment numbers to influence any Fed interest rate decisions.

Oil prices and geopolitical conflicts could play into investors’ appetites for riskier assets like stocks. We haven’t had a 10% correction yet in 2024 so I suspect we are due, and this could be taking place right now.

If that is the case, investors might want to consider a more defensive posture and buy dividend-paying stocks that have underperformed the Magnificent Seven AI/technology stocks. Energy, healthcare, financial and consumer staples companies could prove to be good alternatives with attractive dividends.

READ: How to Invest in 2024 — Insights from Wealth Managers and Stock Market Experts

Bond market

The bond market has continued to fool investors this year. Interest rates were supposed to go down in 2024, starting with the first-rate cut taking place at the Federal Reserve’s board meeting in March.

With higher inflation and a stronger economy, the Fed may not cut interest rates at all in 2024. Longer duration or more interest rate-sensitive bonds have punished investors with losses in 2024. A safer bet could be to stay short on the yield curve and buy treasury bills or a 2-year bond.

Bond funds tend to own bonds that mature in the 4–7-year range, so they won’t perform as well as treasury bills or the 2-year bond if rates stay here or rise. The yield curve is still inverted, meaning investors are getting paid more interest on short-term bills/bonds than longer-term bonds. If you have money in the stock market, you may not want to take on bond market risk; stay short with higher yields.

READ: Exploring Opportunities in the Global Stock Market

Mortgage rates

Unfortunately for new home buyers, mortgage rates are still well above 7% today.

The current 30-year mortgage is 7.5% and even a 15-year mortgage is 6.9%. Buyers and realtors were hoping mortgage rates would be available in the 6% range in 2024, but with the Fed not cutting interest rates, it doesn’t seem likely that there will be much relief on the mortgage front.

Buying a home is still unaffordable for most Americans.

During the COVID-19 pandemic, mortgages could be found as cheap as 3%-4%, but at 7.5% the monthly payments are just too high and not attainable. Americans also don’t want to sell their current home and move because they would be giving up their incredibly low mortgage rate and double their monthly interest payments when buying a new home.

This dilemma is causing home prices to stay high because there is no supply on the market. For those who must buy a new home, there is a lot of competition again with multiple offers.

READ: Housing Affordability Crisis in Colorado — Denver, Colorado Springs and Grand Junction See No Signs of Improvement

The bottom line

Stock market returns are predicated on what the bond market does. Typically, when interest rates fall, the stock market goes up in value because investors have an increased appetite for riskier investments like stocks.

Conversely, in a rising interest rate environment like we saw in 2022, the stock market dropped double digits. The tremendous rally in stocks since November of 2023 was built on the expectation the Federal Reserve would get inflation back to its 2% target and we would have a soft landing, meaning a strong economy and lower rates.

However, inflation is stuck around the 3.5% level which means the Federal Reserve can’t lower interest rates anytime soon, and quite possibly not at all this year. There are even some economists who believe the Fed may have to raise interest rates in 2024 to bring inflation down to 2%. That scenario is certainly not built into the market yet, and that outcome would more than likely cause a major sell-off or a new bear market. Only time will tell.

 

Fred Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. 

Navigating the Impact of Tip Inflation: The Rise of Gratuity Expectations in Colorado and Beyond

For all my life, what with all of the various jobs I have had over the decades, for whatever reason I have never had a job where I received tips, or gratuities, as part of my income.

I have been around tipping, of course, as I have had many friends over the years who were food servers, or caddies, or any number of service industry employees where tipping was not only a part of their income but essentially the core of their income. After all, there has always been a second, and lower minimum wage for people employed in classic tipped positions.

For instance, the current minimum wage in Colorado is $14.42 per hour for most positions, with an $11.40 per hour level set for positions considered a “tipped wage” position. In Colorado, a “tipped employee” is anyone who in the normal course of their job receives more than $30 in tips per month.

READ: Colorado Cities Soar in Milken Institute’s Best Performing Cities Report 2023

The “tipped employee” definition is key these days as the marketplace is undergoing an enormous shift in tipping behaviors, and is, at least in my estimation, heading into untenable territory.

I have had a lifetime of gladly offering gratuities in service situations, and I have never really given it a second thought. They live on tips, so tip them. But in the last several years the tipping environment has changed immensely, where we now routinely see tip jars and tip lines on credit card statements and iPad payment screens at establishments of every stripe. I call this the Starbucks Phenomenon, as the coffee house explosion brought about the first example of counter staff expecting tips that I recall.

Now it’s everywhere. Bakeries. Fast-food sandwich shops. Markets. Donut counters. Delivery services. Tradespeople.

The real explosion in tipping came along with the coronavirus pandemic where we all relied upon a myriad of service workers — “essential workers” — just to get our hands on the necessities of life.

It was a big Thank You for the risks they were taking on our behalf.

The pandemic is over, thank the Lord, but the ubiquity of the in-your-face guilt screens of tipping shame have only expanded. 15%. 20%. 25%. Custom Amount. Clerks at counters and workers nearly everywhere — places and people that never were included in the tipping atmosphere — are happily turning that screen around to you with their smiling face silently exhorting, or extorting, you to hit one of the buttons and pay more.

READ: In Fort Collins, Small-Box Mercantile is the Latest in One-Stop Shopping

I’ve even heard of food delivery services that ask for a tip in advance and clearly indicate that the tip will factor in the speed of the delivery. There are all kinds of news stories addressing the new “guilt tipping” and “tip-flation” instances, and there are plenty of reasons to explore.

The most interesting of these is the idea that the rise in tip screens on those check-out iPads is really a way for the establishments themselves to avoid or diminish raising the pay of the counter personnel. So in that regard we are not only tipping the worker behind the counter but also the company running the business as well.

I guess I would rather see the worker get the extra money directly right there and then, but it’s a little disingenuous. Rather, they could raise the worker pay, and increase the price of a sandwich by two bucks and attain the same outcome, but either way the net effect is that all kinds of things now cost 15% to 25% more than they did before and some people — no tippers — aren’t paying their share.

Many of these businesses are also raising prices and adding service fees and credit-card fee premiums on top of tips anyway.

I don’t really begrudge anyone in the service industry getting a tip; I just object to the method by which a broader gratuity economy has come into being. Tip creep, if you will.

In the end, however, it isn’t really the whole tip-flation thing that is the essential question.

A tip — and the amount of a tip — has traditionally been a reward, or a penalty, for the level of service received. So, with all of the added areas of tipping sprouting up all over the place ad nauseam, are we being served?

That’s debatable.

 

Jeff Rundles is a former editor of ColoradoBiz and a regular columnist. Read this and Rundles’ blog, Executive Wheels, at cobizmag.com or email him at [email protected].

Rising Property Taxes Add to State’s Housing-Affordability Woes

A new study by the Denver-based Common Sense Institute (CSI) examines the skyrocketing cost of property taxes and the implications for housing affordability in the state.

Released April 9, the study, “Colorado Property Tax Primer: Where do Property Taxes Stand and Where are They Going?” notes that a dramatic increase in home values combined with expanding local mill levies have pushed the property tax burden of most Coloradans higher than the national average. In fact, 63% of Coloradans live in a county where the property tax to income ratio is above the national average.

“Affordability and housing continue to rank as top issues for Coloradans, and the rising cost of property taxes is exacerbating the problem,” said Chris Brown, CSI vice president of Research & Policy. Under current law, property taxes are set to increase again over the next two years. Homeowners face an estimated 32% to 54% cumulative increase in their property tax bill between 2024 and 2026 for a $500,000 home.

The research calculates the property tax burden on middle-income Coloradans growing at a staggering pace. Property taxes alone account for 17% of the increase in household expenses this year.

“Rising property taxes are part of the larger affordability and housing challenges faced by Coloradans,” said Dr. Steven Byers, CSI chief economist.

An individual earning the average hourly wage to cover the monthly mortgage payment had to work 42 hours in 2013. In 2023, that number increased 172% and that same individual would have to work 114 hours just to cover the mortgage payment.

“Property taxes will continue to be a top issue for lawmakers and voters as everyone feels the pain of rising costs,” continued Brown. “Nearly every state property tax system has meaningful tax growth limitations that provide greater certainty and avoid the recurring need for last-minute property tax relief legislation. Without action, Colorado’s relative property tax competitiveness will decrease and continue to strain overall affordability.”

Read the full report at Common Sense Institute.

Colorado is Dead Last in Housing Affordability in America, According to New Study

Housing affordability in Colorado has long been seen as an impediment to attracting and retaining workforce talent as well as new businesses.

Where does Colorado stand compared with other states? Dead last, according to the Common Sense Institute, which ranks Colorado 51st, behind all states and Washington, D.C., in housing competitiveness. 

Metrics used by the Greenwood Village-based think tank in its 2024 Housing Competitiveness Index include the number of working hours required to pay a mortgage, taking into account wages (Colorado ranked 48th, at 95.9 hours); hours to pay rent (Colorado ranked 51st, at 86.6 hours); housing shortage or surplus divided by population (Colorado ranked 42nd at -1.83%); and percentage of building permits issued as a share of housing deficit or surplus (Colorado ranked 36th at 46%). 

READ: How Modular Construction Could Ease Colorado’s Housing Affordability Crisis

The study on housing is part of the Common Sense Institute’s 2024 Colorado Free Enterprise Report, available online at commonsenseinstituteco.org/2024-free-enterprise-report. 

Reasons for the state’s high cost and shortage of housing, according to the think tank, include “long-recognized aspects of the construction-defects law that disincentivize construction of condominiums that often serve as starter homes; restrictive zoning regulations; disparate building codes; high water tap fees; and rising costs of residential insurance.”

Can Colorado Avoid the Rising Male Unemployment Rates Across the US?

Even as women enter the workforce at rates never before seen in our country, a disturbing trend is arising among men between the ages of 25-54.

A new Common Sense Institute study finds these men, in their prime working-age years, are leaving the workforce. 

How many men? Today, across the US, roughly seven million men are not in the labor force, or NILF, as the US Department of Labor refers to them. This does not apply to men who are employed part-time. In fact, one only needs to work an hour in the period being recorded to be counted as employed.

These men are neither working nor looking for work. One of the reasons the unemployment rate across the country appears to be so low is because for every man looking for work, two-to-three men are NILFs.

READ: Colorado’s Labor Market Paradox —  Plentiful Jobs, Mismatched Talent

This trend for men is not a matter of being in transition or working to take care of households while their spouses go to work. When time-use studies are done to document how these men spend their non-working time, they spend much more time than working men or women in general on socializing, relaxing and leisure. This includes an alarming amount of video game playing. 

Married men and men with kids are more likely to be working. Married black men work at a higher rate than single white men. Men with higher education levels are also more likely to be working. Men’s retreat from the workforce has also occurred with a retreat from civil society. NILF men are likely to be unmarried and not in clubs, involved in church or otherwise engaged in their communities. 

This is also not a blip. Prime-age working male labor force participation rate (LFPR) has been trending down since the 1960’s and continues post-pandemic. In 1969 the LFPR of prime working age men was 96.1%. Since Title IX was enacted in 1972, women have consistently increased their labor force participation rate, reaching a post-pandemic high of 77.8%, while men’s has dropped to a current national level of 89.7%. 

Women are advancing their educations at a higher rate than men as well. In 1970, just 12% of young women had attained bachelor’s degrees, compared to 20% of men. By 2020 4 % of women had a bachelor’s degree, compared to 32 % of men. Since better-educated men are more likely to be in the workforce, this national trend is concerning. 

But what about Colorado? The state’s male LFPR is higher than the national LFPR at 92.5%. Note that Colorado also has the second-highest percentage of college-educated citizens. While encouraging, now is the time to sound the alarm in Colorado. Despite an overall better LFPR for prime-age working men in Colorado, the rate has dropped four percentage points since 1977 while Colorado’s female LFPR has risen 20 points to 83%.

READ: Guest Column — Closing the Racial Wealth Gap With Education and Financial Planning

At a time of low unemployment and a plethora of available jobs, the bigger question is why are men leaving the workforce at all? To start, for men with only a high school diploma, inflation-adjusted real wages have dropped since the 1970’s. It’s estimated that this factor alone accounts for 44% of the growth in labor force exit. 

Social factors contribute as well. As society has shifted and more men are born to single mothers, their likelihood of being nonworkers has grown. When single mothers are less educated, or have low household incomes, the boys growing up in these households are more likely to be nonworkers as adults. 

Perhaps most alarmingly, because work is not only a source of income, but also dignity, belonging and self-respect, the loss of work and the possibilities work creates lead to disconnection, hopelessness and negative emotions that cause both physical and psychological pain. The US male life expectancy has dropped and the rate of deaths of despair are increasing. Men in Colorado accounted for 77% of suicide deaths from 2010 to 2020 and 62% of suicide deaths. Colorado has the sixth highest suicide rate in the US.

READ: Transform Your Mental Health in the Workplace — Strategies for a Healthier, Happier Experience

In terms of economic empowerment, it is a great time to be a woman in our country. But men not working is a problem, not just for our economy, but for our society. 

What if women’s gains since 1972’s Title IX law have occurred to the detriment of men? How might we recover these losses and build up all people moving forward?

In November 2021, the Global Initiative for Boys & Men published a report on the need for a Colorado Commission on the Status of Boys & Men. This report identified six areas where boys and men have been disproportionately impacted, including physical and mental health, education, careers and financial health, family and relationships, criminal justice and court systems, and male narrative in the public discourse. In each of these key areas, the trends for boys and men are concerning, but it is not too late. Now is the time for a state commission to be created to keep Colorado boys and men from falling farther behind.

 

Tamra Ryan is the CSI Coors Economic Mobility Fellow and CEO of the Women’s Bean Project.

February 6 Event to Discuss Inaugural Northern Colorado Intersections Report

The Community Foundation of Northern Colorado’s inaugural report, Northern Colorado Intersections: Pursuing Regional Well-Being, is a result of a year’s worth of research, discussions and engagement that discovered what the Northern Colorado region is doing well and where is it feeling the pressures of growth most acutely.

The goal of the report is to help inform the Northern Colorado region on how it builds and implements a collective strategy that will create well-being for all. The NoCo Foundation partnered with Colorado State University to review and analyze local, state and national data in relation to needs and gaps in services and opportunities.

Findings from the report will be shared with the Northern Colorado community on Tuesday, February 6 from 8 to 10 a.m. at the Embassy Suites in Loveland and will offer dialogue with a Mayoral Panel and Industry Expert Panel.

Mayor panelists are Jeni Arndt, Fort Collins; John Gates, Greeley; Paul Rennemeyer, Windsor and Jacki Marsh, Loveland. It will be facilitated by Ken Amundson, Managing Editor of BizWest.

The industry panel of experts include Andy Feinstein, University of Northern Colorado President; Jay Dokter, CEO of Vergent Products, and general partner in The Forge; Tracy Mead, Executive Director of Project Self Sufficiency and the Nonprofit Sector Partnership; and Raymond Lee, Greeley City Manager. It will be facilitated by Erin O’Toole Host and Senior Producer at KUNC.

To secure your spot to the February 6th launch event, register here by January 30. Tickets are $25 ticket and include breakfast and parking.

Registration link: https://nocofoundation.org/intersectionslaunch.

“The data and stories gathered in this report make it clear that there are issues we cannot solve alone that will require a collective and collaborative approach throughout Larimer and Weld Counties,” said Kristin Todd, President & CEO of the NoCo Foundation.

The NoCo Foundation will also engage community partners and leaders to work together to address the report’s findings. To read the full report, visit nocointersections.org.

About the Community Foundation of Northern Colorado

The NoCo Foundation is a nonprofit, public foundation that stewards more than 600 individual funds and over $200 million in assets. We play a unique leadership role by bringing people and resources together around important regional issues. Together with community partners and organizations, twe are a confluence of ideas, impact, and solutions. Community is our business. Learn more at nocofoundation.org.

What 2023 Taught Us About Investment Strategies, and What to Expect in 2024

2023 is officially behind us, and it is always helpful to look back at what worked throughout the year in order to position your portfolios for another successful trip around the sun. You’ll want to do this for taxes but also for income and investment performance as well.

READ: How to Invest in 2024 — Insights from Wealth Managers and Stock Market Experts

2023

To beat the S&P 500 Index in 2023 you had to own either all the Magnificent 7 technology/AI companies (Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia, and Telsa) or significantly overweight 3-4 of them. On the bond side of the ledger, you wanted to keep your duration or interest rate risk very short. The best option this year in the bond market was owning treasury bills. With bills you received higher rates of interest, got your money back quickly, and didn’t take on any credit risk. Two simple investment strategies.

However, after the massive sell-off in the NASDAQ and tech stocks in 2022, you might have been gun shy to just own the Magnificent 7. Since the Total Bond Market Index lost 13.1% last year, you might have been tempted to extend the duration on your bond portfolio to pick up more yield. The problem with that strategy was the Federal Reserve hadn’t finished raising interest rates and because of that, longer-term bonds lost money for a third year in a row. The good news, 2024 could be the year to be more diversified and extend the duration on your bond portfolios.

READ: Diversify Your Portfolio — Beyond AI Stocks

2024

Stocks

Since only owning 7 tech/AI stocks in a portfolio isn’t prudent from a diversification perspective, 2024 could be the year to spread out your bets in other sectors of the market that are cheaper relative to the Magnificent 7. One strategy could be to buy dividend-paying stocks. This group of companies could start to benefit from the Federal Reserve being on hold and really pay off if interest rates get cut next year.

Higher interest rates on CDs, money market funds and treasury bills were stiff competition for dividend-paying stocks this year. Aside from the technology and communication sectors, most S&P 500 stocks significantly underperformed. Consumer staples, financials, energy, utility and industrial stocks pay generous dividends and trade at much more reasonable price-earnings ratios.

Bonds

The total bond market index has now produced negative returns for 3 years in a row, which has never happened before. This has been particularly painful if investors owned bond funds because they didn’t get their money back like owners of individual bonds when their bonds matured. They also paid higher fees.

Investors have several ways to play the bond market in 2024. They can stay short by just buying treasury bills which mature in less than a year. You buy these bills at a slight discount to par and when they mature you get the face amount. For example, you pay $98 but get $100 when the bills mature. The other great thing about bills is they pay a 1% higher interest than a 10-year treasury bond today.

The investment risk is if the Federal Reserve aggressively cuts short-term rates next year because inflation hits their 2% target, or we have a recession. In either of these scenarios, when your bills mature you would most likely be reinvesting at a lower interest rate. If you buy bonds that mature past a year your bonds will appreciate if rates fall next year. Intermediate Corporate bonds pay much higher rates of interest than treasury bonds, so they might be a good option, too. Recently, for my clients, I have doubled their duration or interest rate risk by buying the 2-year treasury bond yielding 5%.

The bottom line

Making money in either the stock or the bond markets in 2023 wasn’t easy. You had to own just the right 7 stocks and keep the duration on your bond portfolio very short. Not many investors did, either. The good news, what worked well this year is no guarantee it will work as well in 2024.

In fact, odds favor doing something a tad different, particularly with the Federal Reserve seemingly on hold, inflation coming down, and bond yields at all-time highs. Ask your advisor about investing in dividend paying stocks and treasury or corporate bonds that mature in 5-7 years. You might be pleasantly surprised at this time next year.

 

Fred Taylor UPDATED

Fred Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information.

How to Invest in 2024: Insights from Wealth Managers and Stock Market Experts

Wealth managers have been busy lately, answering clients’ questions about how to build and preserve wealth amid stock market turmoil, high interest rates and recession fears. While advisers maintain that their advice depends on each client’s goals, risk tolerance, age and other factors, there is a recurring theme to their recommendations: Don’t panic.  

“Clients want to be reassured and make sure their plans account for an environment like this,” says Ali Phillips, executive vice president and partner at Obermeyer Wood Investment Counsel, with offices in Aspen and Denver. “We spend time telling clients you don’t want to respond to a bad year. Any good plan takes three to five years to come to fruition.”   

READ: Unprecedented Impact of Soaring Interest Rates — What It Means for the Economy

The inflation rate was 3.7% in October, much lower than the 9.1% in June 2022. Still, high interest rates are making mortgages and other loans expensive. Meanwhile, stock prices are fluctuating, and investors wonder whether they should adjust their portfolios.  

Phillips tells clients not to overreact when they read dramatic financial news headlines, and to instead focus on their long-term goals. Clients sometimes want to move money into more conservative investments or increase their emergency savings, especially now that high interest rates are making certain savings accounts more attractive than a few years ago. “Those pivots are appropriate,” she says. “What we don’t want to do is make dramatic changes that can adversely affect the longer-term outlook.”  

Some clients simply want reassurance that it’s OK to travel and enjoy the life they saved for. Others seek guidance on starting discussions with their families about passing wealth and wisdom to future generations, or to charity. “You want to honor their concerns, remind them of the longer-term picture, and guide clients in this environment,” Phillips says. 

Economic uncertainty motivates people to examine their portfolios. “There has never been a better time to look at what you’re doing,” says Adam J. Moeller, president of AJM financial in Greenwood Village. “The biggest thing is evaluating where you are now, what is this money for, and what are the consequences if you don’t do anything.”  

READ: Diversify Your Portfolio — Beyond AI Stocks with Treasury Bills and Dividend-Paying Companies

Many clients don’t know about fees they are currently paying for certain investment products, or what is in their 401(k). “Retirement sneaks up on them and they say, ‘Now what do I do?’” Moeller says. “When you uncover what they have, they don’t know what they are investing in.”  

Some clients are heavily invested in the stock market, which historically goes up, but if the investor is relying on stocks to fund their retirement and the market declines, they might have to return to work. “I see a lot of people who have too much risk,” Moeller says. “They have not done a good job of rebalancing and reallocating.”   

The traditional portfolio strategy of 60% stocks and 40% bonds, and of increasing the bonds when the investor approaches retirement, has not paid off recently. According to a Nasdaq report, stocks, as measured by the S&P500, lost 18.6% in 2022, or 25% when adjusted for inflation. Bonds, as measured by the Vanguard Total Bond Index, lost 13.7%, or 20.3% when adjusted for inflation.  

Meanwhile, people worry about whether there will be a recession, as estimates by the Wall Street Journal and others have put the probability at about 50%. “It’s a flip of a coin,” Moeller says. High interest rates will eventually come back down, so he is educating clients about alternative solutions such as fixed and fixed indexed annuities so they can take advantage of these high interest rates and lock in rates for five to 10 years. 

READ: Higher Interest Rates — What Does It Mean for Consumers, Bond Investors and the Stock Market?

Wealth managers are advising clients to consider other investments. “We are using more hybrid types of investments that don’t necessarily track the stock market such as structured notes,” says Patricia Kummer, senior wealth adviser/principal at Mariner Wealth Advisors in Highlands Ranch. “That includes the upside potential of an index while the client receives higher interest coupons on their investment.” 

Advisers also tell clients to consider individual stock holdings, especially stocks that pay dividends, rather than an index or a fund. “There were only seven stocks that moved the entire market,” Kummer says. “So if you were in a mutual fund that holds S&P 500 stocks, 493 did not perform.” Clients are also looking at U.S. Treasurys, because as of October the yield was around 5% for short-term Treasurys.   

During challenging economic times, it’s important for people to continue to fund their retirement accounts. “The volatility allows you to buy at different opportunities or prices,” Kummer says. “If you don’t want to take as much risk, that’s fine. Go to your adviser and say, ‘I want to update my strategy,’ not that you want to stop, or you may never catch up again.”  

 

Nora Caley is a freelance writer specializing in business and food topics.

Denver Ranked 3rd Nationally in New Study for ‘Future-Readiness’

The future looks comparatively bright for the Mile High City, at least according to a recent study that set out to rank the 100 largest U.S. cities in terms of their “future-readiness.” Denver ranked third, behind only Seattle and San Jose, California.

The study, released Oct. 10 and conducted by Point2, a Canada-based real estate services and research firm, was based on 30 metrics across five categories: Business & Technology; Internet Connectivity; Environment & Sustainability; Transit & Mobility; and Economy & Demographics.

Here’s a snapshot of what Point2 analysts concluded about Denver:

Innovation Leader: The city is no stranger to thought forums that brainstorm solutions for climate change, urban design and sustainability.

Aerospace Hub: Denver’s thriving aerospace industry is propelling it into the future. With a 16.32% share of science and tech jobs, it’s no wonder the city stands alongside established tech hubs like Seattle and San Francisco. This demonstrates its commitment to fostering a thriving tech ecosystem.

Startup Culture: The city’s startup scene is flourishing, with 460 startups leaving their mark. This entrepreneurial spirit is crucial for future innovation and economic growth.

Economic Wellbeing: Denver boasts an annual median income of $81,630, reflecting the city’s financial stability and potential for future economic growth.

Green Oasis: With an impressive total of 318 parks, Denver is committed to enhancing the quality of life for its residents and ensuring a sustainable urban environment. Additionally, it ranks sixth out of the 100 largest U.S. cities in number of LEED Certified Buildings (954), highlighting its dedication to environmental sustainability.

Challenges Ahead: Economic Concerns and Inflation Spell Trouble for 2024 Elections

President Biden’s re-election prospects face serious challenges. Despite public approval for many of his initiatives and strong disdain for former President Trump’s and his most ardent supporters’ behaviors, polls increasingly show Biden losing enough swing states to shift the electoral college in Trump’s favor.

A myriad of factors will determine the outcome of the election, including perceptions of the economy. Conversely, the economy is likely to see greater volatility in 2024 due to the election and abnormally heightened emotions. We will watch events unfold between the oldest sitting president whose challenge may be remaining fully functional and a former president who never concedes he has lost anything and thrives in a litigious world increasingly supported by social media and thugs. Unfortunately, we seem to be debating the typical liberal versus conservative views while standing on a tinderbox in a new technological world where AI can create more powerful false narratives.

READ: AI in Journalism — Transforming News Reporting and Storytelling (For Better or For Worse)

Of all the economic issues, inflation, despite dropping substantially in 2023, is the greatest threat to Biden’s re-election. Bidenomics, an effort to brand his campaign for economic achievements, was viewed unfavorably by a 2:1 margin in an October Bloomberg poll, while the individual economic components pushed through under the Biden administration are viewed positively by the majority of likely voters. A big part of the negative perception results from inflation rates of 6.5% to 7% after the pandemic and even higher rates in the housing sector for renters or new home buyers.

Currently, inflation has dropped to 3.5%, which is above the average rate of 2.9% the last 100 years. During the last century, the median rent in the U.S. increased from $60 in 1920 to $2,000 today (3.6% average annual compounded) and will be $62,000 in another 100 years. While the numbers are astounding when viewed in a 100-year context, the annual incremental increase of 3.5% is generally normal. 

Unfortunately for Biden, the Federal Reserve has created a widely publicized expectation that inflation should be managed to 2%. While that would be great, it happens infrequently and I believe is unattainable. We have the largest generation in American history, the millennials, dramatically increasing demand across the economy, especially for housing while the boomer generation has drastically decreased their productivity by retiring from the labor market.

The result is an inflationary labor market and the lowest unemployment rate in decades. To make matters worse, the new national agenda to bring a lot of manufacturing back to America reverses actions that helped keep prices down since the 1980s. Similarly, inflationary pressures come from a flood of migrants across the southern border until we integrate them, even if temporarily, into the labor market. The migrant situation will add fuel to the housing fire which will continue until baby boomers “permanently retire.” These realities will not change with the next president. 

READ: The Economics of Housing Inflation in Colorado — Exploring the Supply and Demand Imbalance

The greater long-term concern among the political right is the sustainability of the federal debt. Even many moderates, who will swing the election one way or the other, are fiscally conservative and socially progressive. While investment in infrastructure is desirable as it pays economic dividends in the future, there are important ramifications to printing and distributing “helicopter money” for all to enjoy.

It tends to be inflationary and will become more so over time; possibly at exponentially increasing rates. The 90-day debt obligations of the United States government are the benchmark of global economic stability defining “risk-free” in the financial world. When the day of reckoning arrives sometime in the coming decades it will be a worldwide calamity that could constrain needed public and private investment to adapt to the concurrent devastation related to climate change. 

Sooner or later, even central governments must own up to what they owe by dramatically cutting costs, increasing taxes and/or defaulting on their debt, leaving creditors with worthless paper and an unwillingness to lend more. When this occurs, economies transform radically and social safety nets dissipate.

Social strife escalates. Democracy can evaporate. If wars erupt, national defense demands higher budgets, which requires even more money printing, leading to hyperinflation where the monthly rate of inflation far exceeds what we experience now on an annual basis. Under such circumstances, our children will experience rapid declines in wellbeing. To get a good sense of this, look at Venezuela, which is the primary source of the current mass migration to the U.S..

I’m convinced that the number one economic goal of people is stability. We want to know our economic approach to meeting basic needs tomorrow will be like the past. Sure, economic thriving is much nicer than surviving, but knowing we have a secure base provides the greatest increment to our wellbeing.

America’s economy has become the envy of the world because we have a long history of economic stability, which we have built upon. Now, if we could just get to the issues rather than age, personalities and political drama highlighted by physical threats. I wish both Biden and Trump would abandon their campaigns and let two new fresh faces step forward. If one side changes their top candidate, I predict they will win the presidential election. Imagine that — personal egos subjugating to our national wellbeing.  

 

Tom BinningsTom Binnings is a senior partner at Summit Economics in Colorado Springs. He has more than 30 years of experience in project management, economic and market research, real estate development, business analytics and strategic planning. He can be reached at (719) 471-0000 or [email protected].