Top Market Headlines: Simplified!

April 21, 2022

There have recently been several stories affecting the markets, so we thought we would simplify some of the issues for you.  While these may not be the biggest headlines in the news, they are market oriented and therefore affect our portfolios.

Chinese Regulatory Crackdown

Last month, the Chinese government unveiled a five-year plan outlining tighter regulation of Chinese commerce.  It appears that every aspect of Chinese business and perhaps culture will be scrutinized in the world's second largest economy. 

The plan will address monopolies and "foreign-related rule of law", each aspect of the technology sector, music licensing deals, and even scrutiny of after-school tuition services offered by individual teachers.

As part of China’s regulatory tightening of debt levels and speculation in real estate, China Evergrande Group, which epitomizes the borrow-to-build business model and was once China's top-selling developer, has missed two debt payments.  Worldwide markets are left to speculate whether this is the first of many dominos to fall in the Chinese markets.

Although American companies have exposure to the Chinese, Affinity Capital does not have any direct exposure to Chinese securities.

The Debt Limit

The debt limit that is being discussed so frequently is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt and tax refunds, among other payments.

The current debt limit is $22 trillion dollars.  As of June 30, 2021, an additional $6.5 trillion had been borrowed, bringing the amount of outstanding debt subject to the statutory limit to $28.5 trillion dollars.

This does not include the current two spending bills being negotiated of $1 trillion and $4.5 trillion dollars, adding to future debt, and of necessitating another debt limit hike in the future.

Failing to increase the debt limit would cause the government to default on its “current” legal obligations which is an unprecedented event in American history and unlikely to happen. Congress has never failed to raise a debt limit.  We highlight the term “current” because this is often confused with spending bills going forward in which political negotiations can result in a government shutdown.

A Government “Shutdown”

The federal government’s fiscal calendar runs from Oct. 1 to Sept. 30, meaning a shutdown will occur if lawmakers do not pass a 2021-2022 budget by the end of this month.  There have been 21 shutdowns with most lasting days and the longest lasting 21 days in 1995.

Mandatory spending for entitlement programs like Social Security, Medicare, and Medicaid, are not subject to annual appropriations so they are not affected, although the administration of these programs can be affected by staffing furloughs.

What is the Federal Reserve “Tapering”?

In response to the market disruptions caused by COVID, the federal reserve began purchasing almost $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities (MBS) each month.  The purchase of such large amount of bonds reduces the supply and the demand from private investors increases which cause the prices to rise.  Supply & Demand!  This also pushes interest rates down which promotes growth in the economy.

As the economy strengthens, Fed officials began talking about “tapering” their purchase of bonds in the open market.  This simply means a gradual slowing of their purchases rather than an immediate stop, which would be a shock to the financial system.

Inflation and Rising Interest Rates

As the Fed looks to taper their bond purchases, this indicates a growing economy, and a byproduct of a growing economy is inflation.  One of the key elements of the federal reserve’s mission is to fight inflation.  The evidence of inflation in our everyday lives is quite clear in our daily trips to grocery stores, restaurants, and gas stations. 

A little inflation is good, a lot is bad.  A tool that the Fed possesses to fight inflation is adjusting the short- term federal funds rate.  This rate essentially sets the benchmark for rates throughout the economy.  A higher interest rate slows the economy.  Would you rather buy a house with a 3% interest rate or an 8% interest rate?  We have less incentive to spend, and the result is a slower economy.  The goal is to find the economic sweet spot.  We may not buy a home at 8% but we may still buy one at 5 or 6%.

Keep in mind that rising inflation is not necessarily a negative for stocks. The uncertainty of the Goldilocks story is what can rattle the markets – too little, too much or just right.  Over the last year, Affinity Capital has increased our exposure to interest-rate hedged bond funds, financials, and other rising interest rate friendly investments.

We hope this has been an informative look at current situations affecting the markets currently.

As always, please feel fee to reach out to us with any questions or to schedule a visit.  Thank you for the opportunity to serve you.

Market Pulse: “Shutdown Jitters, Gold Glitters, Oil Slips”

October 1, 2025
Markets are navigating a new U.S. government shutdown, softer recent labor signals, and sliding oil while investors keep one eye on the Fed’s path after its September meeting. Equities are mixed but near highs, leadership remains tilted toward technology with improving breadth, and defensive assets like gold are seeing renewed demand. What moved today (Oct 1) : After notching strong September and Q3 gains yesterday, with the S&P 500 up about 0.4 percent on September 30 and the Dow setting another record close, U.S. stocks were choppy this morning as the shutdown began. The Nasdaq and Dow traded slightly higher intraday while the S&P hovered near flat. Overseas, the FTSE 100 hit a record as healthcare shares rallied. Gold pushed to fresh records as investors hedged against policy and data uncertainty. Current events to watch: U.S. government shutdown: With funding lapsed, key economic releases may be delayed, including Friday’s jobs report. This muddies near-term visibility for the Fed and markets. Furloughs and suspended data flows could weigh on growth in the fourth quarter if the shutdown lasts. The Fed’s recent guidance: At the September 17 meeting, the Fed’s projections suggested a lower policy path into 2026 as inflation cools, keeping the possibility of additional rate cuts alive. August PCE inflation printed at 2.7 percent year-over-year, reinforcing a gradual disinflation trend heading into the final quarter of the year. Commodities reset: Crude oil has retreated into the low $60s (WTI) on talk of potential OPEC+ supply increases and a softer global manufacturing pulse. The EIA’s outlook anticipates further price softness as inventories build into early 2026, which could provide relief for consumers and businesses. Sectors and standouts: Technology and growth: The third-quarter rally was led by large technology companies, but participation broadened across more sectors, which is healthy for the durability of the uptrend. Elevated valuations mean earnings delivery remains critical in October. Defensives and healthcare: In Europe, healthcare leadership helped drive record U.K. index levels today. In the U.S., defensive sectors have provided ballast on volatile days as bond yields eased. Energy: Lower oil prices have weighed on energy shares but should ease input costs for transportation, consumer, and industrial companies if sustained. Why this is happening: Markets are balancing two forces. On one side is a soft-landing narrative with cooling inflation, prospects for additional Fed cuts, and resilient corporate earnings. On the other side is event risk from the government shutdown, murkier global growth, and shifting oil supply expectations. As long as inflation trends continue to drift lower and policy remains supportive, dips have been bought, but when data flow is disrupted, headlines can dominate. What it could mean next: Volatility watch: With fewer data releases if reports are delayed, markets may be more sensitive to headlines. Credit spreads and market breadth are worth watching since deterioration there would be an early warning sign. Rates and policy: Fed commentary and any clarity on funding negotiations may set the tone. Markets currently lean toward additional easing by year-end, and confirmation or pushback from officials can move both equities and rate-sensitive sectors. Oil and inflation: If crude remains subdued, disinflation into year-end is supported, which is constructive for risk assets as long as growth holds up. Bottom line : Despite today’s wobble, the overall trend remains constructive but sensitive to headlines. A diversified approach, focus on quality balance sheets, and disciplined rebalancing remain prudent as we enter a period where policy developments may matter more than usual data. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to “Wealth Management for Life,” providing enduring guidance for you and your family’s financial success.

Fed Makes First Cut—Markets React with Hope and Caution

September 17, 2025
The big news today: the Federal Reserve cut interest rates by 25 basis points , lowering the federal funds target range to 4.00%–4.25% . This is the first rate cut since 2023, and it marks what could be the beginning of a new easing cycle. Chair Powell acknowledged that the labor market is showing signs of strain —job growth has slowed, unemployment has edged higher—while inflation, though still above target, has been gradually moderating. One member of the committee even pushed for a larger 50-point cut, underscoring the growing concern about keeping the economy on stable footing. Markets largely anticipated this move, and that helped set the tone for the week. The S&P 500 and Nasdaq hit new record highs earlier in the week , reflecting investor optimism that lower rates will support growth. Small-cap stocks also enjoyed a bounce, showing that confidence wasn’t limited to the mega-cap names. At the same time, Treasury yields fell toward 4% before inching back up, a sign that bond investors are weighing both the near-term relief of rate cuts and the longer-term risk that inflation remains sticky. Economic data released this week helped frame the Fed’s decision. August inflation readings came in a touch hotter than expected , with headline CPI up 2.9% year over year and core inflation at 3.1%. Those numbers are still above the Fed’s target, but not high enough to derail its decision to pivot toward easing. Meanwhile, energy prices moved higher on global supply concerns, giving the energy sector a lift, while technology—especially companies tied to AI—continued to outperform. Beyond the numbers, politics are adding a layer of uncertainty. Recent controversies around Fed appointments and legal challenges to sitting governors have raised questions about the central bank’s independence. Markets are watching closely to see whether these distractions influence policy direction. Globally, other central banks, including Canada’s, have also begun shifting to more accommodative stances, reinforcing the sense that the next phase of policy is easing across major economies. So what does this mean looking ahead? Markets could see more upside in the short run , especially in interest-rate sensitive areas like housing and consumer spending. But investors should also prepare for continued volatility —each new jobs or inflation report has the potential to swing sentiment quickly. If inflation proves stickier than hoped, long-term Treasury yields could rise even as short-term rates fall, a dynamic that might pressure parts of the financial sector. In short, the path ahead is unlikely to be smooth, but the Fed has signaled it is prepared to act again, with two additional cuts projected before year-end. Bottom line : The Fed has taken its first step toward easing, reflecting concerns about growth while balancing persistent inflation risks. Markets are encouraged, but optimism remains cautious as investors adjust to a more complex mix of risks and opportunities. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.

What’s Happening in the Market—and What It Means for You

September 4, 2025
The market’s summer calm may be giving way to a more dynamic period. In the weeks ahead, jobs data, inflation reports, tariff developments, and Federal Reserve policy decisions will dominate the investment landscape. With the S&P 500 now more than 90 days removed from a 2% decline—the longest such run since mid-2024—the stage is set for renewed volatility. September has historically been the market’s weakest month, averaging a 0.7% decline over the past 30 years. Four of the last five Septembers ended lower. A correction of 5–10% this fall would not be surprising and could, in fact, set the stage for a stronger year-end rally. Key drivers include: Federal Reserve policy — easing inflation may open the door to rate cuts, while strong job growth could delay them. Volatility Index (VIX) — at unusually low levels, suggesting complacency and the potential for sharper reactions to new developments. Triple witching expirations — adding short-term trading pressure this September. Despite these factors, the macro environment remains supportive. Earnings resilience, healthy economic growth, and investor confidence underpin the outlook. Elevated valuations are best understood as a reflection of optimism about future earnings, particularly in sectors leading innovation. Our perspective: We expect choppier markets in the near term, but remain constructive on equities for year-end. We continue to focus on portfolio resilience, opportunistic rebalancing, and selective positioning in areas where growth prospects justify higher valuations. For investors, discipline and perspective are essential. Volatility is not an enemy—it is an inevitable part of capital markets and often a source of opportunity. At times like these, it’s important to remember that markets move in cycles—but your goals remain constant. Our role is to help you stay focused, avoid distractions, and make thoughtful adjustments as opportunities and risks arise. As always, we welcome your questions and are here to support you. At the heart of everything we do is our commitment to Wealth Management for Life —providing enduring guidance for you and your family’s financial success.