what's up you guys it's Graham here and you better be ready for what just happened after record high stock prices a slowing housing market and a brand new presidential election as of a few hours ago the Federal Reserve made their decision again to cut interest rates another 25 basis points officially marking the end of the most restrictive tightening cycle we've ever seen in history that's right for the first time since 2020 interest rates are beginning to come back down and that's going to have some pretty serious implications throughout almost everything from the stock market that housing market the national debt and even the value of the US dollar so given the recent update and their brand new decision as of today let's discuss exactly what happened what the Federal Reserve just said the impact this is about to have on everything money and then most importantly what this means for you watching because there's a lot going on that most people aren't talking about although really quick if you appreciate me doing my best to get this video out within a few hours of their decision it would mean a lot to me if you hit the like button or subscribed if you haven't done that already it's totally free it takes you a split second and as a thank you for doing that here's a picture of a squirrel so thanks so much and also big thank you to incog for sponsoring today's video but more on that later all right so as a bit of a background all of this is completely dependent on one single word the ultimate Boogeyman of the entire economy inflation that's right even though we've made drastic improvements from the 9% inflation rate of 2022 inflation currently stands at 2. 4% Which is higher than what the Federal Reserve would like but it's on a trajectory of slowly continuing to fall for example in the most recent inflation report it was found that energy prices dropped by 6. 8% used cars and trucks fell by 5.
1% hotels fell by 2. 3% and wait for it Lettuce is now 3. 2% less expensive okay but null seriousness the current inflation rate is a bit of a double-edged sword because despite inflation returning back to somewhat normal prices are still significantly higher today than they were a few years ago and as a result debt delinquency is back to its highest level in 12 years however the White House says that this is all a big error of calculation because in their eyes inflation is actually below 2% if you remove housing from the equation that's right when you calculate the level of inflation within our economy one metric makes up a third of the overall rating and that's what's called owner's equivalent rent in this case homeowners are surveyed and asked if they were to rent their home out today how much would they charge well that amount is calculated within the inflation report and since housing prices are going up that's reflected in the headline number that we see here except if you just remove that since housing prices are the result of a structural shortfall and not inflationary pressures then voila inflation is now below 2% and it's a job well done although before we go into the massive problem with this along with why mortgage rates are going up despite interest rates going down we need to talk about another metric that's extremely important the stock market look on the surface the stock market has seen an absolutely incredible rise over these Last 5 Years I mean let's face it the S&P 500 has doubled within that time frame but as you're about to see those sort of returns aren't exactly normal like take a look at this since 1924 the S&P 500 has increased overall by just 65% a year or with dividends reinvested by 10% a year which is even lower when you account for inflation and as Goldman Sachs points out there might be a scenario in which the next 10 years sees significantly lower returns than many of us have become accustomed to how low you might ask well as Goldman Sachs points out over the last few years the vast majority of stock market profits are driven by what's called The Magnificent 7 which consists of Apple Amazon alphabet meta Microsoft Nvidia and Tesla so is this sustainable and according to Goldman Sachs it's not the way they see it valuations are some of the highest they've ever been when you compare that to earnings and as a result historically that tends to mean that the stock market return returns over the following 10 years are suboptimal or I guess as they say their model predicts annual returns ranging from plus 7% to NE 1% with a 72% probability that stocks will underperform bonds over the next decade for Goldman Sachs this translates to just a 3% annualized return over the next 10 years of course not everybody agrees with data Trek saying that while the stock market has endured decade long stretches of 3% returns those tend to follow very specific catalysts such as the Great Depression the 1974 oil shock or the 2008 financial crisis today none of those look to be occurring but you also can't deny that as of now a few very big companies make up the vast majority of stock market profits and when you dig a little bit deeper you'll begin to see that almost 70% of the S&P 500 is underperforming the overall index like even Vanguard lowered their next 10year projection to just 32% a year that's why it's really important to understand that 15 to 20% annualized returns are not normal it's probably not something that's going to happen consistently and over the next decade or two there's probably going to be a good chance that people don't earn the sort of returns that they would initially like however I do say all of that with a bit of a catch because even though almost every analyst is somewhat pessimistic over the next decade anything can happen and there's a chance the stock market continues to Rally especially when you least expect it for instance schwamp seems to think that we could see a 6.
2% return Black Rock thinks 5. 2% is possible and if the money printer turns back on full force the sky is the limit but as far as how this impacts the housing market here's where things get crazy now even though it might be hard to believe that existing home sales are on track for their worst year since 1995 it's not hard to believe that your personal data is probably floating around on the internet somewhere in the hands of data Brokers third parties and spammers who are looking to Target you and it's becoming an epidemic look as much as I enjoy talking about the markets the sad reality is that anytime you make a purchase anytime time you sign up for a product or service or anytime you give out your information your data is being passed around and sold on the internet resulting in spam phone calls fishing attempts junk emails the list goes on thankfully though you do have a right to protect your privacy and request the data Brokers remove the information they have about you and even though it could take years to do yourself manually it doesn't have to be that way with our sponsor in cogni they could do all the work for you by reaching out to data brokers in your behalf requesting that your personal data be removed and then dealing with any objections that websites or data Brokers might have and since many data Brokers continue collecting your information even after they've removed it and cogy make sure that your data stays off the market with repeated removal requests all you have to do is make an account grant them the right to work for you and sit back while they keep you updated every step of the way they're also available risk-free for 30 days so anyone is able to give it a shot and get a full refund if you're not happy with it so there's no reason not to try it for myself this is essential in cutting down on the amount of spam phone calls and emails I get on a daily basis and if you don't make an active effort to get your information removed it's probably just going to keep happening so take down your personal information today by going to incog dcom gram and use the code gram for 60% off an annual plan or you could also use the link Down Below in the description thank you so much and now let's get back to the video all right so if you'd like to hear where things get a bit wild let's discuss the housing market as of recently it was said that existing home sales are on track for their worst year since 1995 for the second year in a row why well most economists believe that home sales in 2024 would actually be going higher thanks to Falling interest rates but instead the opposite happened despite falling rates mortgages went even higher this is because when the Federal Reserve lowers interest rates what they're really doing is influencing the short-term borrowing of treasuries or basically the borrowing rates over the next 6 to 12 months but mortgages follow a completely different metric the tenure treasury since most mortgages are only held for about 10 years this becomes the biggest competition between investors basically think of it this way the 10year treasury and the 30-year mortgage are nearly identical when it comes to risk adjusted returns so if one moves higher the other goes right alongside with it that's why contrary to the FED lowering interest rates investors believe that inflation is going to be higher than anticipated for longer than anticipated and that's resulted in mortgage rates remaining elevated results of the concern that the government's going to be digging themselves deep and deeper into debt so there's a bit of that as well essentially the FED doesn't have a lot of control over this and the Market's going to dictate whatever it believes is going to be most likely to happen especially when it's said that future rate Cuts will be a lot more modest so as a result home sales are falling fast as far as what this means for the future Zillow believes that home sales are only on Pace to climb 2% in 2024 and 0. 9% over the next 12 months with the main culprit being Rising inventory in fact it was said that quarter of firsttime buyers are holding off until after the election or more specifically 26% said that they're waiting to see if Harris's housing affordability plan goes into effect and 16% are waiting to see if Trump's housing affordability plan is enacted another culprit could also simply be that mortgages are expensive housing is largely unaffordable and some sellers out there are asking way more money than their home is ever realistically worth on top of that I'm also personally not a big fan of waiting on politically sponsored plans that may or may not ever happen happen but the trend is apparently clear we are slowly heading towards a neutral housing market as more inventory continues to be listed and fewer homes are being sold over list price rent growth is also slowing down quite a bit with rents only increasing $1 over the last month look anecdotally as someone who's been closely involved in the real estate market since 2008 I have to say I am seeing more inventory come up I am seeing more price reductions than usual and in some higher-end markets buyers are getting the upper Edge but for entry-level homes it's still just as competitive even when mortgage rates are still high although as far as what the Federal Reserve has to say about this along with their plan for the future here is what you came for as of a few hours ago the Federal Reserve made their decision as expected to cut interest rates another 25 basis points mainly because their preferred measure of inflation is trending back downwards for example take a look at what's called pce or personal consumer expenditures this tracks the cost of items from the perspective of businesses and that tells us how much consumers are willing to pay across the board essentially think of this a bit like the canary and the coal mine where if businesses see reduced demand and lowered cost that probably means inflation is coming back down and in this case pce was found to have come in at just 2.
1% year-over-year basically prices are falling and this gives the Federal Reserve a little bit more room to cut rates now unfortunately not everything is sunshine and rainbows because there's one more element that's going to affect the Federal Reserve rate Cuts in the future and that's going to be jobs see here's the thing the federal reserve's entire goal is to maintain price stability and maximum employment so even though prices are coming back down the jobs Market is not looking so good and that's causing the Federal Reserve to take a little bit more action for instance the recent jobs report found that only 12,000 jobs were added in the month of September and even though unemployment is still incredibly low all things considered it's still something it's going to take a lot more observation over the coming few months especially since employment is on a downtrend besides all of this though Jerome Powell ended up giving more of the same which is basically that their goal is to maintain price stability that they're monitoring the labor market and that they're going to make all decisions based on the data that they get at the time all of this suggests that we're probably going to see one more rate cut throughout the end of the year most likely to the tune of 25 basis points although in terms of my own thoughts about this and what you could do especially since we're around an election here's what you need to know look when it comes to the terrible jobs numbers honestly they could probably be chocked up to Major hurricanes and Strikes but it is worthwhile to reiterate that employment numbers are trending lower and if this continues we're most likely going to see a series of rate Cuts throughout 2025 as a way to spark up the economy but even beyond that we also have the topic of Elections now even though some people might really like or really dislike the results the truth is when stock market returns are considered it really doesn't make that big of a difference for example historically the highest compound annual growth returns came from a Republican president at 10. 2% but a Democrat president isn't too far behind at 99. 4% to take that a step further when you begin looking at median returns you'll begin to notice that Republican presidents have frequently been plagued by rather substantial stock market losses as well and all of this means that average annual returns tend to be higher with Democrats at 12.
9% versus Republicans at 99.
