This Week’s Takeaways:
- With the jobs market struggling and inflation no longer a major concern, expect multiple interest rate cuts before year-end and starting in September.
- The housing market is shifting as people adjust to higher mortgage rates. 525% of homeowners would now accept a mortgage rate up to 6% on their next purchase.
- The economy is slowing and recession odds are increasing based on a few important metrics.
- Structural issues like rising government debt, military spending, AI investments, and diminished demand for Treasures mean the new normal rate for ten-year Treasuries could be higher than 4.5%.
- Investors are reducing their allocations to small cap stocks out of concerns that the larger private market (we have half as many publicly traded companies as we did in 1996) is leading to more growth being captured outside of the public markets.
- Plus my latest book recommendation and Things to Do This Weekend in Boston.
September Rate Cut Looms as Fed Doves Gain Sway by Professor Jeremy J. Siegel
With the labor report undershooting even the tempered expectations we have seen all summer, the die is effectively cast for a September rate cut. The question is no longer “if,” but “by how much”—25 basis points (bps) is the base case, 50 bps entirely plausible if the next two CPI prints cooperate.
Full results from the TurboHome-ResiClub Housing Sentiment Survey by ResiClub
The housing market is shifting as people adjust to higher mortgage rates. 525% of homeowners would now accept a mortgage rate up to 6% on their next purchase. Slowly, homeowners are coming to terms with the fact that their next mortgage rate will be higher than their last one.
We’re at an economic tipping point ⚖️ by TKer
The economy is slowing, according to the labor market and other metrics like personal consumption expenditures and orders for nondefense capital goods. Recession risks are up.
Trump’s Interest Rate Obstacle Is Bigger Than Powell by Bloomberg
There are structural forces that drive the cost of borrowing, and right now they’re pointing up. Governments and businesses are piling on debt to pay for tax cuts, military spending, and AI investments — which means more demand for credit. As the Baby Boomers retire and China decouples from the US, the pool of saving to finance those loans is drying up. Add all of this together and it points to a world where 4.5% may be the new normal for ten-year Treasuries — the crucial rate for mortgages and corporate bonds, and the one Trump’s team says it wants to bring down. In fact, Bloomberg Economics analysis shows it’s more likely to trend above that figure than below it.
What Has Private Equity Done to Small-Cap Stocks? by Marquette Associates
Companies staying private longer means much of their growth can be realized outside of public markets, and small caps have underperformed large caps in 10 of the last 11 years. Many investors are reducing their small cap allocations accordingly.
Book Recommendation
Appeasement: Chamberlain, Hitler, Churchill, and the Road to War by Tim Bouverie
A gripping history of the British appeasement of Hitler on the eve of World War II.
Boston Corner
Acela upgrade means faster, more frequent Boston-to-D.C. travel by Axios
Massachusetts sports betting market blew past tax revenue projections in first year by Axios
