Rate Decisions, Elections, & Regulatory Capture
While it is unusual that I put out an update video early in the week, it became increasingly clear that expectation setting ahead of the next few weeks is necessary. Since the start of the year, I have alluded to the significance of the third quarter this year. I have proposed on numerous occasions, the weight of the evidence suggested that weakness would likely surface in markets as we entered late August through November. Not only is this proving to be true, but we are also receiving several new signals shining even more light on what we can expect ahead.
On Wednesday, the Federal Reserve will announce their rate decision. The market is already pricing in an expected rate hike, however I remain unconvinced that this will happen. May I remind you once again, the Federal Reserve uses words and messaging to move markets just as much as it uses its monetary policy toolbox. Likewise, there is an overwhelming number of influential centers of power that would not like to see a rate hike before November. Only time will tell, however things are not as set in stone as one may be led to believe.
Additionally, I'd like to shed some light on the current state of AI and it’s significant impact on the overall capital investment markets. Recent events are stoking fears that AI is either about to destroy all of humanity, or completely implode, thereby destroying all "wealth". Both claims seem a bit hyperbolic, yet we should be asking why these calls are being made. The warnings are far less interesting than the motive behind them. Rather than be caught up in the superficial, emotion stirring headlines, I would like to share a peek behind the curtain for what is happening and thus, how investment markets will be impacted.
Ultimately, we are still very much in a long-term bull market, however we are likely to experience some shorter term consolidation in market performance. Our Carriage House Asset Management Portfolio (CHAMP) Models have already reduced equity exposure, and more adjustments may be necessary in the short term. This will allow capital to be ready for reinvestment as we exit this current period of increased volatility.
