10 minute news recap. The World Series, Elon Musk buys Twitter, I-Bonds, inflation, a flashing recession indicator, and a big week in tech earnings. Plus, it's still raining!

Full transcript below

SUMMARY KEYWORDS

Inflation, Twitter, Elon Musk, markets, rates, Federal Reserve, bonds, recession, yield curve, stock options, tech companies, news stories

00:02

Hey, it's Katherine at Sunnybranch Wealth and welcome to the Weekly News Round Up, where this week I'm going to be focusing more on investment and market news, because it seems like all of the news that I am reading that is not investment or market focused is either about the impending red wave in the upcoming midterms, or about our future on Earth with climate change. It just seems a little depressing for a rainy Friday morning here in Portland.

 

00:32

And there's plenty to talk about in market news, so we're going to be focusing on that. But before we do, I wanted to get some non stock market news in here. So today, Friday is the first game of the World Series where the Philadelphia Phillies are playing the Houston Astros. I am a Washington Nationals fan. So I don't really have a stake in this World Series at all, except that Bryce Harper was a favorite of mine when he played on the Nationals. I'm excited that he's been doing so well with the Phillies. I'm excited to watch this first game and see how it goes. I'm definitely rooting for the Phillies, my dad is from Philadelphia and I think the Astros have won and cheated enough. If you're a baseball fan, if you're not a baseball fan but you just need something to do tonight, then tune in and we'll see what happens.

 

01:25

Moving on to the markets. The first news story we're going to cover today is that as of yesterday, Thursday evening, Elon Musk has officially closed on his deal to buy Twitter, and is going to be taking the company private. This is exciting, concerning, whatever adjectives you want to use but it's newsworthy for a variety of reasons. The first of those reasons is if you are a Twitter employee, formerly a big part of your compensation would have been equity compensation. So you would have stock options and other grants depending on your position and your total salary package. Elon Musk has promised in the past to honor those those stock options, basically to pay them out in cash instead of in the equity that Twitter employees would have received. There is a Pay Day coming up for that equity compensation. And there's concern that he is going to act quickly to let a lot of employees go so that he won't have to pay that comp. So micro news story that only really affects you if you work at Twitter. But still something to keep an eye on.

 

02:42

I think the bigger concern for really all of us in the US and also globally, is that Elon Musk has promised to remove a lot of the content moderation features that Twitter has put in place over the past several years. This is concerning because Twitter is a place where misinformation, where threats of violence pretty easily spawn and take hold and grow. So there's a pretty big concern that he's going to turn it into this wild west, which he has he said he's not going to do - that he is not going to let Twitter become a "hellscape". But it really remains to be seen. In taking Twitter private, when it was previously a public company, Elon Musk is going to have a lot more control, he's not going to have to answer to public shareholders. So he's going to have a lot more control and freedom to do whatever he wants. So we'll see what the future of Twitter looks like and what that means for the fate of our society and our democracy, if anything.

 

03:48

In other news, we've been talking a lot about I-Bonds and today is the last day to purchase I-Bonds if you want to lock in that 9.62% rate for the next six months. The Treasury Direct website has already sold $500 million worth of I-bonds this morning, and the site keeps crashing. There were a lot of there are a lot of news stories, and I said this as well. If you want to buy I-bonds, the 28th, October 28, today is your last day to do so. In fact, if you haven't bought I-bonds yet and you're interested in doing it, you might have already missed the boat, because the Treasury direct site is having so much trouble with the amount of volume it's seen today and really this entire week. So if you haven't bought them yet, you can still buy I-bonds, you'll just be getting them at a lower rate. So that rate will probably be around 6.5% for six months instead of 9.62%. A less advantageous rate but it may still be worth it depending on your overall financial situation and why specifically, you're interested in purchasing I-Bonds.

 

05:01

In more news about the Federal Reserve, there was expected but still not ideal news on the inflation and wage front this week,  showing that in fact, both inflation and wages are continuing to climb. As we've talked about before, this is really worrisome for the Federal Reserve. Their primary goal, their primary motivation, is to bring down inflation. And the steady increase in inflation, as well as the growth in wages is just demonstrating that the actions that the Fed has taken in terms of raising interest rates haven't been enough to curb the economic conditions that are driving inflation. So this isn't probably going to create any major changes in what the Federal Reserve plans to do, because they already expected this information and it's been baked into the decision that they've signaled to raise rates by another three quarters of a percentage point later this year. But it does lead into what was one of the bigger news stories in the financial markets this week- that we have an inverted yield curve, which is a flashing recession signal.

 

06:18

I did a podcast and a YouTube video yesterday talking about this yield curve inversion. So I'm not going to dive too much into it here. If you're interested in learning more, I recommend checking out either that podcast or the video if you prefer to look at my face while I talk. But what's important to know is that as these inflation numbers and the wage numbers are continuing to rise and not slowing down or reversing trend the way that the Fed would like them to, the Fed becomes more and more committed to the path it's on of continuing to raise rates. There becomes a higher and higher likelihood, at least in the eyes of the market, that the Federal Reserve is going to go too far in terms of raising rates, and then it's going to push us into a recession. That's one of the primary reasons that the yield curve inverted is that there's an expectation in the markets that the Federal Reserve is going to raise rates in the short term. And then in the medium term, say over the next six to 15 months, the markets think that the Federal Reserve is actually going to have to act pretty aggressively to cut rates, because at that point, we will have entered a recession and the Federal Reserve is going to need to start stimulating growth. No shortage of fun on the inflation and the interest rate side. And obviously we don't know if a recession is really coming. The yield curve inversion is a strong predictive indicator based on historical trends. But as we all know, past performance doesn't dictate future results. So we're going to have to wait and see.

 

07:59

In more recent market news, it was a big tech earnings week. So the major technology companies in the US all reported how they had done relative to their earnings projections. We saw a lot of weaker than expected performance from the big tech companies in the US. So Apple, Amazon, Microsoft Mehta and Alphabet. This was not entirely unexpected. But it just goes to show when we're talking about the possibility of a recession that the party is well and truly over in terms of the dominance of these big tech companies that we saw over the past decade, in an era of really low interest rates. These companies are now contending with higher interest rates, which is going to slow down growth, they're contending with an increasingly contentious international landscape. And they're really having to be more aggressive in terms of managing costs, both operational costs and personnel costs, which, really over the last decade, they haven't had to think too much about because they were growing so explosively. It's going to be interesting to see over the next few months, years or so, where market leadership comes from.

 

09:18

If you remember, over the last decade, it was these major tech companies that were driving a huge percentage of the growth that we saw in the markets, and it appears like that party has come to an end. So as we enter a new market cycle, we'll be looking to see who the leaders are going to be and what companies are really going to be driving growth.

 

09:41

That's what I have for you on the investment and market news. I don't have any personal news updates this week. It's been pretty slow. It's been a very rainy week here in Portland so a lot of inside time getting out our raincoats all our winter clothes and figuring out where everything is so nothing particularly exciting.

 

10:01

I hope this news recap was helpful. As ever. If you have any questions about anything I talked about or anything I didn't talk about talk about, feel free to reach out to me on LinkedIn or email - hello@sunnybranchwealth.com. I'm looking forward to hearing from you - have a great weekend.