Portfolio Issues - Safety and Security
Schwab runs a series of webinars for advisors about hackers and scams and generally keeping bad people away from client accounts. We tune into these sessions to hear about what we all can do to protect our accounts, and to hear the latest nefarious schemes lurking out there.
We should all use a unique password for each site where we log in, and we should use two-factor authentication (a code sent by text or email) for any financial websites.
You shouldn’t click on any links in emails if you don’t know or trust the sender of the email. We get emails regularly telling us to click on a link to renew a password. But no organization we know of sends out unsolicited emails to renew a password.
For any emails you send, treat the email as a postcard—don’t include any information that you wouldn’t want the rest of the world to know about.
Lately, the bad guys have been able to hack into some email accounts. They look at old emails and then start sending emails that look like they’re from the owner of the email account. They might send an email to someone like us, to request that money be wired to another account. If that happens, and we don’t recognize the account, you can expect a call from us. Just so you know, this hasn’t happened to any of you so far, but we’re aware that it’s possible at any time.
So please be patient with us if we call you to confirm a transfer of money. Unfortunately, there are bad people out there. We don’t need to live in fear. We just need to take some reasonable precautions.
“Unless you know something about computers, I don’t need you for security anymore.”
Market View - Relative Calm
The third quarter was relatively quiet. There wasn’t any major news like bank failures or new AI breakthroughs to jolt the markets. Investors seem to be in a holding pattern, waiting to see if there will be any changes in Fed policy and whether the economy will continue to hum along despite higher interest rates. The Fed slowed the pace of their rate hikes, but the consensus is slowly shifting to rates remaining higher for longer.
Both the stock and bond markets are moving towards that scenario. The 10-year yield on US treasuries is above 4.6%, it’s highest level since 2007. Meanwhile, the S&P 500 drifted lower. It is still up over 11% for the year, primarily due to several stocks riding the AI hype train. The hope for rate cuts early next year is dwindling because the economic data shows a generally healthy economy. If the Federal Reserve does not have a strong case to lower interest rates, they will stay at these levels for longer than previously anticipated.
The country temporarily headed off another government shutdown. The threat of shutdown is commonplace at this point. We passed temporary spending bills to avoid the past two shutdowns, although neither addressed the major disagreements between our political parties. The higher cost of debt is exacerbating the struggle to move towards a balanced budget, so this is not the last time we will hear about it. The last government shutdown was a mere four years ago and was the longest in history at 35 days. The Congressional Budget Office estimated that cost the US economy $3 billion dollars, not to mention the headaches experienced by government workers and citizens. No one wants to see a repeat of that scenario, but we aren't holding our breath for rationality to suddenly emerge.
Organized labor is in the spotlight. The UAW is on strike, the SAG union which represents actors is on strike and their writing counterparts just ended their strike. It wasn’t long ago that unions seemed like a relic of the past. Then union movements at companies like Amazon and Starbucks grabbed headlines. Those haven't gained a whole lot of momentum, but the UAW strike could motivate employees to reconsider. If the UAW is able to negotiate a good deal for their members, they will be used as a pro-union example at other companies. Biden and Trump are getting involved, so this strike is garnering a lot of attention. Companies are already dealing with a tight labor market, union action will make the current environment even more expensive for companies to navigate and will put upward pressure on inflation.
Gas prices are on the rise again. Speaking of inflationary pressure, OPEC agreed to limit supply so prices would rise. It’s working, and crude oil, which gasoline is made from, is back above $90 a barrel. This development does not help consumers or companies, who are still stinging from the highest rise in price levels we have witnessed in decades.
The government continues to pursue action against big tech companies. The FTC filed a lawsuit against Amazon alleging they use monopoly power to hurt other businesses and consumers. This will be the fourth case brought against a large tech company. The FTC already lost cases against Microsoft and Meta; they are currently trying a case against Google parent-company Alphabet. It isn’t clear what the outcome will be, but it shows that attitudes in Washington have changed considerably towards these tech companies that enjoyed relatively few restrictions up until recently.
All of this news creates a level of uncertainty for investors. These issues are unlikely to be resolved soon, therefore up-and-down stock prices are likely to continue. If you maintain your investment strategy and don’t react to price swings, you will thank yourself later.
Sources: Economist, Wall Street Journal, Value Line, Vanguard, Applied Finance Group, Schwab