Hello, my name is Chad Taylor, managing partner with MDT Financial Advisors here in Houston, Texas. Today is Monday, June the 17th, and I had a few things to go over, but before I do, this week is a short week for the markets. On Wednesday the 19th, the stock markets are closed as well as our office. So we have a holiday on Wednesday and then it's a real short week for me. I leave on Thursday for a week, but as always, if you need anything, don't hesitate to reach out to the office and they can always get ahold of me if need be, and I can handle whatever needs to be handled. So I hope you're staying out of the heat and I hope you had a good weekend. I did get out in the heat this past weekend and went to the George Strait concert at Kyle Field.

If anyone saw that, me and 110,950 of my favorite friends. Apparently it was a record for people viewing a concert. It seemed like there was a lot of people there, but it was a good time. Now this information comes to us from our friends at the Wells Fargo Investment Institute and the title of it was Fed Cuts, careful What You Wish For. And so we've talked about the last couple of years have really revolved around interest rates going up and the fed, excuse me, inflation going up and the Fed pushing interest rates up to try to bring inflation down. That's what's been going on since early 2022 and the Fed kept pushing rates up until July 26th, 2023. So last July is the last time that they raised interest rates. And so at this point we're over 320 days since the last cut, or excuse me, since the last raise of the interest rates.

And this chart that we're looking at talks about the current is what they call rate pause at this point and putting it in historical perspectives. So you can see 19 89, 19 95, 2018, the current one, 2006, 2020, and at this point the s and p 500 is up about 20% from that time. Now remember it's been kind of a weird year, especially last year and this year to some extent where it's been very top heavy on the s and p 500 market weighted index where last year it the Magnificent seven. This year it's actually fewer stocks that's making the biggest impact, but just in general, the s and p 500 market cap weighted stock market is up roughly 20% and that looks very similar to 89 95 2018, 2006. You can see the outlier there is 2000 and that was kind of the tech bubble When it burst, it was a different dynamic, but right now we're kind of following the same trend as what's happened in the past from the time that the Fed stopped raising interest rates to when they started cutting interest rates, and that's where we are right now.

When will the Fed cut interest rates? At the beginning of the year, it was thought that they were going to be cutting a number of times in 2024, but as we've discussed in the prior videos, inflation hasn't come down and the economy is still holding in there. And so the Fed, one of their biggest focus is getting the inflation down closer to their 2% target and we're not there yet. And so just what was it last week, they didn't do anything to interest rates. Again, Wells Fargo still thinks that we have two interest rate cuts this year, maybe one early next year. Different people have different opinions, but that's the question of when will that happen? Okay, so on this next chart it kind of talks about fed rate cuts have tended to coincide with stock drawdowns or stock pullbacks in the market. Remember, as the Fed keeps interest rates up, they're trying to do that for a reason.

In this case, they're trying to bring inflation down, which could also mean slowing the economy down, which could hurt corporate earnings. All of those things are in play here and historically, when you have the Fed finally start cutting interest rates, so the minute they start cutting it on average 250 days after that, you've had a stock market pullback in this case, you can see with the diamond there roughly 20% from all of these different times after the first rate cut. If you can see up to kind of the top left there, 19 98, 19 95, 19 84, 19 80, you didn't have a lot of drawdown or pullback on the stock market. I lived through a couple of those since I've been in the business 1995 in 1998, but then I've also lived through 2019, 2007, 2001, especially 2007 and 2000. Those were really rough times in the market and I've been through those before where one was the tech bubble crash and the second was the great financial crash, and then 2019, that was after they were raising rates throughout 2018 and it spooked the markets and they sold off and that was before all the covid mess that we went through.

And so what does this tell you well, or how do you use it? There's a lot of uncertainty out there and that's why we still think you ought to be cautious here, still staying diversified. Don't get tempted to get too aggressive with your investments right now. Lean back on your plan. Are you still on track? Are you not on track? Do we need to make adjustments there? All of those things come into play. I do believe that on a balanced portfolio are the markets in general that if you give it enough time, it usually works out fine. So if I don't talk to you for five years, history shows that markets tend to be up a high percentage of the time. If you can not look at it for 10 years or in those, it's even higher percentage of time, but that's hard to do.

We are seeing it on the news every day and we're talking about it and you're seeing your statement every month. And so all of those things come into play. But from this chart, what I want you to see is I is historically speaking, if the Fed starts lowering rates, just a normal course of business, if they can start lowering rates because inflation is trending down and there's nothing have been broken in the market or in the economy, that's where the problem, if they keep rates too high and they break something in the economy or the markets, that's when they're having to play catch up with lowering interest rates. If that's not the case, if they can lower rates in a formal manner that's under control without a lot of calamity, then we think that the markets will hold up fine because the economy at this point is holding up, okay.

We don't see anything on the horizon that's going to show that, but it doesn't mean it's not out there. And so we do think it's good to be cautious here, probably not to be scared. It will go through bad markets at some point. Usually every five to six years you'll see the markets pull back in a meaningful way. We've had three of those since 2018, 2018, 2020 with the Covid market in 2022 with the rising inflation and interest rates. So there's been a lot going on. Well, that is a lot of information, but I thought was interesting and it kind of talks about where we are in this part of the cycle. So as always, I really appreciate you taking the time to watch these videos. If you have any questions about this or anything else, don't hesitate to reach out. I look forward to talking. I hope you have a great day. Thank you.


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