Speaker 1 (00:06):

Hello, my name is Chad Taylor, managing partner with MDT Financial Advisors here in Houston, Texas. And today I also have Nick Afro, a registered relationship manager with us here today. And we were just discussing a chart that came out this week with some market information. So I asked Nick to join us today and for us to go over this piece of information. So today is August the 15th, Thursday and the markets are up today, which is nice. It's been pretty volatile the last couple of weeks, especially since the beginning of August. And I know I've shared a couple of videos. One specifically on the day that, what was it, Nick, two Mondays ago or the market sold off a thousand points August during the day where we kind of talked about the reason being and all of that. So obviously markets are kind of forward looking vehicles and it's always trying to gauge where we're going.

Speaker 1 (01:10):

And if you remember back a couple of Mondays ago, it was over kind of the disappointing economic numbers that we had that week before then it was that Japanese yen carry trade that was kind of the gas on the fire. So you had a lot of uncertainty and probably still do, but the markets have kind of rallied back and we've gotten back most of that that we lost during those couple of days or that week or so. That was pretty rough at the beginning of August. And so it brings up the question, and I know we talked about it during that last video, but are we going to go in a recession or not? And that's what our chart today kind of discusses. If you a member, we think that the Fed or the Federal Reserve will probably start lowering interest rates at their next meeting, which is September.

Speaker 1 (02:07):

That's what we're predicting right now, not just us, but lots of research houses are predicting that right now. And we think so as well. Now, are they going to lower it 25 basis points or 25% of 1% or 50 basis points? That's kind of a discussion now where even a month ago it probably was considered that they were only going to lower it by 25 basis points. So now they may make a bigger cut in interest rates. We're predicting right now that they're going to cut rates again two more times before the end of the year. We'll see if that happens. What Nick, at the beginning of the year, I mean we were predicting five or six cuts, not just Wells Fargo Investment Institute but lots of houses, five or six and then what, three months ago we were predicting two. So these things are fluid, they're always changing. And so we're trying to give you some of this information as we see it come up and with this chart. And let me go ahead and share it and I'll let Nick kind of get started. Explain.

Speaker 2 (03:14):

So many of us are asking at this point, what does this potential interest rate cut next month mean for the markets? Are we going to be moving into a recession? And our friends over there at the Wells Fargo Investment Institute put out this chart that kind of shows what the s and p 500 index has done 18 months out from that first interest rate cut. And so you can see here there's kind of two main trends that the market has followed as indicated here by this purple line and as indicated by this orange line, the orange line shows kind of what it would look like potentially if we do enter a recession. And you can see here it's pretty volatile looking six to nine months out. The market doesn't do too well. It is kind of generally pulled back at its peak 20%. Then when you look out to the 18 month period, it kind of finishes flat.

Speaker 2 (04:12):

So obviously that's the less ideal path. On the flip side, the other trend that it could follow is we could see the markets go up. Obviously that's the more favorable path. Which one of these two is it going to follow this time? Nobody knows for certain. If we knew for certain it was going to go up, then we would get more aggressive. If we knew for certain that it was going to go down or stay the same, then we may consider getting more conservative. But unfortunately nobody knows exactly what it's going to do. What does Wells Fargo think? They tend to think it's probably going to be something more like this purple path simply because we've already seen quite a bit of volatility with the 2022 markets. But then again, nobody knows for certain. I was reading a report put out by another company and they were saying that no recession is likely. So everybody's got their opinion and we'll just have to wait and see what happens here.

Speaker 1 (05:19):

Yeah, and that's good. And what I found interesting, and I learned something every day on these when we talk about this because I think I mentioned it in that last video there, for the longest time, bad news was good news and then that Monday bad news was bad news because the economy was starting to slow down. But when the bad news was good news was going on, it was all revolving around interest rate cuts. If there was bad news, it gave the Fed more chances to cut interest rates. Well now we're here and it doesn't necessarily mean that it's always going to be rosy going forward. That's the worry. That's why we're still being cautious here because as Nick said, if Wells Fargo's Investment Institute research is correct and we don't have a recession, things will get better and be better hopefully. But there is still that chance that we could have a recession. We're in an election year that's going to add to the volatility. So there's lots going on here. If you would like a copy of this report, let us know and we can get you that copy. But we just really wanted to get on here and go over this really quickly. If you have any questions about this or anything else, please don't hesitate to reach out to us. And Nick, thanks for hopping on and joining me today and hopefully you found this informative. I hope you have a great day. Thank you.