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We are in the most interesting times. For our personal investment clients and 401(k) clients, there have been many smiles so far this year. We are happy that the markets, broadly, have begun this year on a bullish note. 2023–except for a handful of large AI companies–was a poor year for investors. But today, smiles are back.

And… It’s an election year, which is usually a pretty good year for investors too.

Interest Rates: A Word of Caution

However, let’s consider the cautionary winds that are blowing gently so far but still persist. Wall Street experts believe that the Federal Reserve is going to drop interest rates 3-4 times this year, due to the decrease in the rate of inflation. And many believe this will happen beginning in June or July. I want you to know I think these experts are wrong. We continue to see inflation rates above 4%, and with employment still being quite high, the Fed has no reason to drop interest rates. So, in my opinion, perhaps in the fourth quarter, we may, and I emphasize may, see a rate decrease. If we do, then look for Bond Funds and Bond ETFs to have significant positive responses.

The Oil Factor: Prices and Economic Impact

The current price for a barrel of oil is above $80, compared with $35 during the Trump administration. There is a direct correlation between the price of oil, gasoline, and inflation growth. Should oil come back down to the $60s, then the rate of inflation will most certainly drop. However, should a shock happen, such as a bomb going off somewhere in the Middle East, then the price of oil will jump to $120 per barrel, and we will face 6% inflation again, which will prevent the Federal Reserve from lowering any rates. This scenario would make the stock markets jittery and very volatile.

Politics and the Economy: An Unpredictable Mix

So now, as we discuss the economy and the possibility for growth or volatility, politics comes into play. It is apparent that this will be a Biden vs. Trump rematch. Although there are still hopefuls that a different presidential candidate will emerge from the Democratic Convention, one younger and more vigorous. I’m sure there is a betting line somewhere on this. We will have no debates, no one-on-one conversations, and no opportunity to cross-reference answers. Bummer, I am going to miss the best part of the political season.

Navigating Through Uncertainty

So let me summarize. Assuming that the price of a barrel of oil stays below $75 or so, and it’s at $80 today, inflation will remain relatively constant between 3% and 4%. Any shock in the global marketplace will cause a spike in oil prices, and the Tech Sector, the leading sector in the economic and stock market boom, will temporarily retract. Are you bullish or bearish on this happening? If you are bullish, great. This could be a fantastic year for you. If you are bearish, great. Please invest accordingly.

Invitation to Connect

To discuss this further and make sure your risk tolerance is aligned with your investments, please reach out to me at at 925-314-8503 or elliot@prosperityfinancialgroup.com.

All my best,

Elliot

Expert Insights

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