Interest Rates

Interest rates are currently at their highest levels since 2007. The 10-year US government bond (an important benchmark in the investing world) is around 4.75%. After many years of near-zero interest rates, this may seem extraordinary. However, it is actually a return to normalcy. For the last 100 years, the average yield of the 10-year US government bond has been approximately 4.5%.

The implication of this is that bonds are generating significantly higher income than they were two years ago. The path forward for interest rates will be determined by the pace at which inflation decreases (it has remained stubbornly high) and the outlook for the economy. Currently, markets are anticipating that interest rates will begin to decrease in the second half of 2024.

Many of our clients have gone through a financial projection exercise. For many, the investment return required to make their long-term financial plans work is 5%. With bonds paying 5%+, we think that investors should consider shifting more of their investment portfolios into bonds. Recently, for many of our clients, we have been increasing the allocation to bonds.

Other Notable Items

Lately, the price of oil has been very volatile – in part due to production cuts from some of the OPEC members. The price of oil has gone from $75 per barrel in July, to $95 per barrel in September (a 25%+ increase!) and is now around $85 per barrel. Oil prices have a significant impact on inflation and, unfortunately, rising interest rates do not keep oil prices low.

Over the past few months, there have been many unionized employee strikes. Hollywood actors and auto workers are two high profile examples. We expect the strikes will result in higher costs (as wages are increased) and push companies to continue investing more into Artificial Intelligence (AI). Below is an interest chart highlighting investments into AI since 2017:

Israel

We are sickened by the terrible acts of violence committed by Hamas in Israel. We pray for the safe return of all hostages and offer our deepest condolences to those who have lost loved ones.

Pearlstein Wealth Team

Both Carmen and Alicia, and their baby boys, are doing very well. They recently visited our offices – it is never to early too get them interested in investing! At the office, both Sara and Sanam have done a great job with Carmen and Alicia on maternity leave.

Wishing everyone a happy fall!

Pearlstein Wealth