Market Update End of Week + Felix’s Portfolio Watchlist

3 Critical Events To Watch As They Influence Markets

1 - Americans Paying Record High Amount Of Interest 🚀

Americans are now paying out nearly as much on non-mortgage debts (think credit cards, student loans, etc.) as they are on their home loans.

In January, non-mortgage interest payments surged to an annual rate of $573.4 billion, a record high that's nearly on par with the $578.3 billion spent on mortgages.

What's behind this spike?

A mix of historically low mortgage rates for those who locked in pre-March 2022 and the recent Fed rate hikes that have driven up the cost of other forms of debt.

The average American now spends 28% more per month on debt than just 4 years ago. While mortgages still consume the lion's share, the rapid ascent of auto loans, personal loans, and, yes, those pesky credit card bills, cannot be ignored.

Currently, U.S. households allocate about 5% of their income to interest payments. While this is the highest since 2011, it's a decrease from the roughly 8% seen in the late '80s.

Lower-income households, often relying on credit cards to bridge financial gaps, are disproportionately impacted by these increases.

2 - Why Your Tax Refund Is Probably Bigger This Year Than in 2023 😉

Americans may be pleasantly surprised by the size of their tax refunds this year, judging by the IRS’s latest filing data.

In 2023, taxpayers received smaller refunds on average compared to the previous year.

But so far this year, the average tax refund amount is $3,182, a more than 5% increase from the same time last season. (Just to clarify: The taxes being filed in spring 2024 are for 2023.) As far as dollar signs go, that’s over $150 higher than last year’s average refund as of the first week of March.

The increase is likely due to tax bracket changes the IRS made to counteract inflation after the 2023 filing season.

Read more

3 - Inflation Remains Above 2% 👀

The latest inflation reading had my eyebrows raising and my wallet tightening.

February’s Consumer Price Index (CPI) showed a 0.4% monthly increase and a 3.2% year-over-year climb.

Remember the talk of imminent rate cuts that sent stocks soaring? Well, they are starting to sound more like wishful thinking.

Inflation is playing hard to get, and the market is already moderating its expectations. The odds of a year-end Fed Funds Rate have dipped a quarter percent to the 4.25%-4.5% range.

However, the Fed wants to see core inflation below 2% to begin cutting rates. With current rates at 5.25%-5.5%, the market is still pricing in 4 quarter-point cuts this year – presumably across the 5 FOMC meetings from June to December.

Now I’m just an armchair economist, but… that’s beginning to look optimistic. These last bits of inflation have been hard to kill.

Can the Fed play hero and tame the inflation beast without derailing the growth train? Can they deliver this knockout punch by June? If not, what impact will delaying rate cuts have?

It’s hard to say with much confidence. But if there are two things markets hate, it’s uncertainty and underperformance