Economic Commentary
Last week’s FOMC meeting, the most significant market event in a data-starved month, triggered a brief sell-off in both equity and bond markets; however, we view the overall economic backdrop as steady and gradually improving. As we enter Q4, labor demand remains steady, and consumer spending continues at a pace consistent with ongoing expansion. This has helped the yield curve shift from inversion to a modestly positive slope, with the Fed funds rate near 3.9% and the 10-year Treasury yield around 4.1%. We see inflation trends improving for structural reasons—most notably, a gradual easing in rental costs—while distortions in insurance and goods prices appear to be transitory rather than signs of renewed pressure. Given differing views inside the Fed, the December decision will be meaningfully data-dependent. If holiday spending softens and/or the labor market softens, a 25 bps cut becomes more likely; if not, January remains a practical alternative.
Market Commentary
We continue to view corporate earnings as a key source of market stability. Recent results from major technology firms show strong cash-flow generation and clearly defined multi-year investment plans, especially in artificial intelligence, which we believe distinguishes the current environment from the speculative excesses of the late 1990s. While year-end tax-loss selling may pressure underperforming parts of the market, valuations beyond the largest technology companies remain reasonable. The non-Mag7, non-Tech portion of the S&P 500 trades near 19–20x, a level consistent with moderating inflation and steady economic growth. We also see progress in inflation components and a gradual normalization of the yield curve, both of which contribute to a clearer policy outlook and a more favorable market environment. Geopolitical conditions have improved at the margin following renewed U.S.–China engagement, reducing certain tail risks that previously weighed on sentiment. One caveat is the seasonality, as November tends to be the weakest month in the fourth quarter. Add in the fact that the next 60 days lack the positive catalysts of September and October, and we would expect November to be a range-bound, somewhat directionless month. But, taken together, we believe resilient earnings, improving inflation dynamics, and a more predictable policy environment create a broadly supportive backdrop for equities into year-end.
Wealth Planning Commentary
Family Code Words
Do you know of a grandparent who has received a deepfake call from a grandchild? These calls generally go like this: “This is (grandchild’s name). I am in jail in (college town such as Tucson, Arizona), or I need money immediately because I cannot reach Mom and Dad.” You want to hang up, but cannot because it definitely sounds like your grandchild, as these deepfakes keep getting better.
This past Saturday, the Wall Street Journal published a fantastic article on how to address this situation. You should create a family code word. Therefore, if you have an inkling that maybe this could be my grandchild or child, ask for the “code word”.
Tips for the code word:
- Keep it simple but strong. Consequently, do not use a pet name or a street name. Criminals can find out a lot about us online.
- Keep it safe: Use a password manager
- Keep the circle tight and only share the codes in person or over the phone. Never do this over email.
- Don’t change the code word except when there is a change in the family dynamics, such as a divorce
Some families may even use a question-and-answer format. I personally like the question-and-answer format where the answer tells the person they are wrong. For example, how many pounds did the tuna we caught weigh? The answer might be: I have no idea, because a shark ate over half the tuna before we reeled it in.
Here is a link to the article.
I plan on implementing this with my family.