My Prediction For The Fall


Hope everyone had a good week!
Stocks are hot, which is good news for everyone! Not only are they hot, but they have been hot. Nearly all the major indexes are up double digits this year, finally recovering from the COVID recession, if we can even call it that.
Not sure about y’all, but it’s #gainz season over here.
But can we expect this to continue?

The Good News

There are a lot of things going right at the moment.
For one, new data from Wednesday showed that inflation rose less than expected last month. Yep, no more buying a chicken to try and save on eggs.
Our relations with China are getting better (I mean, they’re never really great, but), after Antony Blinken, Elon Musk, and Bill Gates all visited the country to emphasize their commitment to keep manufacturing there. This has also indirectly improved some of the supply chain issues we’ve been seeing for big tech.
And lastly, big tech companies have been flat out killing it in what appears to have been the perfect storm of product releases and acquisitions.
Apple released its Vision Pro (which I wrote about here) and their stock is up 42%.
Microsoft acquired Activision and their stock is up 42%.
Meta released Threads, it’s Twitter competitor and is up 124%.
And Amazon is just being Amazon, and is up 36%. Plus, Prime Day was this week, I hope everyone loaded up.
Together these four companies make up over 16% of the Fortune 500 earnings, so yea, it makes sense that the major indexes are up on the year.
But there’s an elephant in the room, and everyone seems to be so caught up in the good times, that they’re ignoring the potential problems from this real-life Dumbo.

The Bad News

The elephant in the room? Student loans. They’re also up big (150%), but this time that’s not a good thing.

Over 55% of Americans leave college with student loans, and the average debt is around $29,000. And since COVID, federal loans haven’t been accruing interest and people haven’t been required to pay due to the debt freeze.
But the ignorant bliss is ending this fall and it could have big impacts.
Certainly, people have been using this freeze to pay off the principal, right?
Nope, less than 1% have made payments during this period. Which means a lot of people are in for a rude awakening this fall.

My Prediction

I’d love to give people benefit of the doubt and say graduates have been stacking cash or putting money in a high yield savings account for when the bill comes, but they simply haven’t. Instead, many loan holders have been putting money into the market and making other purchases…like I said Prime Day was Wednesday.
The way I see it, there are really three scenarios for how this could play out:
  • Graduates expected this day to come, have saved during the freeze, and will be able to pay off their loans.
  • Graduates will be able to afford their monthly loan payments without any other changes to their lifestyle.
  • Graduates will be strapped for cash and need to pull money out of the market or stop future investing.
Given how few people have been making payments during the debt freeze, I’d predict – in fact I’d put my money on – that it’s going to be door number 3.

What’s this mean for the economy?

Well, millions of people are going to be in need of money for their payments, so we’re either going to see an incredible number of withdrawals from the market, or a huge decrease in the current inflow levels because they can’t continue to invest at the rate they have been.

Either way, that’s bad news bears for the macroeconomy. Instead of what are usually the best months for investors (October, November, and December), I would expect a more tumultuous fall.

Of course, I am not a financial advisor of any sorts so believe what you want.

Oxygen Support Systems

Look, when you open up those loans to look at the balance in August, your jaw will drop and the air will leave your body. Lucky for you, when you need some air, Oxygen Support Systems can provide you some. Whether you need oxygen, a family member needs oxygen, or you dad snores too much Oxygen Support Systems has you covered. Go check them out!

Final Thoughts

Whichever way the dominos fall, we’re going to have to come to terms with something that hasn’t exactly been top of mind recently.
With the rise of retail apps like Robinhood removing the barriers around investing for much of the population, the markets have seen an influx of “retail” money compared to “institutional” capital. As much as I would like to say that everything will be fine and people had proper foresight to prepare, that’s just not what the data shows.
I predict that as the leaves turn orange and red this fall, so too will the market. Whether or not it will be enough to overturn the gains we’ve seen this summer, now that’s the real question.
That’s it. Thanks for coming to my Ted Talk.
‘Til Friday.

from, matt

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