Hey Chakkani Fam! Welcome to Your Weekly Financial Briefing! We've got bite sized market moves, big tech bets, and whispers of change from all over the world. Grab a cup of joe (or your preferred drink) and let's dive:

Bears & Bulls: Markets Notes & Numbers

• S&P 500: 5,554.25 +11.03 (+0.20%)

• NASDAQ: 17,631.72 +37.22 (+0.21%)

• Dow Jones: 40,659.76 +96.70 (+0.24%)

• 10-Year Treasury Yield: 3.883 (-0.043)

• Bitcoin: $59,109 +2,018.42 (+3.54%)

  All data as of last trading day's market close time read more…

Market Bites::

1. Netflix Earnings Surge and Tech Stocks Propel S&P 500 and Nasdaq to New Highs: 

Key Points:

1. Sixth Straight Weekly Gain: The S&P 500, Nasdaq, and Dow Jones achieved six consecutive weekly gains.

2. Netflix Surge: Netflix stock jumped due to strong subscriber growth forecasts, boosting the communication services sector.

3. Tech Stock Rally: Other tech giants like Apple and Nvidia contributed to the market gains.

4. Mixed Results in Other Sectors: American Express dropped after missing revenue expectations, and CVS fell after replacing its CEO.

5. Small-Cap and Energy Struggles: Small-cap indexes outperformed this week but declined Friday. Energy stocks lagged due to lower oil prices.

6. Economic Data: U.S. housing starts rose 2.7% in September, showing positive economic momentum.

Summary:

On Friday, the S&P 500 and Nasdaq closed higher, marking a sixth straight weekly gain for the major U.S. indices, bolstered by tech stock rallies. Netflix led the surge after reporting stronger-than-expected subscriber growth and projecting further increases through year-end. This uplifted the broader tech sector, particularly the communication services and information technology groups, with companies like Apple benefiting from increased iPhone sales in China, and Nvidia climbing after receiving a price target hike from BofA Global Research.

Despite the positive momentum for tech, the Dow Jones Industrial Average was largely unchanged, weighed down by a drop in American Express after it posted disappointing revenue. CVS Health also fell following the replacement of CEO Karen Lynch and the withdrawal of its 2024 profit forecast, negatively affecting other health insurance stocks like Cigna and Elevance Health.

In contrast, small-cap stocks have seen increased investor interest lately, outperforming major indexes earlier in the week but closing lower on Friday. Energy stocks, particularly oilfield services companies like SLB, Baker Hughes, and Halliburton, were the weakest performers, dragged down by lower oil prices and underwhelming earnings from SLB.

Strong corporate earnings have driven the overall market upward, but concerns remain about high valuations, with the S&P 500 trading at nearly 22 times forward earnings. With the upcoming U.S. presidential election in November, potential volatility could affect market sentiment. However, analysts like David Waddell of Waddell & Associates suggest that positive earnings could override these concerns.

Additionally, U.S. listings of Chinese companies saw gains after China's central bank implemented measures to support its equity markets. Economic data added to the market’s optimism, with U.S. single-family housing starts rising 2.7% in September, reflecting broader economic health.

2. European STOXX 600 Ends Week Higher as Tech Stocks Rebound, Boosting Markets: 

Key Points:

1. STOXX 600 Gains: Europe's STOXX 600 ended the week up 0.2%, led by a strong tech stock rebound.

2. Tech Sector Recovery: The tech index jumped 2%, reducing its weekly loss, though it remains the worst-performing sector due to ASML's weak forecast.

3. Luxury Stocks Strengthen: French luxury giants like LVMH, Kering, and Hermès helped boost the CAC 40 index after a mid-week dip.

4. Mixed Corporate Earnings: Elisa and Getinge saw declines after reporting weaker-than-expected quarterly results.

5. ECB Rate Cut: The European Central Bank trimmed interest rates to 3.25%, with potential for further cuts in December.

6. Goldman Sachs Forecast Cut: The STOXX 600's 2024 earnings growth forecast was slashed from 6% to 2%, due to corporate tax and trade tariff concerns.

Summary:

Europe’s STOXX 600 index ended the week with a modest 0.2% gain, bolstered by a sharp rebound in tech stocks and positive corporate earnings. After a turbulent week, the tech sector rose by 2% on Friday, softening its overall weekly loss of 6%. This sector's slump was primarily driven by ASML’s weak 2025 sales forecast, which triggered a global sell-off in chip stocks earlier in the week. However, chipmakers like Soitec SA and BE Semiconductor Industries saw notable gains of 5.6% and 2.8%, respectively, on Friday.

Luxury stocks also supported market gains, particularly in France’s CAC 40 index, which rose by 0.4%. Key players like LVMH, Kering (Gucci’s parent company), and Hermès rebounded after a weak start to the week caused by LVMH’s lower-than-expected third-quarter sales. Italy's Brunello Cucinelli also surged following strong nine-month revenue growth, reflecting renewed investor confidence in the luxury sector.

However, not all sectors performed well. Finnish telecom company Elisa slumped 4.7% after its third-quarter revenue missed expectations, and Swedish medical equipment maker Getinge dropped 5% after its earnings fell short of forecasts.

On the macroeconomic front, the European Central Bank (ECB) cut interest rates to 3.25%, marking its third rate cut of the year. A potential fourth rate cut in December is expected, depending on economic conditions. Meanwhile, Goldman Sachs lowered its 2024 earnings growth forecast for the STOXX 600 from 6% to 2%, citing concerns about rising corporate taxes and potential trade tariffs.

Despite the recent gains, European stocks have struggled since mid-May due to slow economic growth and weak demand from China. Investors remain cautious, particularly regarding Europe’s vulnerability to economic downturns compared to the U.S., as noted by Daniel Murray, deputy CIO at EFG Asset Management.

3. U.S. Dollar Rally Pauses Amid Chinese Stimulus, But Uptrend Remains Intact: 

Key Points:

1. Dollar Index Gains: The U.S. dollar index is set for its third weekly gain, despite a 0.3% drop on Friday, driven by Chinese stimulus measures.

2. Chinese Stimulus Impact: China’s new funding schemes boosted global equities, lifting risk sentiment and commodity currencies like the Australian and Canadian dollars.

3. Federal Reserve Policy: Shifts in U.S. Federal Reserve expectations to more moderate easing phases continue to support the dollar’s strength.

4. U.S. Housing Data: U.S. housing starts fell by 0.5% in September, slightly below expectations.

5. Cryptocurrency Rise: Bitcoin surged over 10% this month, benefiting from favorable sentiment around Trump's potential re-election.

6. Euro and Pound Gains: The euro and British pound strengthened against the dollar, aided by Chinese stimulus and positive UK retail sales data.

Summary:

The U.S. dollar took a breather on Friday, declining 0.3% after five consecutive days of gains, as global risk sentiment improved following China’s launch of new stimulus measures. These measures, designed to boost Chinese equities, elevated global stock markets and strengthened commodity currencies like the Australian and Canadian dollars, at the expense of the traditionally safe-haven U.S. dollar. Despite this pullback, the dollar index remains on track for its third weekly gain, up 0.6% for the week and about 2.7% for the month, marking its largest monthly gain since February 2023.

The dollar's recent strength has been supported by a shift in expectations around U.S. Federal Reserve policy, with markets now anticipating more moderate rate cuts following strong economic data. U.S. futures markets have priced in a 95% chance of a 25-basis-point rate cut in November, down from earlier expectations of a 50-basis-point cut.

Friday’s dollar pullback was driven largely by China’s efforts to stimulate its stock market, which lifted global risk sentiment. The resulting rise in the Chinese yuan and other currencies like the euro, which gained 0.3% against the dollar, contributed to the dollar’s temporary dip.

Meanwhile, U.S. housing data showed a slight decline in housing starts, down 0.5% in September, following a strong increase in August. This data, coupled with resilient U.S. economic indicators, suggests the Federal Reserve is likely to follow a cautious easing path.

In cryptocurrencies, Bitcoin saw a notable surge, climbing over 10% since October 10. The rise has been attributed to the growing prospects of former President Trump’s re-election, as his policies are viewed as more favorable for the cryptocurrency market.

The British pound also performed well, rising 0.2% after UK retail sales grew more than expected in September, offering a positive sign for the British economy.

4. U.S. Budget Deficit Hits $1.8 Trillion in Fiscal 2024, Third-Largest on Record: 

Key Points:

1. Deficit Growth: The U.S. budget deficit grew to $1.833 trillion in fiscal 2024, an 8% increase from the previous year, making it the third-largest in history, following deficits from the COVID-19 pandemic era.

2. Major Contributors: Key drivers of the deficit were increased spending on Social Security, health care, military, and a 29% rise in interest costs on federal debt, which surpassed $1 trillion for the first time.

3. Impact of Student Loan Reversal: Fiscal 2023’s deficit was reduced by $330 billion due to the reversal of costs related to Biden's student loan program, which was struck down by the Supreme Court.

4. Revenue vs. Spending: Fiscal 2024 receipts reached a record $4.919 trillion, while spending rose to $6.752 trillion, reflecting a widening gap.

5. Political Implications: The growing deficit is expected to play a key role in the 2024 presidential election, with debates over fiscal responsibility between candidates Kamala Harris and Donald Trump.

Summary:

The U.S. budget deficit for fiscal 2024 expanded to $1.833 trillion, an 8% increase from the previous year’s $1.695 trillion, making it the third-largest deficit on record. The fiscal year, which ended on September 30, was marked by significant spending increases on Social Security, health care, military programs, and especially interest on federal debt. The Treasury Department reported that for the first time, interest costs surpassed $1 trillion, a 29% jump compared to the previous year, making it the largest contributor to the budget gap.

While fiscal 2023 saw a reduction in its deficit due to the reversal of $330 billion in costs from President Biden’s student loan forgiveness program, which was struck down by the U.S. Supreme Court, the fiscal 2024 deficit lacked such mitigating factors. Without this anomaly, last year's deficit would have exceeded $2 trillion. The sizable deficit, at 6.4% of the U.S. gross domestic product (GDP), is up from 6.2% a year earlier.

U.S. government receipts hit a record high of $4.919 trillion, driven by increased tax collections, both from individuals and corporations. However, fiscal outlays rose 10%, totaling $6.752 trillion. This imbalance between revenue and spending continues to exacerbate the deficit, which could become a pivotal issue in the upcoming presidential election.

The deficit's size is expected to pose challenges for Vice President Kamala Harris as she campaigns ahead of the November 2024 election, where she is positioning herself as a responsible fiscal steward compared to her opponent, Donald Trump. Fiscal experts estimate that Trump's proposed policies could increase debt by $7.5 trillion, more than twice the $3.5 trillion expected from Harris' plans.

In September 2024, the government reported a temporary surplus of $64 billion, largely due to calendar adjustments for benefit payments. Without these adjustments, there would have been a $16 billion deficit for the month. Nonetheless, government receipts for September reached a record high of $528 billion, up 13% from the previous year.

5. Fed’s Bostic Advocates Patience on Rate Cuts, Sees No Immediate Recession Risk: 

Key Points:

1. Patient Approach to Rate Cuts: Atlanta Fed President Raphael Bostic emphasized the need for a gradual reduction of the Federal Reserve's policy rate to between 3% and 3.5% by the end of 2025, suggesting that inflation can be brought down to the Fed's 2% target without rushing to cut rates.

2. Current Rate & Inflation Outlook: The Fed's current policy rate is in the 4.75%-5% range, and Bostic envisions further cuts only if inflation continues to fall and labor markets remain stable. He projects that inflation, currently at 2.2%, will hit the Fed's 2% target by late 2025.

3. Economic Strength & No Recession: Bostic expressed confidence that the U.S. economy has enough momentum to avoid a recession while still combating inflation. He noted that recent job market data, including rising employment growth and a 4.1% unemployment rate, support this outlook.

4. Fed Policy Expectations: While financial markets are pricing in two rate cuts before the end of 2024, Bostic foresees just one more quarter-point cut this year.

Summary:

Atlanta Federal Reserve President Raphael Bostic made a case for patience in cutting the central bank's policy rate, emphasizing that rushing rate reductions could undermine efforts to bring inflation down to the Fed’s 2% target. Speaking at the Mississippi Council on Economic Education Forum, Bostic outlined a path to gradually reduce the rate to between 3% and 3.5% by the end of 2025, which he believes is the "neutral" range — a level that neither stimulates nor restricts economic growth.

Bostic highlighted the importance of maintaining restrictive monetary policy for longer to avoid prematurely easing financial conditions, which could cause inflation to stall. The Fed’s current policy rate stands between 4.75% and 5.00%, and Bostic stressed the need for patience, indicating that inflation, currently at 2.2%, is likely to reach the Fed's 2% target toward the end of 2025.

Despite these considerations, Bostic remains optimistic about the strength of the U.S. economy. He noted that the labor market remains robust, with job growth stronger than expected and the unemployment rate at 4.1%. As a result, Bostic does not foresee a recession in the near future, countering market fears of an economic downturn.

Financial markets are anticipating two rate cuts before the end of 2024, but Bostic indicated that he expects only a single quarter-point reduction over the Fed’s final two policy meetings of the year. He remains confident that the economy can absorb the current restrictive policy and still manage to bring inflation under control.

Phew, that's a lot to unpack! Remember, this is just a snapshot of the complex and ever-evolving financial landscape. So, stay informed, diversify your investments, and don't forget to have a little fun along the way!

Bonus Tip: Want to dig deeper into any of these stories? Let me know in the comments below, and I'll be happy to share some additional resources!

And there you have it, folks! Remember, folks, the financial world is like a game of Monopoly—sometimes you’re the banker, sometimes you’re stuck in jail, and occasionally you land on Boardwalk and buy a hotel. Happy investing! 📈💰

 P.S. Did we miss anything major? Hit us up via an email with your hot takes and financial insights!

The Power of Compound Interest: Making Your Money Work for You

Albert Einstein reportedly called compound interest the “eighth wonder of the world.” But what makes it so powerful? The magic of compound interest lies in its ability to generate earnings on both your initial investment and the interest that investment earns over time. Understanding and leveraging compound interest can significantly enhance your financial growth, turning modest savings into substantial wealth over the long term. In this article, we'll explore how compound interest works and provide practical strategies for maximizing its benefits.

1. What is Compound Interest?

Compound interest is the interest calculated on the initial principal, which also includes all the accumulated interest from previous periods. Unlike simple interest, which is calculated only on the principal amount, compound interest grows exponentially because the interest earned itself earns interest.

Here’s a simple formula for calculating compound interest:

A=P(1+rn)ntA = P (1 + \frac{r}{n})^{nt}A=P(1+nr​)nt

Where:

• A = the future value of the investment/loan, including interest

• P = the principal investment amount (the initial deposit or loan amount)

• r = the annual interest rate (decimal)

• n = the number of times that interest is compounded per year

• t = the number of years the money is invested or borrowed for

2. How Compound Interest Works: A Practical Example

Let’s break down how compound interest works with a simple example:

Imagine you invest $1,000 in a savings account with an annual interest rate of 5%, compounded annually. Here's how your investment would grow over time:

• Year 1:

  • Principal: $1,000

  • Interest Earned: $1,000 x 0.05 = $50

  • New Balance: $1,000 + $50 = $1,050

• Year 2:

  • Principal: $1,050

  • Interest Earned: $1,050 x 0.05 = $52.50

  • New Balance: $1,050 + $52.50 = $1,102.50

• Year 3:

  • Principal: $1,102.50

  • Interest Earned: $1,102.50 x 0.05 = $55.13

  • New Balance: $1,102.50 + $55.13 = $1,157.63

After three years, your $1,000 investment has grown to $1,157.63, and you’ve earned $157.63 in interest. If you let this money grow for 10, 20, or even 30 years without withdrawing any of it, the effects of compound interest would become even more powerful, significantly increasing your wealth.

3. Why Start Investing Early?

The key to maximizing compound interest is time. The longer your money is invested, the more it can grow. Starting early allows you to take full advantage of compound interest, giving your investments more time to multiply.

Consider the following scenario:

• Investor A starts investing $200 a month at age 25 and continues to do so until age 35 (10 years). After 35, they stop contributing but leave the investment to grow.

• Investor B starts investing $200 a month at age 35 and continues until age 65 (30 years).

Assuming both investments grow at an annual rate of 7%, let’s compare their outcomes:

• Investor A’s total investment: $24,000

  • Future Value at age 65: $398,710

• Investor B’s total investment: $72,000

  • Future Value at age 65: $226,706

Even though Investor A invested for a shorter period, they end up with more money at age 65 due to the power of compound interest and starting earlier. This example illustrates the importance of investing early to maximize compound interest benefits.

4. Strategies to Maximize Compound Interest

Here are some practical strategies to help you maximize the benefits of compound interest:

1. Start Early
   Action: The earlier you start investing, the more time your money has to grow. Even small amounts can grow substantially over time due to the compounding effect.

2. Invest Regularly
   Action: Consistent investments, such as contributing to a retirement account or an investment portfolio every month, can significantly increase your wealth. Consider setting up automatic contributions to ensure you’re regularly investing.

3. Reinvest Earnings
   Action: Reinvest any interest or dividends you earn. By reinvesting, you allow your money to compound even more, increasing your investment’s growth potential.

4. Choose Higher Compounding Frequencies
   Action: The more frequently interest is compounded, the more interest you earn. Look for investment accounts or savings products that compound interest daily or monthly rather than annually.

5. Focus on Growth-Oriented Investments
   Action: Stocks, mutual funds, and other growth-oriented investments typically offer higher returns than savings accounts or bonds over the long term. While these investments come with higher risks, they also provide more potential for growth, especially when compounded over time.

6. Avoid Withdrawing Your Investments
   Action: Withdrawals can significantly reduce the compounding effect. Try to leave your investments untouched for as long as possible to maximize their growth.

Visualizing Compound Interest: The Rule of 72

The Rule of 72 is a quick way to estimate how long it will take for an investment to double in value with a fixed annual rate of return. To use the Rule of 72, divide 72 by the annual interest rate (expressed as a whole number).

For example, if you have an investment that earns a 6% annual return, it would take approximately:

72÷6=12 years72 \div 6 = 12 \text{ years}72÷6=12 years

For your investment to double. This simple calculation can help you understand the power of compound interest and make informed decisions about your investments.

Conclusion

Compound interest is a powerful force that can help you grow your wealth significantly over time. By starting early, investing regularly, and reinvesting your earnings, you can harness the full potential of compounding to achieve your financial goals. Remember, time is your greatest ally when it comes to compound interest, so the sooner you start, the more you can benefit from this incredible financial tool.

In our next article, "Smart Debt Management: Leveraging Good Debt for Financial Growth," we’ll explore the difference between good and bad debt and how you can use debt strategically to enhance your financial position.

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So, there you have it! With a little guidance and the right tools, you'll be a master in understanding (and hopefully master it) financial concepts in no time. Go forth, plant your seeds, and watch your wealth garden flourish!

If you liked this, check out all of past series including and all our previous articles here.

So, whether you are crawling and sprinting, let's do this together!

We will bring the next series to you in the next week episode.

Until next time, wishing a very happy wealthiness (you see what we did there 😃) to you!

📚 Bonus Resources:

1. Investopedia: Investopedia provides comprehensive information on creditworthiness, including factors that impact it, how to check your credit report, and steps to enhance your creditworthiness. Remember that your creditworthiness affects loan approvals, interest rates, and more.

2. The Balance: The Balance explains creditworthiness and emphasizes the importance of monitoring your credit score. You can access your credit score for free through services like Credit Karma, Credit Sesame, or WalletHub.

3. SuperMoney: SuperMoney offers practical steps for managing creditworthiness. You can obtain a free annual credit report from AnnualCreditReport.com or use free credit monitoring services like Credit Karma or Credit Sesame.

Remember to stay informed, check your credit score regularly, and make timely payments to maintain a strong credit profile. 🌟📊💳

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