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๐Ÿ”— How Delinking Market Expectations From Reality Can Drive More Volatility Thumbnail

๐Ÿ”— How Delinking Market Expectations From Reality Can Drive More Volatility

There is an old saying that happiness equals reality minus expectations, and this is particularly relevant when it comes to financial planning and investing during times of great uncertainty. For investors, having unrealistic short-term expectations of investment returns and financial outcomes, as many often do in the late stages of bull markets and during asset bubbles, can lead to discouragement. Instead, history shows that by maintaining perspective and focusing on aspects within their control, investors can set appropriate expectations and position themselves to achieve financial goals.

We discuss in this episode of The Wealth Effect Podcast:
๐Ÿ›ข๏ธ Global Oil Prices
๐Ÿ“‰ U.S. Unemployment Rates
๐Ÿฆ Future Federal Funds Rates


Matt Faubion, CFPยฎ

Founder - Wealth Manager

Show notes and charts:

Oil prices are well below recent highs despite surprise OPEC+ cuts

Despite the immediate jump in oil prices, both Brent and West Texas Intermediate (WTI) remain well below their recent peaks. At around $85 and $82 per barrel, respectively, prices are back to where they stood in early March and are still within their ranges over the past six months. So far, there is little reason to believe that oil prices at these levels will result in another spike in gasoline prices for consumers or in higher inflation measures.

Unemployment remains near historic lows

While the labor market remains tight through March, it is wise to understand that it is commonly the last sector of the economy hit before a recession. And sticking to the divergences theme, many leading economic indicators suggest the economy is decelerating, such as The Conference Board's Index of Leading Economic Indicators, the Money Supply, and the Senior Loan Officer Survey, which measures bank lending standards.

The Fed and markets disagree on the path of policy rates

This is a significant divergence from what fed funds futures imply today. These market-based expectations suggest that the Fed could begin cutting rates by September and continue doing so into 2024. That is a big expectations gap between what the Fed says is appropriate and what the market believes could occur, which could drive further volatility in the coming months just as it did throughout 2022.

The bottom line: Market expectations have diverged from reality in a few key areas this year. Investors should stay focused on their long-term investment and financial plans with an understanding that missed expectations could drive volatility in the coming months.

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