Thursday,
July 15, 2021

Market recap

Dow Jones

34,933.23

+44.44 (+0.13%)

S&P 500

4,374.30

+5.09 (+0.12%)

Nasdaq

14,644.95

-32.70 (-0.22%)

Apple

$149.15

+$3.51 (+2.41%)

Delta

$40.67

-$0.66 (-1.60%)

Bank of America

$38.88

-$0.98 (-2.46%)

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Top Story

Fed Chairman Says the Central Bank Will Keep Current Monetary Policies in Place

Powell Emphasizes That Inflation Will Be Temporary

Yesterday, Federal Reserve Chairman Jerome Powell gave his semiannual testimony before Congress. Powell said that the central bank will wait to change its easy monetary policies, despite high inflation.

Earlier this week, the US June Consumer Price Index increased more quickly than economists expected, surging 0.9% on a monthly basis. The rate of inflation for 12 months ending in June increased from 5% to 5.4%, which was the most rapid increase in prices seen since 2008. Powell emphasized that the recent spike in inflation will be temporary.

Factors Contributing to Inflation

Powell cited several factors contributing to inflation which he and his team believe will not be long-term trends. As industries recover from the pandemic, many companies are still struggling with supply-chain bottlenecks and production issues. Meanwhile, demand for goods and services is skyrocketing as the economy reopens and consumers are eager to spend money after the pandemic. This means that prices are rising, but this will not be the case indefinitely.

The chairman said that the Fed will be ready to shift its policies, “if we [see] signs that the path of inflation or longer-term inflation expectations [are] moving materially and persistently beyond levels consistent with our goal.” He also said that the bank wants to see more improvement in the labor market before it alters its policies.

Differing Opinions About Inflation

Powell was optimistic about the economy as a whole, saying, “household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient.” Many support the Fed’s decision to stick to its easy monetary policies. However, others are concerned that the bank is being too slow to react to inflation and the economy could overheat.

Powell’s comments had little effect on US markets overall yesterday. It will be interesting to see how the Fed’s policies impact investors’ decisions in the upcoming weeks.

The Difference Between Fixed Rate Loans and Variable Rate Loans

What’s the best option for you? There’s no universal right or wrong answer. The decisions on loan amount, term, and fixed or variable rate all depend upon your personal situation and flexibility.

If you like the consistency of knowing exactly what your monthly payments will be over time, you might prefer a fixed rate loan. Also, if you plan to pay your loan back over a longer period of time, say 10, or 20 years, you might prefer to eliminate the risk of interest rate changes over time by selecting a fixed rate loan.

In contrast, you might prefer a variable rate if you want to take advantage of the maximum possible savings but have the financial flexibility to make higher monthly payments and total interest should interest rates rise. You might also prefer variable rate loans because you plan to pay off your loan in a short timeframe, such as 10 years or less.

Interest rates on variable rate loans depend on prevailing market interest rates, so the total interest owed will depend upon changes in the broader environment.

Watch the video below to help you understand and choose between fixed and variable rate loans.


Fixed vs Variable Rate Loans Video

Liz Looks at: Growth vs. Value

A Weekly Column With Liz Young

Every week, SoFi’s Head of Investment Strategy shares her economic and market insights in order to help empower readers to take a more active role in their financial futures. This week, see what Liz has to say about the growth vs. value conundrum.

Winner Takes Half

To follow market patterns lately is to watch mixed signals flicker like a flame. Much of the mix up has to do with the narrative around inflation and whether it’s just here for a good time or here for a long time. What this is doing is making investors think they need to make a choice between competing schools of thought when positioning portfolios.

Growth, Value, Both, or None?

Perhaps the most over-discussed choice is the one between growth stocks and value stocks. It is true that growth stocks are more sensitive to interest rates and yield curve movements (particularly movements in the US 10-year Treasury yield). This is because they are dependent on long-term growth prospects, and so a rise in long-term yields tends to put pressure on growth stocks. On the other hand, value stocks are typically more well-insulated from rate rises—and could even benefit from them in the case of financials.

It should be a simple choice then, right? If rates go up, value has more opportunity; if rates stay low or go down, growth has more opportunity. Problem is, rates aren’t doing what many thought they would, and setting expectations for where rates will go over the next three, six, or nine months is proving to be quite the puzzle.

The Jagged Yield Path

At the end of last year, the 10-year yield was 0.91%; as of this writing it sits at 1.35%. That’s a 48% increase! But the path to that point has not been a straight line. For example, over the period from March 31, 2021, to July 14, 2021, the yield dropped from 1.74% to 1.35%, a decrease of 22%. The ICE BofA MOVE Index, which measures yield curve volatility, is up 17% YTD. That’s a tough pattern to follow.

Even more tricky to decipher is the equity market’s reaction to this rise in yields. Growth and value stocks are almost dead even YTD. Through July 13 the Russell 1000 Value Index is up 16.1% and the Russell 1000 Growth Index is up 15.2%.

The choice isn’t easy. The good news is, I don’t think making a definitive choice is the best approach. I also don’t think rates are the be-all and end-all decision factor, and investors should focus more on a company’s quality, fundamentals, and earnings strength in this environment.

The Second Year of a Bull Market

Given the economic strength that’s expected to come, the broader market still has upside potential. But to set realistic expectations, the second year of a bull market typically produces lower returns than year one. To be exact, over the prior 13 bull markets the first-year average return on the S&P 500 was 49%, whereas the second-year average return was 11%.

Even with less robust overall returns, solid investment opportunities can be found in both growth and value, and there may not be a clear winner come year-end, but that doesn’t mean one of them loses.

-Liz Young, Head of Investment Strategy at SoFi

College Plans Delayed by the Pandemic Are Back on Track

After Sitting out for a Year, Students Are Heading to College

When the pandemic hit in 2020, one quarter of high school graduates delayed their college plans, according to a recent survey. This was due to a number of factors. Parents and guardians who lost jobs were not able to pay tuition. Additionally, students who were excited about the campus experience were reluctant to start their freshman year on Zoom (ZM).

As the pandemic subsides, most recent high school graduates are getting back to their pre-COVID college plans. However, many families are still concerned about the financial burden of paying for college.

Rising College Costs Weigh on Families

A survey found that about 40% of parents feel that they are more able to help pay for college now than they were in the midst of the pandemic. But 63% of families are still concerned about how they will pay for college.

The cost of higher education is climbing. For the 2020-21 academic year, average tuition and fees for in-state students at public colleges rose by 1.1% to $10,560. At private institutions, tuition was up 2.1%, hitting $37,650.

Students Take on More Debt

Most students borrow to pay the cost of college. As the price tag on a college education increases, student loan debt in the US has already surpassed $1.7 trillion.

A recent study by NerdWallet showed that a 2021 high school graduate could take on an average of as much as $38,147 in student loans. That is a significant increase compared to the average of $37,200 which 2020 high school grads shouldered. Many students and families are celebrating a return to normalcy ahead of the fall semester, but they are also thinking about the financial burden of this new chapter.

If you’ve exhausted federal student aid options and still need help, you can apply for a private student loan from a private lender alone or with a co-signer. SoFi’s no-fee private student loans are an option for students to help pay for college and graduate school. Plus, cosign on an undergraduate private student loan by 7/27/21 and get $200.

Not-So-Breaking News

  • Apple (AAPL) has asked its suppliers to increase production of its next-generation iPhones by 20% as customers embrace the company’s new 5G models. Reportedly, Apple wants to order as many as 90 million of its new devices to meet demand.

  • The activist short seller, Spruce Point Capital Management, has accused Oatly (OTLY) of overstating its revenue and margins. Oatly has denied the claims. The oat-milk maker went public in the US in May, which gave it a market value of $13 billion.

  • Yesterday, the European Central Bank announced that it is working to create a digital euro. The design phase of the project is expected to take about two years. Implementation of the currency could take an additional two years. Governments around the world have gained an interest in digital currencies as ecommerce and online payments gained prominence during the pandemic.

  • Delta Air Lines (DAL) reported its first quarterly profit since late 2019 as a result of federal aid. The company said that domestic leisure travel is back to pre-pandemic levels and corporate travel is also beginning to increase.

  • Citigroup’s (C) earnings report beat analysts’ expectations thanks to a $1.1 billion boost after the bank released reserves it had set aside for loan losses during the pandemic. Meanwhile, Bank of America’s (BAC) second-quarter revenue fell short of expectations as low interest rates hurt revenue.

  • As tuition costs keep rising, here’s 4 ways you can help your child pay for college.

Financial Planner Tip of the Day

"You could set up automatic transfers to a designated college savings account, so you won’t even have to think about it. You can transfer from your checking account or, if it’s an option, opt to direct deposit a portion of your paycheck directly to your savings account."

Brian Walsh, CFP® at SoFi

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