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Hey Money Maniacs,

Welcome back to 5 Fact Friday, your weekly roundup of the most important financial news.

Every day I read, research, and rummage through the economic landscape... so you don't have to.

Here's what's caught my attention this week:

1. FOMC Holds Rates & Dashes Hopes

The Federal Open Market Committee (FOMC) held one of its 8 annual press conferences this Wednesday afternoon. Here’s the skinny:

Who are they?

For those just tuning in, the FOMC is the squad behind the U.S. monetary policy. They act on behalf of the Federal Reserve, or the Fed, and adjust interest rates to manage inflation and unemployment.

What’s the verdict?

The Fed left rates unchanged between 5.25% – 5.50%, as expected. However, they also put a pin in any rate cut dreams for the March 20th meeting.

Why the hold up?

Before cutting rates, the committee would like to “gain confidence that inflation is on a sustainable path down toward 2%” said Chair Jerome Powell. “We’re not really at that stage,” he added.

The Fed’s preferred inflation gauge is core PCE (Personal Consumption Expenditures). In December, this measure increased 0.2% for the month and 2.9% year over year. After peaking at 8.9% in June 2022, inflation has improved considerably – but we’re not quite in cutting territory yet.

How did the market react?

Wall Street was not thrilled about the March news. The S&P fell 1.61% and the NASDAQ sank 2.23%.

Remember, rate cuts are like economic espresso shots for the equity market.

Lower rates mean cheaper loans for everything from your dream car to your next home, boosting spending and, in turn, company earnings. Higher earnings → higher stock prices.

But with Powell playing the long game for inflation to hit that 2% sweet spot, the market's caffeine fix will have to wait.

What is all this lingo?

For those scratching their heads over "hawkish" and "dovish" Fed-speak, here’s an easy way to keep it straight.

Think: hawks fly high and doves nest low to the ground.

In other words, hawks are willing to keep rates high to prevent the economy from overheating, even if it means sacrificing growth. While doves prefer lower rates to fuel growth, even if it means risking inflation.

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2. Goldman Trusts In America

Goldman Sachs just dropped their annual outlook, and the headline is pretty clear: U.S. preeminence persists.

Here's the breakdown of why the U.S. is still the place to be for investors:

• Size: America is the largest economy in the world, sitting pretty at 26% of global GDP. And when it comes to GDP per capita, the U.S. outpaces everyone except for a handful of much smaller players.

• Liquidity: The U.S. has the largest, most liquid financial markets. This infrastructure supports big corporations, local start-ups, and everything in between.

• Innovation: Combine the best demographics (outside of India) with a culture that invites risk-taking, and you've got the global capital of innovation.

• Safety: Got natural resources? Check. Got the world's financial security blanket? Double-check. In times of crisis, the world flees to the U.S. dollar and Treasuries. And as greater geopolitical risks mount, U.S. assets may function as a safe haven.

Staying invested in the land of the free

Despite U.S. stocks being on the pricier side, Goldman's advice is to keep your chips on the table.

• Earnings Growth: U.S. companies are on track to continue their earnings growth at a pace that outstrips most of the world. Even emerging markets (EM) with greater economic growth than the U.S. have not been able to deliver comparable earnings growth (which drives stock returns).

• Not All Bargains Are Steals: Just because non-U.S. stocks look cheap, doesn't mean they're a deal. Sometimes you get what you pay for. The U.S. market's premium pricing reflects its unmatched stability and growth prospects.

• AI Exposure: The U.S. is expected to benefit earlier and more significantly from generative AI than almost any other country.

So, what does this mean for you?

Regardless of how you feel about the U.S. economy, it’s still the best game in town. Investors should continue to lean heavily into U.S. assets, with some international exposure for diversification.

3. The Complex Forces Behind Oil Prices

If you ever wonder why oil prices are such a big deal, just imagine paying your rent or mortgage $1 at a time. It’d be hard not to question the powers that be as you watch the money flow out of your wallet: $722… $723… $724…

But that's the reality with oil prices, a commodity unlike any other in its visibility and volatility.

What Moves Oil Prices?

• Supply and Demand: The most fundamental drivers. A drop in supply or a spike in demand can send prices soaring, while an increase in supply or a dip in demand can pull them down.

• Reserves: The amount of oil stored for future use can act as a buffer against price volatility. Strategically drawing down or building up reserves can help to offset the impact of short-term price moves.

• OPEC's Influence: OPEC+, led by Saudia Arabia, represents around 40% of the world’s oil production. This cartel group coordinates to price-fix determine the supply of oil in order to maximize profitability.

• Geopolitical Tensions: Conflicts or tensions in key oil-producing regions can disrupt supply lines, leading to price spikes.

Current Storylines

• U.S. Crude Inventories: The U.S. has drawn down its strategic oil reserves to their lowest levels in ~30 years (see above).

• Middle East Tensions: As conflict in the Middle East escalates, so too have fears of supply shocks. Three U.S. service members were killed in a recent attack, but any further American involvement could have a multitude of economic consequences.

• Saudi Arabia's Production Cap: Saudia Arabia recently decided not to increase capacity or production beyond its current level of 9 million barrels a day.

• Canada's New Pipeline: Canada is on the brink of completing a new 715-mile pipeline to the Pacific Ocean. This will allow Canadian oil companies to reach new markets – beyond the Midwest – driving up oil prices for many Americans from Minneapolis to Chicago to Detroit.

In the short run, the cost of oil influences consumer sentiment, presidential approval ratings, and even our travel and living patterns. In the long run, it can influence the vehicles Americans buy, the appeal of the suburbs, and even investment patterns.

In an election year with an especially volatile geopolitical environment, it will be interesting to see how these dynamics continue to play out.

Let me know your take 👇️ 

4. Gold Trades Back Near All-Time Highs

Ever notice how gold gets all the attention during economic panic mode, like that one friend who thrives on drama? When whispers of war or a recession start swirling, investors flock to gold like moths to a flame.

Why? Because gold is viewed as an alternative to the traditional financial system.

It’s a reliable store of value and it’s uncorrelated with other popular asset classes. This makes it a great hedge during falling markets and times of geopolitical stress.

So even though economic data is improving here in America, it might be worth noting gold’s recent run-up. The precious metal hit an all-time high in late December and has been hovering ~3% lower ever since.

In the face of increasing interest rates, gold should have become a less attractive asset last year. (Because it doesn’t have any cash flow.)

Instead, investors flooded into the asset – likely due to fears from the regional banking crisis and ongoing Israel–Hamas and Russia–Ukraine conflicts.

J.P. Morgan Commodities Research notes that, historically, gold has performed well through Fed cutting cycles. They set a 2025 price target of $2,300/oz for the shiny metal, implying a 5.3% annual return from here.

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5. (Some) Renters Get Relief

December 2023 marked the 8th consecutive month of rent price declines for 0 to 2-bedroom properties. That's right, folks, asking rents took a slight dip of $7 or -0.4% year-over-year.

It's like the universe is finally reacting to everyone’s favorite pandemic-era meme.

The median asking rent across the big 50 metros cooled down to $1,713, shedding $4 from November and $63 from its July 2022 peak.

However, these declines haven’t touched all geographies.

• West: San Francisco (-2.8%) and Los Angeles (-3.5%) have experienced significant drops

• Northeast: New York, NY (6.2%) and Boston, MA (6.3%) continue to see strong rental growth

• Midwest: Midwest rents are up 2.0% with Milwaukee (5.0%) and Cleveland (4.7%) leading the charge

• South: Rents in the South sit 0.5% lower than one year ago, thanks to corrections in Orlando, FL (-6.2%), Austin, TX (-5.4%) and Dallas, TX (-4.7%)

Realtor.com expects this trend of rental price weakness to continue due to a record-high influx of new multi-family homes.

Thanks for tuning in to this week's edition! If you enjoy 5 Fact Friday, follow me on Instagram and Twitter to stay in touch.

Also, check out my latest blog post on the power of section 199a dividends.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.