A surprise 50bps rate cut by Fed

The Fed surprised the market with a 50bps rate cut in September 2024, reducing the fed funds target range to 4.75% -5% . This is the first rate cut since March 2020. Although, the decision of rate cut was anticipated, but there was speculation about size of cut. Economists didn’t expect the move but markets were pricing in a 55% chance of a larger cut. Many economists were expecting only a 25bps rate cut in September.

FOMC September statement highlighted that –

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.“

“The Committee will continue to monitor the implications of incoming information for the economic outlook.” 

Source: Fed, Comparison of FOMC July vs. September statement
Source: Fed, Economic projections of Federal Reserve Board members, FOMC September 2024

Fed’s new economic projections showed that GDP growth was slightly down at 2% this year vs. 2.1% projected in June, while GDP forecasts for 2025 and 2026 remain unchanged. Unemployment rate moved higher to 4.4% in 2024 compared to 4.0% projected earlier. PCE inflation forecasts was lowered to 2.3% in 2024, reducing from 2.6% forecasted in June.

Source: Fed, Dot Plots ( Midpoint of target range
or target level for the federal funds rate), FOMC September 2024

The latest ‘Dot plot’ (which the US central bank uses to signal its outlook for the path of interest rates) showed 2 more 25bps rate cuts this year (100bps in total rate cuts for 2024).

Markets Impact

The immediate reaction of market was a ‘risk on’. US stocks surged after the Fed delivered a 50bps rate cut. US dollar index fell to 14-month low and gold prices jumped to record high. UST 10yr yield slipped to 3..64% after FOMC decision but bounced back quickly.

Source: Trading Economics

Why “Mutual Funds Sahi Hai”?

Firstly, let’s understand why mutual fund is considered as one of the best investment products for all kinds of investors.

What is Mutual Fund?

According to Association of Mutual Fund in India (AMFI) ,”A mutual fund is a collective investment vehicle that collects & pools money from a number of investors and invests the same in equities, bonds, government securities, money market instruments.”

The money collected in mutual fund scheme is invested by professional fund managers in stocks and bonds etc. in line with a scheme’s investment objective. The income / gains generated from this collective investment scheme are distributed proportionately amongst the investors, after deducting applicable expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. In return, mutual fund charges a small fee.

In short, mutual fund is a collective pool of money contributed by several investors and managed by a professional Fund Manager.

Benefits of investing in mutual funds:

  1. Diversification: Mutual funds invest in a variety of assets, which helps spread risk. This means that even if one investment performs poorly, others may perform well, balancing out the overall performance.
  2. Professional Management: Mutual funds are managed by professional fund managers who have the expertise and resources to make informed investment decisions on behalf of investors.
  3. Accessibility: You can start investing in mutual funds with a relatively small amount of money, making them accessible to a wide range of investors.
  4. Liquidity: Mutual funds offer high liquidity, meaning you can easily buy and sell your investments. This makes it easier to access your money when you need it.
  5. Variety: There are many types of mutual funds available, catering to different investment goals and risk appetites. Whether you’re looking for growth, income, or stability, there’s likely a mutual fund that fits your needs.
  6. Tax Benefits: Certain types of mutual funds, like Equity Linked Savings Schemes (ELSS), offer tax benefits under Section 80C of the Income Tax Act.
  7. Transparency: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), ensuring a high level of transparency and investor protection.

Risk factors: Mutual Fund Schemes are not guaranteed or assured return products. Investment in Mutual Fund Units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.

Mutual Fund Industry Trends

According to AMFI latest data, Assets managed by the Indian mutual fund industry has increased from Rs. 46.28 trillion in July 2023 to Rs. 64.71 trillion in July 2024. That represents 39.83% increase in assets over July 2023.

Source: AMFI, Industry Trends July 2024

State wise Average AUM July 2024 (Rs. Crore)

Source: AMFI Data, July 2024

Composition Investor’s Holdings

Source: AMFI, Industry Trends July 2024

Mutual funds can be tailored to meet specific financial goals, such as retirement planning, education, or buying a home. There are various types of funds designed to align with different investment horizons and risk tolerances. Many mutual funds offer systematic investment plans (SIPs), allowing you to invest a fixed amount regularly, which is suitable for all especially for salaried class/retail investors who don’t have enough time and expertise to track the market trends on a regular basis. Due to advent of technology, it is convenient to invest in mutual funds using various mobile apps. In the past years, equity mutual funds have delivered impressive returns, that attracted a lot of investors. If you are also thinking to invest your savings in mutual funds to grow, always must consult your financial advisors before making any financial decisions.

Keep learning…..Keep investing….

Major economic indicators that help predict market trends

Understanding a country’s economy involves examining various factors and indicators. Here’s a step-by-step guide to get you started:

1. Economic Indicators:

   – Gross Domestic Product (GDP): Measures the total value of goods and services produced within a country. It’s often used to gauge the overall economic health.

   – Inflation Rate: Shows how the price level of goods and services is rising, indicating how purchasing power is changing.

   – Unemployment Rate: Reflects the percentage of the labor force that is jobless and actively seeking employment.

   – Interest Rates: Set by the central bank, they influence borrowing and spending.

2. Government Policies:

   – Fiscal Policy: Involves government spending and tax policies. Look at government budgets and spending priorities.

   – Monetary Policy: Managed by the central bank, it includes managing interest rates and money supply to influence economic activity.

3. Trade and Investment:

   – Trade Balance: The difference between exports and imports. A surplus means exports exceed imports; a deficit means the opposite.

   – Foreign Direct Investment (FDI): Investment by foreign entities in the country, which can signal economic stability and growth potential.

4. Economic Structure:

   – Sector Contributions: Understand which sectors (e.g., agriculture, industry, services) are most important to the economy.

   – Economic Diversification: Examine how diversified the economy is to assess resilience against external shocks.

5. External Factors:

   – Global Economic Conditions: International trade relations, global commodity prices, and economic conditions in major trading partners can impact the domestic economy.

   – Political Stability: Political factors can affect economic performance through changes in policy, regulation, and investor confidence.

6. Social Indicators:

   – Income Distribution: Analyze income inequality and poverty rates to understand how wealth is distributed among the population.

   – Human Development Index (HDI): A composite index of life expectancy, education, and per capita income, providing insight into overall economic well-being.

7. Economic Reports and Data:

   – Government Publications: National statistics offices and central banks often publish economic reports and data on a regular basis.

   – International Organizations: Entities like the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) provide economic analyses and forecasts.

8. Economic Theories and Models:

   – Keynesian vs. Classical Economics: Understanding different economic theories can provide insight into how policies might affect the economy.

   – Economic Models: Models like the IS-LM model, AD-AS model, and others can help in understanding economic relationships and effects. News and Analysis:

   – Economic News: Keep up with current events and trends through reputable news sources and economic analysis. You can also simply follow website of central government (like RBI & Fed e.tc) for recent economic outlook.

   – Expert Opinions: Read analyses and forecasts from economists and financial experts.

10. Historical Context:

    – Historical Performance: Understanding past economic trends can provide context for current conditions and future prospects.

By integrating these various elements, you can build a comprehensive understanding of a country’s economic situation and its potential trajectory. If you really want to get insight of performance of any economy, you should track all above data on a regular basis.

Important US Economic Data – Monitored by Global Financial Markets

Unites States (US) is one of the largest economy in the world with a GDP size of $28.65 trillion (as on 29th August, 2024). It is crucial to monitor all economic data releases from US on a regular basis to get better market insight. It also impacts global financial markets, whether it is equity or debt.

Here’s a list of key economic data and indicators for the US, often used to assess the health and performance of the economy:

1. Gross Domestic Product (GDP)

  • GDP Growth Rate %: Measures the rate at which the economy is growing or contracting.
  • GDP by Sector: Breakdown of GDP into sectors like agriculture, industry, and services are also important for sectoral analysis.

2. Inflation Indicators

  • Consumer Price Index (CPI): Measures the average change in prices paid by consumers for goods and services.
  • Producer Price Index (PPI): Measures the average change in selling prices received by domestic producers for their output.
  • Core CPI: CPI excluding food and energy prices.

3. Employment Data

  • Unemployment Rate: Percentage of the labor force that is unemployed and actively seeking work.
  • Nonfarm Payrolls: Monthly data on job creation in various sectors excluding farm work, government, and a few other categories.
  • Labor Force Participation Rate: Percentage of the working-age population that is either employed or actively looking for work.
  • Job Openings and Labor Turnover Survey (JOLTS): Provides data on job vacancies, hiring, and separations.
  • Wage Earnings & Benefits: The Bureau of Labor Statistics (BLS) publishes a large amount of information on the wages, earnings, and benefits of workers.

4. Interest Rates %

  • Federal Funds Rate: The interest rate at which depository institutions lend reserve balances to other depository institutions overnight.
  • Discount Rate: The interest rate charged by the Federal Reserve to banks for short-term loans.

5. Trade Data

  • Trade Balance: Difference between the value of exports and imports of goods and services.
  • Export and Import Data: Detailed data on the value and volume of goods and services traded.

6. Fiscal Data

  • Government Budget Deficit/Surplus: The difference between government revenue and spending.
  • Public Debt: Total amount of money that the federal government owes to creditors.

7. Consumer and Business Sentiment

  • Consumer Confidence Index: Measures consumer optimism about the economy’s future performance.
  • Business Confidence Index: Measures the level of confidence businesses have in the economic environment.

8. Housing Market Data

  • Housing Starts: Number of new residential construction projects that have begun.
  • Existing Home Sales: Number of previously constructed homes that were sold.
  • New Home Sales: Number of newly constructed homes that were sold.
  • Home Price Index: Tracks changes in the prices of residential properties.

9. Productivity and Labor Costs

  • Productivity: Measures output per hour worked.
  • Unit Labor Costs: Average cost of labor per unit of output.

10. Money Supply

  • M1 and M2 Money Supply: Measures of the total amount of money in circulation, including cash, demand deposits, and other liquid assets.

11. Economic Growth and Development

  • Real GDP per Capita: GDP divided by the population, adjusted for inflation.
  • Human Development Index (HDI): A composite index of life expectancy, education, and income.

12. Financial Market Data

  • Stock Market Indices: Such as the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite.
  • Bond Yields: Interest rates on government and corporate bonds.

13. Consumer Spending

  • Personal Consumption Expenditures (PCE): Measures the value of goods and services purchased by consumers.
  • Retail Sales: Total sales in the retail sector, indicating consumer spending patterns.

14. Business Investment

  • Gross Private Domestic Investment: Measures investment by businesses in capital goods.

15. Regional Economic Data

  • Regional Federal Reserve Bank Reports: Various regional reports and surveys provide insights into economic conditions in different areas of the country.

These data points are regularly updated and published by various government agencies, including the Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), Federal Reserve, and U.S. Census Bureau, among others.

Click here to download US Data