Blitz Index
What is it?
We use the Blitz Index to keep track of factors that may influence the markets outside of the investments we normally track. The higher the total score, the more likely we are to be fully invested in the markets. There are three monetary aspects of the Blitz Index. First the prime rate (the interest rate that commercial banks charge their most creditworthy corporate customers).* Next we analyze interest rate adjustments by the Fed. Then we track consumer installment debt (a loan that is repaid in regular installments).**
Why does it matter?
By combining the monetary aspects mentioned above with recent stock performance we can get a clearer picture of the market environment. Installment debt data has not slowed yet on a year over year basis, while the other monetary measures are contracting. The total score for the Blitz Index (4/10) is unchanged since last month so we will not be rushing back into the markets yet. Whether the score increases or decreases next, we have a strategy in place that we are confident in.
Rates Raised to Fight Inflation
What is it?
Inflation has been running hot for a while, but we have seen some measures slowing down. Until it gets back to a more reasonable level, the interest rate hikes may continue. It is hard to tell what the Fed will do six months from now. However, we can make adjustments when that time comes as things change.
“The central bank raised rates by three-quarters of a point, its fourth increase this year, as it attempts to tame prices without causing a severe downturn.”***
Why does it matter?
Interest rates went up again but markets seemed to brush off that news since it was already expected.
We can now see that markets are starting to hold up around this level without moving much lower in the last month. There have been mixed signals from earnings. Some businesses have proven to roll with the punches better than others as conditions change.
The Fed will be looking into the unemployment numbers coming out on Friday to get a read on the strength of the labor market. As the Fed takes in the many indicators of the economy, we will continue to plan for what could be next and adjust our portfolios in line with our investment process.
Other articles we found interesting this week:
Dollar stays under pressure ahead of key inflation data
U.S. gas prices climb as stocks fail to rebuild fast enough
The market’s recent rally could be an ‘unwelcome development’ for Fed
Current 401(k) portfolio
Our last portfolio reallocation: 5/19/2022.
Want more information?
The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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Sources:
*James Chen. “Prime Rate”. Investopedia. 6/11/2022. https://www.investopedia.com/terms/p/primerate.asp#:~:text=currency%20asset%20manager.-,What%20Is%20the%20Prime%20Rate%3F,for%20most%20other%20interest%20rates.
**Julia Kagan. “Installment Debt”. Investopedia. 6/14/2021. https://www.investopedia.com/terms/i/installmentdebt.asp#:~:text=Key%20Takeaways,provide%20lenders%20with%20regular%20payments.
***The New York Times. “Fed Fights Inflation With Another Big Rate Increase”. Nytimes.com. 7/27/2022. https://www.nytimes.com/live/2022/07/27/business/fed-interest-rates
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