BREAKING: The Federal Reserve Pivot (Major Changes Explained)

What's up, Graham? It's guys here, and here we go again. After a temporary pause, as of a few hours ago, the Federal Reserve increased their interest rates yet another 25 basis points, bringing us to the highest level that we've seen since the peak at the 2005-2007 bull market, 22 years ago, before everything went to.

After all, 2023 has so far been a fantastic year for, well, pretty much everything. The S&P 500 is up almost 20 percent year-to-date. Inflation has consistently declined for the last 12 months. A recession might not be happening after all. Home prices have yet to meaningfully decline, and this Maryland man just won his fifth $50,000 prize of the year, even though some people suspect he was cheating.

Anyway, given the resiliency of the market, combined with more potential rate hikes coming soon, let's discuss exactly what just happened, what this means for you, and how you could use this information to try to make money on today's episode of "I Suddenly Want to Become a Dog Nanny."

Although, before we start, if you appreciate all the work and research that goes into making a video like this, it does help tremendously to hit the like button or subscribe. I know it seems kind of trivial to do, but it does make all the effort that goes into these videos completely worth it. That's all I ask for. Thank you so much, and now let's begin.

Alright, so to start, one of the biggest factors when it comes to rate hikes, both in the future and today, is what's happening with inflation. In July, prices are continuing to fall. See, on the most basic level, investors believe that the more prices go down, the more likely the Fed is to decrease interest rates, which is bullish for stocks, and therefore prices have to go to the moon.

In a way, from a psychological standpoint, there is truth to that, especially if you look at what's happening today. For example, the most recent inflation report for the month of June showed consumer prices slowed to a three percent increase from a year prior, signaling that the Federal Reserve has so far been successful in their efforts to dampen inflation.

And if we zoom in a little bit further, we could see that things like food away from home, including restaurants, has increased. Nothing—used cars and trucks—decreased by half a percent, and almost everything else went up by less than one and a half percent on an annualized basis.

Now, of course, don't get the wrong idea because not everything is below their two percent target, and that is exactly why we have to talk about core CPI. This purposely excludes more volatile items like food and energy because those could be a little bit more seasonal. For instance, gasoline prices are up one percent month over month from increased demand, even though they're down more than fifteen percent from a year ago.

Energy costs are also up 0.8 month over month as things heat up—pun intended—and shelter is up 7.8 percent on an annualized basis with the housing shortage continuing on. Because of that, housing is largely the biggest factor that's pushing up core CPI that came in at 4.8 percent, better than expected, but still above their two percent target, which is one of the reasons why we might continue to see more rate hikes in the futures we'll discuss shortly.

In terms of inflation, though, the general consensus is that prices are still rising, but the pace at which they're rising is slowing down to more reasonable levels. And in terms of the impact this is going to have on the stock markets, you're going to want to hear this.

First of all, it's no surprise that stocks have done incredibly well so far in 2023. For example, the S&P 500 is up almost 20 percent year-to-date. The Dow Jones is up over six percent in its longest rally since 2017, and the NASDAQ is up a staggering 35 percent. Hands down, for those who have stayed the course, dollar cost averaged on a regular basis, and otherwise done nothing, chances are you're sitting on some pretty nice profits with some of the strongest gains since the 2021 rally.

So, what's going on, and is this sustainable? Well, like I mentioned a month ago, when it comes to the overall index, it's really only driven by a few companies who happen to be doing incredible. For example, Apple and Microsoft make up more than 14 percent of the S&P 500, and visually, when you look at it by market cap, the largest 25 companies make up almost half of your total profits.

Now, even though this might seem like a red flag, when you look throughout history, you'll see that this is incredibly normal. The overall index is usually only driven by the largest companies. For instance, as I mentioned, a few years ago it was the FANG stocks which led the rally, in the 1990s it was the Four Horsemen of Microsoft, Oracle, and Intel, and in the late 1960s and early 70s it was the Nifty 50 that lifted the market.

Although in terms of where we're headed from here, it really just depends on who you ask. LPL Financial, for example, believes that we are trading above fundamentals, but they also admit that our economy has proven to be quite resilient, with their base case being a slight pullback, even though they advise just to stay invested.

Now, Piper Sandler, on the other hand, believes that we could see a 20 percent drop in the S&P 500, ending the year between 3600 to 3800. They say that there's a disconnect between valuations and earnings, and a rebound in recession fears are likely to trigger a sell-off.

Although keep in mind that they previously said the S&P 500 would end the year at 3200, which they later revised, and Goldman Sachs believes that we could very well end the year at 4700, which is quite the difference.

Now, personally, even though I love hearing different opinions and trying to understand the nuances of what moves the market, I tend to take on the belief that in the long run, none of this really matters. No one has any clue what they're talking about, and I just buy in a consistent amount on a regular basis, regardless of where anything trades at, because studies show that that leads to the highest returns.

But housing, on the other hand, is a completely different story. According to the Wall Street Journal, the housing recession has already happened. As they say, builders are more optimistic today than they were a year ago. Residential investment grew 0.1 percent in the second quarter, which is the first gain since the first quarter of 2021, and increases in the number of new building permits suggest that growth in residential investment in the third quarter will also be positive.

All of this isn't so much because housing is a great deal right now, but instead the fact that the majority of homeowners are locked into historically low interest rates and are refusing to sell, leading to an abnormally low supply of housing on the market.

Even when you begin to zoom out from this, the latest data points are pretty surprising. According to the National Association of Realtors, median home prices have climbed for six months straight to $410,000, and this is the second highest price of all time, down only 0.9 percent from the peak in June of 2022.

On top of that, despite rising costs, 33 percent of homes in the market had multiple offers, while inventory is down 14 percent from a year ago. Now just for some context here, from March of 2020 through June of 2022, the Case-Shiller National Home Price Index recorded a staggering increase of 43.3 percent in U.S. home prices.

So housing is in a much different spot today than it was a few years ago. Of course, if you're like me and enjoy hearing the specifics, USA Today reported that first-time buyers were responsible for 27 percent of sales in June. All-cash sales accounted for 26 percent of transactions, and 18 percent of those homes purchased were from investors.

I also found it interesting that according to Redfin only 14 of every 1,000 homes in the country were sold, which is the lowest turnover rate in at least a decade. The way they see it, mortgage rates would have to drop closer to five percent to free up some inventory, or we'd have to see some increased home construction, zoning reforms, and tax incentives for buyers and sellers.

Now, in terms of where we go from here, Goldman Sachs believes that we'll continue to see slight increases in the near future. This includes 1.3 percent in 2023, followed by 1.7 percent, 2.4 percent, and 3.8 percent. They also clarify that the average annual growth rate of homes in the United States since 1976 has been five and a half percent, so anything below that, according to them, is less than usual.

Although in terms of where the economy is headed, along with what the Federal Reserve just said, here is the latest update in terms of whether or not we're going to see that ugly recession. The general consensus now seems to be no. Despite all the calls for slower growth, the economy has continued doing quite well even with higher interest rates.

For example, GDP continues to post marginal gains, the job market is still resilient, and a soft landing is looking more and more likely. Because of that, analysts are beginning to point to trends that might start to call this a rolling recession in which only some industries shrink while the overall economy remains above water.

Others are even calling this a rich session, with job and pay cuts being concentrated among high-paying tech and finance jobs which are less likely to sink the overall economy. In fact, it's said that most of the employees affected are well-educated and likely to find new jobs relatively quickly, helping keep the employment down despite the layoffs.

And if that's not optimistic enough, other people are saying that there's likely not to be a recession at all because the economy doesn't face the same types of dangerous imbalances or events that have ignited some of the recent recessions, such as the stock market bubble of 2001 or the housing bubble in 2008.

However, the one variable to all of this is probably going to be the Federal Reserve. And in terms of what just happened and what they said, here's what you need to know. Like I mentioned earlier, the Federal Reserve decided to raise rates by another 25 basis points, resulting in the most aggressive tightening cycle in 40 years and leaving us with the federal funds rate of 5.25 percent.

Overall, their sentiment really hasn't changed that much since their last meeting, where they signaled that they would continue to monitor the economy and see if more rate hikes would be warranted in the future. Not to mention, according to their last projections, all but two Federal Reserve members expected that at least one more rate hike would be appropriate, and 12 expected two or more by the end of the year. This means it looks like we're kind of close to the end, but we're not out of the woods quite yet.

In fact, Jerome Powell reiterated that the Federal Reserve has quite a long way to go to bring inflation back to the two percent goal, and I expect that to continue to be the case for the rest of the year. As of now, the market is strongly pricing in the high likelihood that rates will continue to stay high, and until we see inflation begin coming back down, we're likely not going to see rates cut anytime soon.

This also means that they're going to be relying heavily on the inflation data that's coming out on August 10th, and again on September 13th. Then, on the 20th of September, the Federal Reserve is going to meet again to determine whether or not they raised, hold the same, or in the unlikely chance reduce—which probably right now is not going to happen.

Now, in terms of what I expect, I just think that unless we see a major economic catastrophe or lower than expected inflation by a lot, we'll probably continue to see rates higher than usual for longer than expected until they're sure that inflation has 100 percent subsided. That's why in the meantime, the best thing that I think we could do is probably just stay the course as usual.

Look, I know some people just see the title of the video and get caught up in, "Oh, the market is crashing," or "the market is surging," but throughout the last six and a half years, and pretty much every single video, my thoughts are exactly the same. I personally just like dollar cost averaging into the overall market on a regular basis, consistently, regardless of where it trades at, and most of the time this produces the highest returns. According to studies, I don't believe in timing the market.

I don't believe in trying to time things and buy things perfectly to optimize results, and most of the time, the market going up or down is really the equivalent of flipping heads or tails. Now, sometimes you might certainly guess it right, but in the long run, it doesn't really matter, and more people end up losing chasing the market than they do just going with it.

For all of you who have stayed the course and bought in consistently, then congratulations! And in terms of where we go from here, it's anyone's guess. Like where we stand today was drastically different than what even the best analysts predicted at the beginning of the year.

For example, back then predictions ranged anywhere from a low of 3,400 to a high of 4,500, which represented the wildest dispersion since 2009. That's why it's so important to ignore the noise, make a plan ahead of time, stick with it long-term, and no matter what, hit the like button and subscribe if you haven't done that already.

So, with that said, thank you so much for watching. As always, feel free to add me on Snapchat and Instagram, and don't forget that I have a paid affiliate link down below in the description where you could sign up and get a few free stocks worth all the way up to a few thousand dollars when you make a deposit. All the details are down below in the description. Enjoy! Thank you so much, and until next time.