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The “goldilocks” economy is hitting stock portfolios

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In recent weeks, the elusive “Goldilocks economy” has made a return to the financial spotlight, leaving investors curious about its implications for their stock portfolios.

This term, coined decades ago, characterizes an ideal economic scenario – one that’s neither too hot nor too cold but just right. It aims to strike the perfect balance between growth and inflation to keep the bears of economic downturn at bay.

However, this renewed optimism has proven short-lived as stocks have struggled throughout the month of August. The S&P 500’s disappointing performance in August marked its worst month since February, raising questions about the validity of the Goldilocks narrative.

Bearing market

The return of bearish sentiment can be attributed, in part, to market psychology. In 1992, Salomon Brothers’ David Shulman defined a Goldilocks economy as one with 4% annualized growth and 3.2% year-over-year inflation. While we’re not quite there, recent economic indicators suggest we’re closer to this Goldilocks scenario than initially thought.

Earlier in the year, pessimism prevailed with expectations of a looming recession, driven by fears of Federal Reserve rate hikes and various global concerns. Fed Chairman Jerome Powell warned that rate hikes could lead to economic pain, with sticky inflation necessitating higher unemployment and potentially a recession.

Inflation dropping

However, recent data paints a different picture. Inflation has steadily decreased from its peak in June 2022, while GDP has continued to grow at 2.5%, surpassing most expectations. Job growth remains steady, unemployment rates are down, and the labor participation rate is up – all positive indicators.

This aligns with the view that there is no recession on the horizon, but rather modest, consistent growth with inflation stabilizing, creating a Goldilocks-like environment. The stock market has quietly thrived in this scenario, despite the persistent bearish sentiment.

Nonetheless, the fact that we’re once again discussing a Goldilocks economy ushers in a new psychological phase in this 11-month-old bull market. After being wrong for so long, it’s easy for investors to be jolted back to disbelief and panic when faced with any hint of risk.

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Money

Tesla shareholders approve historic $56B Elon Musk pay package

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Tesla shareholders have voted to approve Elon Musk’s unprecedented $56 billion compensation package, underscoring their confidence in his leadership and vision for the electric car company.

The package, which is tied to ambitious performance targets, includes a mix of stock options and bonuses contingent upon Tesla’s financial and operational milestones over the next decade.

As reported by Reuters, the approval underscores the support that Musk enjoys from Tesla’s retail investor base, many of whom are vocal fans of the mercurial billionaire.

The proposal passed despite opposition from some large institutional investors and proxy firms.

#featured

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Money

Rich listers secret’s: how billionaires build their wealth

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Australian billionaires, including Gina Rinehart, have built their wealth by investing in valuable, income-generating assets.

For the average person looking to build their wealth, one possible option could be to buy quality assets like stocks when the market dips.

Mark Wyld from MW Wealth joins to discuss. #featured #trending #wyld money

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Money

Buyer’s agent unveils key to building wealth through property

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Unveiling the strategies for game-changing wealth building through property.

Wyld Money dives into the world of financial freedom. Whether you’re a seasoned investor or just getting started, join us for actionable tips and tricks to unlock your earning potential, and retire on your own terms.

In this episode, Mark is joined by Buyers Agent, Jack Henderson from Henderson Advocates. #trending #wyld money

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