UPDATE

🌤️ Happy Tuesday

Good morning, and Happy Presidents Day!

If you had the day off from school or work, we hope you enjoyed your three-day weekend. Did you know that President's Day officially celebrates Washington's birthday, which was February 22nd? However, Lincoln was also born in February (12th), so Americans traditionally lump both together into one day.

Like other federal holidays, the stock market was closed yesterday, but most trends from last week will likely carry into this week.

Lastly, it's our 50th issue here at MARK IT., and all we'd like to say is thank you. Thank you for reading, thank you for sharing, and thank you for learning!

Read time: 4 minutes

WEEK IN REVIEW

📈 Market Performance

S&P 500 (1-month), via Google Finance

Since the breakthrough of the S&P 500 past the 5000-point mark, the index has hovered consistently around the same value. This isn't necessarily a bad thing, but it may also be a glimpse into the expectations and feelings of investors.

Consider the past 6-months, where the S&P rose about 13%, but the Nasdaq (which favors big-tech stocks like Apple, Microsoft, and Nvidia) grew 16%. This illustrates how bigger companies potentially prop up a considerable amount of the growth that we see in larger market indexes.

If the value of these indexes rises too quickly (or for too long) for some investors' liking, many might begin to fear that a bubble is forming.

Subsequently, casual investors might hear this and begin to sell off, which could cut the growth of the index short if sell-offs happen in large enough numbers. This often happens because people like to protect their money (both the principle and the gains), and selling hastily can do just that.

🫧 So Is There A Bubble Now?

The S&P holding steady at around 5000 points doesn't mean that this has already happened, or even will happen. What the slowing of this rally could mean, is that investors are wary that too much growth could lead to an implosion, and many would prefer to see healthy, long-term gains rather than unstable gains.

Remember, when we talk about investors, we're referring to a vast and diverse population in the United States. We might primarily hear the opinions of large Wall Street firms and notable super-investors, but other investors include working Americans trying to set aside cash for retirement or college funds.

These individuals are likely choosing index-tracking accounts not for quick gains, but for the sake of stability. In the event of a market crash, these investors could be seriously affected, particularly if retirement accounts necessitate withdrawals based on age when the account value has fallen.

ENERGY & COMMODITIES

☀️ Summer Gas Prices Long Before The Summer

Gas Pump Nozzle Filling White Car by Engin Akyurt, via Pexels

Since we began reporting on gas prices at the beginning of the year, we've explained how geopolitics, crude oil prices, and even the chemistry of gas all affect the price that millions of Americans pay at the pump.

Coincidentally, prices have also gone up during our time of reporting mainly because of the transition to new formulas of gasoline that are designed to perform better in the spring and summer. Andy Lipow, president of consulting firm Lipow Oil Associates told CNN Business that this trend of higher demands and higher prices has "been this way for 50 years." (Source: CNN Business)

While it may be routine to see gas prices rise about 30 cents during this transition time, it doesn't make the difference any less painful to Americans who are still affected by the COVID-era inflation spikes.

As of yesterday, a gallon of regular gas is $3.279, up from last month’s average of $3.088 (per the AAA gas tracker).

MARK IT. EXPLAINED

💵 Tackling T-Bonds (Updated)

Secretary Janet Yellen by International Monetary Fund, via Flickr

In addition to investing in the S&P 500 or individual stocks, many retirement accounts diversify by buying treasury bond mutual funds. What are US Treasury Bonds, and why are they so important? Let’s break this down:

• Treasury bonds, or T-bonds, are simply debt agreements made by the U.S. government to American citizens.

• The government leverages this debt, along with tax revenues, to fund day-to-day operations and key initiatives, such as defense spending.

🏦 Purchasing Bonds (and What You Should Know)

Investors can either purchase T-bonds directly through a Treasury auction or via a secondary resale market and then receive semi-annual interest payments until maturity. T-bond pricing is primarily dictated by interest rate changes and market demand, as the events over the last year have demonstrated.

• As interest rates rise, the prices of existing bonds decrease as their fixed interest payments become inferior compared to recently issued bonds with higher coupon rates. The same is true conversely. The coupon rate, not to be confused with yield, is the interest rate return bondholders receive on the bond’s face value (usually $1000).

If an investor purchases a bond at face value, the coupon rate will equal the yield. However, if an investor purchased a bond at a discount (below face value) their yield would be higher because they pay less upfront but still receive the fixed coupon payment. If they purchased at a premium, above face value, their yield would be lower for the inverse reason.

📈 T-Bonds as an Investment

Why are T-bonds more popular than other bonds such as corporate or municipal bonds? The answer is, they are virtually risk-free. 

• These bonds are backed by the “full faith and credit of the U.S. government,” an institution that has never defaulted on debt and whose currency is the global reserve.

• While stocks and commodities typically carry higher expected returns, their lack of price stability is not ideal for use as collateral. Therefore, T-bonds are commonly used as collateral across international markets, whether through loans, margin accounts, or other forms of financial transactions.

They are the benchmark for most debt securities and collateral, so if a U.S. default were to occur (as was nearly the case in early June of 2023), it could have far-reaching consequences across financial markets and the broader economy. (Source: TheStreet)

ONE MORE THING

🤝 Keep in Touch

• For general announcements or updates on what we're working on, follow Abbas on Twitter 👉 @RealAbbasAkhtar

• Also, we want to hear your feedback! Send any comments or suggestions to [email protected]

Thanks again for reading!

Nothing MARK IT. publishes constitutes professional and/or financial advice, nor does any information published by MARK IT. constitute a comprehensive or complete statement of the matters discussed.