Did you know that in 2023, the global debt reached an all-time high of $307 trillion?

Despite this staggering figure, many governments continue to operate with heavy borrowing like there’s no tomorrow.

Here are our topics for today:

• Central Banks In Focus: First, investors anxiously await central bank decisions 🏛️

• Tech, Value, Or Small Caps? Next, the market debate heats up as tech, value, and small caps compete for dominance 📊

• How Urgent Is The Government Debt Problem? Finally, despite rising debt levels, bond yields remain low, but for how long? 💳

This edition is packed with insights to help you understand these economic circumstances. Let’s go!

Central Banks In Focus 🏛️

This week it’s all about central bank decisions, and investors nervously await the outcome.

The first week of September lived up to its infamous reputation with a 4.3% decline.

But last week, the S&P 500 recovered nearly all of those losses, and as we await the big rate setting decisions, the main stock market index is essentially back to even and waiting for direction.

Ultimately, investors will see that the US economy is in a fairly good place and the Fed will cut rates enough over time to ensure the economic expansion continues 📈

Tech, Value, Or Small Caps? 📊

The debate continues about what segment of the market will outperform.

The latest trend has been toward value and small caps and away from tech.

The bet is that the Fed will reduce interest rates which will help undervalued stocks the most.

However, this trend may prove short-lived since the earnings potential of these sectors have so dramatically lagged over the years that periods of outperformance have tended to be short-lived 🤷

At least so far, there is little doubt that tech will continue to lead over the medium and long-term, even as the Fed cuts interest rates.

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How Urgent Is The Government Debt Problem? 💳

Based on government bond yields, investors are not concerned about rising government debt levels.

Even though the US government debt-to-GDP ratio stands at 100% and is climbing, the 10-year government bond yield is at a low 3.62%, indicating that there is plenty of demand for government bonds.

Approximately one year ago, the 10-year bond was yielding 5%.

So what changed? 🤔

Well the debt continues to grow, but the rate of inflation has moderated significantly.

This indicates that bond yields are far more sensitive to inflation than to government debt issuance, at least for now.

But this shouldn’t lead to complacency.

One never knows when investors will decide that government spending has gone overboard and send bond yields spiking higher 📈

It's time to get spending under control.

Let’s hope the next administration adjusts priorities appropriately.

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