Triple witching, housing sector worries with hurricane season: Wealth!
Wall Street is bracing for a triple witching, which could cause market volatility. Triple witching is the expiration of different types of contracts, such as stock options, stock index futures, and stock index options contracts. This occurs on a quarterly basis on the third Friday of the month. Shares of tech giant Nvidia (NVDA) are falling for their second day in a row, weighing heavily on the S&P 500 (^GSPC).
A new report from the National Association of Realtors reveals that the median home price has reached $419,300, the highest level in three years. In addition, housing prices in certain cities that were popular during the pandemic are now seeing a recalibration in prices, according to Intercontinental Exchange data. Alex Hermann, Senior Research Associate at the Harvard Joint Center for Housing Studies, joined the show to discuss price pressures within the housing market.
The National Oceanic and Atmospheric Administration (NOAA) has reported catastrophe losses of $25 billion so far in 2024 due to extreme weather events. NOAA has also predicted that 2024 will be a record year for hurricane season. Rulon Washington, Wells Fargo executive director of mortgage sustainability, joined the show to give insight into what Americans should consider to protect their property and prepare for extreme weather events.
For more expert insight and the latest market action, click here
Video Transcript
Welcome to wealth everyone.
I’m Brad Smith and this is Yahoo Finance’s guide to building your financial footprint.
Our community of experts will give you the resources, the tools, the tips and the tricks that you need to grow your money.
Hey, on today’s show, Wall Street is bracing for a triple witching.
We’ll explain what exactly that is.
If it has anything to do with hocus focus and whether or not you need to take your action in your portfolio and new housing data shows high mortgage rates are still having a negative effect on buyers.
We’ll dig into what it’ll take to see some bigger recovery in the housing market.
Plus diving into life insurance.
Do you need it?
And if you do, how do you pick a right policy for you?
We’ve got you covered with a breakdown from Yahoo finance contributor, Ross Mack, all that and much, much more here on today’s show.
But our top story today for the markets, Wall Street racing for a triple witching here to explain what that is and whether or not it affects your portfolio.
We’ve got Yahoo Finance’s market domination, co anchor Julie Hyman.
Hey, Julie.
Hey, Brad Well, witching sounds spooky.
Right.
Um, and that’s because it is named after the sort of witching hour, the wee hours of the night when no good things happen.
But in this case, it’s not very scary.
Right.
So let’s get to what triple witching is here.
It’s the exploration of different types of tracks here.
So, triple witching, which we have today, you see the expiration of stock options contracts, stock index, futures contracts and stock index options contracts.
We used to have quadruple witching, which was also stock options, futures contracts, but those don’t really trade in the US anymore.
Now, this happens on the third Friday of every month where you just get the stock options expiry and then we get the triple on a quarterly basis on the third Friday of the month.
So that is what is happening today.
And according to various estimates, we could get anywhere from 4.8 to $5.5 trillion worth of these types of contracts that are expiring today.
So let’s dig a little bit more into it by looking at a real world example of one of these contracts, NVIDIA, NVIDIA, the second most active within this universe of these options contracts here.
And so there’s a lot of open interest that is open contracts here uh on NVIDIA, this is just one that we picked that’s expiring today.
This is the $140 call option.
A lot of open interest and more than 145,000 contracts here, you could last buy this the last time we checked for two cents.
So for two cents, you have the right to then take possession of 100 of these NVIDIA shares at $140.
However, if by the last tick of the day today, the stock is not at $140 and at last check, it wasn’t.
In fact, yesterday, we saw it reach 100 and $40 and then back off from that level, then this, this expires and you get nothing, it’s worthless.
However, if by some chance, the stock rose to $140 today, you sell this uh contract, potentially a profit or you would take delivery of those.
All of this is a complicated way of saying that when people are making these various option buys and trades that it creates a lot of offsetting moves in the market, either you take delivery of the shares and that creates an uptick in volume in the market or maybe you’re doing an offsetting trade over there, which also creates more volume in the market.
So all of this is to say, you see a big uptick in volume on a day like this, not necessarily volatility, maybe a little bit of volatility at the margins in an individual stock.
But overall, a big uptick in volume overall on the market today between these index options and futures and then the individual stock options.
So, Brad, what is the bottom line for you?
The individual investor today, if you’re not in the options market?
Probably not much.
And if you’re not a professional investor, probably not much.
So that’s something to keep in mind, you might hear a lot of discussion about which the effect it has here.
But for most sort of long investors, most everyday investors who have your money in your 41 K and you’re not doing a lot of individual day trading.
There’s not necessarily gonna be a big impact for you.
All right.
No, sorcery, just portfolio and options strategy here.
Thanks so much, Julie, appreciate it everyone.
Let’s stay on the markets for a hot second.
Stars are close to the flat line.
They’re closed there here on the day, you’re seeing some light moves.
The S and P 500 has pulled back after topping 5500 in Intraday trading Thursday and NVIDIA is falling for a second day off about 2% after losing $118 billion in value on Thursday, Wall Street.
Also watching out for the triple witching, which our own.
Julie Hyman just broke down here to help us navigate the market.
We have Katie Kaminsky Alpha Simplex, Chief research strategist and portfolio manager, Katie.
It’s great to see you and great to dive into some of this week’s themes.
I mean, we laid out a lot of them, but first, perhaps let’s just begin on this, this equity market March that we’ve seen over the course of the month of June and, and whether that’s set to continue here.
Yes, I mean, it’s been a very interesting month because even though stock markets are up this month, you’ve seen very different views in the other asset classes.
So you saw a lot of sell offs in some of the risk, assets like commodities and you also saw bond yields falling a lot this month.
So the one thing that is sort of held its ground is the equity markets.
And I think in some sense, there’s a little bit of nervousness about valuations where we are and sort of some of the recent economic data.
So it is quite impressive where we are given some of the data that we’ve seen this month.
And so that considered it, it seems like the market is really and and as you were kind of putting the inflationary picture up against the market performance, it seems like this is a market that is really going to continue to look for any areas of disinflation ahead of deflation.
Exactly.
And what’s been interesting and a little bit nerve wracking to me this month is that the first part of this year, we’ve consistently seen positive stock bond correlation.
We’ve also seen the market looking for disinflation, looking for positive news and economic data that is weak but not too weak this month on the other hand, we start to see a couple of instances of risk off behavior where we started to see investors getting a little nervous about some of the weaker economic data.
So you saw more of a risk off type of pattern where investors have started to move into long bond positions.
So you’ve seen yields going down this month.
And this is a little bit of a deviation from what we saw earlier this year.
So it is a little bit of a sense that the market is pricing in a a harder landing probability that’s higher than it was before.
So I think there are definitely nerves about just the extension and the bifurcation in the equity markets.
Despite the fact that we are sort of on the right trajectory towards rate cuts and disinflation.
How is this showing up in the bond market?
Yes, good question.
We’ve seen a massive pivot in signals on the technical side for fixed income.
You’re seeing short signals and fixed income starting to tilt towards long and you’ve seen a massive move in yields this month which is indicative of the market sort of pivoting in some sense towards a more of a risk off feature.
So less focused on inflation, maybe a little bit focus on nerves about the potential for some downside uh considering how far we’ve gone and how few really negative days we’ve had this year in equities.
It’s not surprising that some negative data is making people a little bit nervous.
And so with all this in mind, I mean, the FED is going to continue to look towards future CP I prints.
I mean, it’s interesting, especially coming off of the movements that we’ve seen recently and where inflation still is and isn’t, I mean, it’s, it’s still showing up in some of the services.
I mean, shelter that component continues to really kind of just push CP I in every reading that we’ve gotten to this point.
But how is this all impacting in, in terms of the inflationary picture, impacting the dollar as well?
This is a very good question.
The dollar has been very mixed this month, but there’s a couple of things that are holding the dollar up.
So one is the fact that, you know, you’re, you’re kind of seeing the fed being a little more cautious.
You’re also seeing that, you know, if you think about trading the dollar versus another currency, what’s your alternative?
If you look at the alternatives, a lot of other central banks have already started cutting rates.
This puts the dollar in a more favorable position.
But despite that, you’re also seeing little bit weaker data on the dollar which would make it weaker.
So net over net the dollar is still looking relatively strong this month.
Despite some of the weaker economic data, I think it’s because people need an alternative.
You have to think if you’re going to trade against the dollar, you got to pick another currency and other currencies have struggled.
Some.
Um And they’re also much earlier in their hiking cycle which puts them at a disadvantage over the dollar and carry terms.
And that suggests that the dollar is still relatively stable.
Ok. And so here on this witching day, I wanna, I wanna leave investors with some tips here, Katie, as they’re really evaluating all the different elements of the trade that come together that we were just discussing here in this conversation.
What are some actionable tips that investors can deploy, considering the macro backdrop and considering the run up that we’ve seen also in equities.
I think it’s important for people to be cautious and not too myopic in this situation, particularly in fixed income.
So when you’re thinking about how should you position yourself, you probably want to think about locking in some yield, but also being aware that you might need some other tools in your tool kit, whether it’s long short strategies that have exposure to commodities or other things that might be more amenable to an inflationary environment.
So like you pointed out inflation is not down to two yet, which means there’s still going to be a lot of movement in other asset classes and you’re also going to see stock bond correlation continue to be positive, which suggests that you need to think about trying to find other asset classes and areas of diversification so that you’re not too overexposed to stocks and bonds uh when they tend to be positively correlated.
Katie Kaminsky, Alpha Simplex, Chief research strategist and portfolio manager.
Thanks so much for taking the time here with us.
Appreciate it.
Thank you.
Coming up, the state of small businesses will speak with into its CFO on how the company is giving small businesses tools to succeed.
That is next.
Stay tuned.
There’s been a resurgence in the entrepreneurial spirit with more individuals and small groups venturing into small businesses since the start of the Biden Harris administration, there have been 18.1 million new business applications with an average 443,000 filed each month.
A rate 90% faster than pre pandemic averages.
But for small business owners navigating through sticky inflation and higher rates is no easy task.
That’s why companies like Intuit, of course, are continuing to keep some of these entrepreneurs top of mind.
Joining me now we’ve got Sandeep Ajala who is the into it, Chief Financial Officer here with us, Sandeep.
Great to have you here on the program with us today.
First and foremost.
I mean, we we gotta talk about the state of small businesses.
What are you seeing from the Intuit seat at the table within this broader ecosystem of small businesses?
Well, Brad, thank you for having me.
Happy Friday.
You know, at into it, we serve 100 million customers and 10 million of those customers are small and mid size businesses.
And for us, what we are seeing across the small business platform is that small businesses are actually in a pretty good shape.
Their revenues over the last three months are up about 3%.
When you look at year to year, their profits are up about 2% a year, year.
And a key indicator, a key leading indicator is how many hours their employees are working and we’re seeing that up about 4% year over year.
Now, all those are great indicators.
But the small businesses are also looking at the cash reserves, the cash reserves are down about 8% when you look at the same period last year, but six up 16% uh over the uh pre COVID uh time frame.
So I would say small businesses are in a pretty good shape.
And the other thing I would point out that those on our platform and those who have been on our platform for four years or more tend to have 60% higher cash flow uh cash reserves and those who are on a platform for less than a year.
Further, indicating our focus on small businesses and really helping drive their prosperity are common tax code breaks or advantages.
Small businesses are increasingly looking for in order to make sure that they can securitize some of those profits that they’re seeing from their business or, or just make sure that financially they’re making sound decisions that can help benefit their position or at least put some of that capital back to work, you know, Brad the number.
Um So on the tax side, we do small business taxes and we always make sure that they are uh getting access to each and every benefit that’s available to them through the tax code.
But what I would highlight is that the number one need of a small business, the area they’re focused on the most is helping me get and grow customers.
And that’s where we are really excited about what we bring to market through innovation such as uh revenue intelligence by combining the billions of data points on TurboTax, sorry on quick books, as well as on mail champ.
So that’s where our focus is on helping them grow their businesses, helping them improve their cash flows, helping them save time while we also make sure that they are complying with the tax code and getting access to each and every benefit that they’re entitled to.
Certainly here, you know, it’s interesting as you were mentioning, the employee hours that are being worked for some of these small businesses.
I wonder how you’re seeing small businesses navigate this labor market right now, the labor market, you know, we can reflect on where it was a couple of years ago and companies of our scale were having challenges recruiting and retaining employees.
So you can imagine the challenges that the small businesses were having.
The market has uh very much normalized and we are seeing small businesses continue to have a better uh time.
Uh adding employees, they are having more success, retaining their employees and the pressure they felt on their cost structure by having to give those pay increases has returned to much more reasonable and normalized levels.
So it’s a magnitude better environment that they are navigating now than where they were say uh circuit two years ago.
Certainly, you know, when we hear about the developments in artificial intelligence and, and where that may eventually trickle through to small businesses as well, what what types of advantages do you see small businesses being able to reap from artificial intelligence and and when that may happen in full force or critical mass, such a a key point and important question for us.
Uh Let me start out by sharing that we’ve been focused on A I years before it became fashionable to talk about A I.
And we were talking about A I back in 2018 when we declared our strategy to be an A I driven expert platform.
And for us, it is really using the benefit of billions of data points that we have data points, we have across our ecosystem to help drive prosperity for each and every small business and consumer on our platform.
So when you think about A I for small businesses, there are really two key areas we’re focused on helping them save time because they rather run their business than do their accounting or manage their uh uh cash flows and two helping them improve their cash flows because that’s the number one indicator of success or failure for small businesses.
So when we look at the experiences we’re delivering through into resist, which is our gen a Igen that’s uh helping drive the experiences for small businesses.
We are looking at turning photos of receipts into uh entries into quick books.
We are taking vendor PDF S and turning those into bills that small businesses can then pay electronically.
We’re taking the email threads and the handwrit notes and translating them into electronic estimators.
So invoices that you can send pay enabled and get paid a lot faster on our platform.
And uh finally, we are helping bring revenue intelligence through our um mailchimp platform and our uh quick books by using billions of data points to help small businesses segment the customers better by helping small businesses target their customers at the right time to maximize their revenue potential by quite frankly having small providing to small businesses insights and customer funnels that were historically reserved for very large enterprises such as ourselves.
So that’s uh where we’re really leaning into our capabilities and A I to help drive small business success.
And as you know, and you pointed out earlier as you introduced me, that small businesses really are the key contributors to our GDP and a key in a leading indicator of the success of the nation as well as our economy.
Absolutely agree.
Sandeep, I would be remiss if I didn’t ask you just a quick question on the business here.
I mean, of course, you know, here at Yahoo Finance, we track the stock performance into it, under performing some of the major averages this year.
It’s still up by about 3.5% the share prices over the course of, of the year to date.
I I wonder as you kind of look at the business on a go forward basis after this major FTC ruling and investigation, finding TurboTax free is not free for most and into it, not renewing the free file program.
What that does for some of the guidance that the street is really trying to wrap its mind around at this juncture?
Sure, a couple of things I would say uh one is we have uh always uh offered free products.
In fact, we were one of the early uh uh innovators in the free space and free is a key component of the tax industry.
You have many uh free participants in there.
And the government uh introducing a free offering is a not a uh uh material impact to the industry.
And quite frankly, I think it’s not a good use of uh uh our fiscal spending uh either and in terms of our guidance, you know what we are really excited about on the tax business is, is a $35 billion market and 30 billion of that market is helping small businesses and consumers get their taxes done.
And these are the folks who typically go to someone else to get their taxes done.
This is where we are excited to use our A I to use our live expert platform to really helping small businesses and consumers getting their taxes done.
And that’s the part of the business that we’re really highlighting to the investment community.
It’s a business that grew 17% last year.
It is $1.4 billion in revenue representing about 30% of our overall tax revenues.
It is a business that we continue to invest in and are quite excited about its growth prospects and that’s what’s giving is bolstering our confidence, quite frankly on our ability to continue to scale our uh our consumer group and our tax revenues.
Sandeep.
I appreciate you taking the time to address that with us.
Plus looking across the small business landscape as well.
Very important topic in conversation, Sandeep Ailah, who is the intuit CFO appreciate the time.
Thank you, Brad.
Appreciate it.
Certainly.
Well, everyone, it’s never been fun to think about the reasons why you might need a life insurance policy, but that doesn’t mean it’s something that should be avoided for more.
Let’s welcome in Ross Mack who is the Yahoo finance contributor, joining us here to do all things life insurance today.
Where do people need to start when they’re going through the mental process of this.
Yeah, it’s obviously a huge burden to think about.
We’re gonna pass away.
Right.
The one thing that’s actually definite in this lifetime is that we’re all gonna pass away at some time.
And the worst thing we could do is leave our dependence to leave our loved ones, both grieving as well as financially burdened.
And for that very reason, we need life insurance and you gotta understand what it is, it is supposed to actually replace your income.
And so you gotta understand like when it’s all said and done, it costs about $8000 just to pass away, right?
Like it, it costs your final costs, you know, in order for your body to go to the corner actual to have a funeral, et cetera, it is roughly like the median cost is roughly $8000.
And so when you’re thinking about life insurance, it’s a few things you wanna say.
Ok, one, I wanna leave my dependents with some money that is gonna replace my income.
And so, you know, why do I need to do that?
Well, one that might actually help them pay off the remaining balance on my mortgage, that’s also gonna hopefully give them some type of financial footing that doesn’t allow them to, like I say, continue to be grieved grieving, but also be financially burdened and having other stresses in their life.
Certainly.
And so as we’re taking a look at some of these reasons here on the screen, if we can just toss that back up real quick because you were just running through some of these.
It also hits on the wealth transfer and the state planning.
Let’s just touch on that once again here real quick.
So when it’s all said and done, right?
Like when it comes to state planning, one component of it is to have life insurance, right?
And you have to understand if you were to die without a will, unfortunately, your money is gonna all your assets are gonna go to probate and from there that could potentially be costly.
So when we’re talking to state planning, life insurance is a big component and that now allows, you know, your wealth to actually transfer based on all of your wishes.
Right?
So you got three kids, you get, you know, a niece, a mom, you have the ability to divvy that up based on what you actually want.
And then when it comes to saying exactly how much you need, I always find that to be a big one.
Right?
Because the average person feels though, feels as though.
Oh, I work, you know, I have life insurance at my job through your employer.
That should be enough, right?
That should be sufficient.
Well, the reality is that’s actually not enough, right?
The average job, it’s called group Life insurance.
You’re gonna get roughly 1 to 2 times your salary.
So if you think about that, right.
If you were to pass away and you get a lump sum, say you make $100,000.
Well, guess what?
Your family is only used to having that $100,000 for one year.
The idea is that you wanna have roughly 10 to 12 times your annual salary.
So when you’re thinking about exactly how much life insurance you need, understand that what you get from your employer is not enough.
You need to say, ok, if I make $100,000 I need to have a life insurance policy at a minimum of a million dollars, up to maybe $1.2 million.
And the idea there is this right, you get that death benefit.
Now your family has the ability to take that and invest that.
Now, if you’re investing, call it a million dollars and make maybe call it AAA safe 7% you know, tax free after taxes or something.
Now your family is able to actually replace your income and then you could actually reconfigure that thinking, ok, say I have 23 kids and they’re young of age or not, of age.
Well, maybe another expense to think about is sending them to college.
So you might actually wanna have more.
But if there’s one thing, a person’s looking, looking at this right now, understand that what you get at your job is not enough.
And so one of the things you wanna think about is ok. What other, you know, life insurance could I get to actually supplement that?
That’s a great reminder and a reminder that I need to go complete my physical for my life insurance policy here.
So I appreciate that.
Thanks so much.
Uh Ross Mack Yahoo finance contributor, everyone.
We’ve got much more wealth on Yahoo finance.
After the break, fresh housing data out today shows the medium median existing home sales price reached its highest level ever in May.
That’s according to the National Association of Realtors, the combination of high prices, high mortgage rates and low inventory have been weighing on potential home buyers for a while.
And a new report from Harvard University’s joint set for housing studies shows both homeowners and renters are increasingly cost burden.
Here with more is Alex Herman, who is the senior research associate for the Harvard joint Center for Housing studies.
Great to have you here with us, Alex F first and foremost, you see a print like we got today’s, what does that signal for homeowners and renters?
Yeah.
So this just is compounding the affordability challenges we’ve experienced the last few years, right?
Uh With home prices uh annually hovering around 6% it only adds to um um the more, more than 40% nearly 50% home price growth we’ve experienced uh since the start of the pandemic, basically since early 2020.
Um on top of that, you have these high interest rates, uh this year hovering around 7%.
Um And that’s really made a fundamentally unaffordable housing market for, for many potential home buyers.
Um So, so, so even for households who can afford a home, right?
Limited in inventories mean the options that are available for you are, are few and far between.
Um So the median sales price is about five times the median household income and that’s pretty close to record highs we experienced a year ago and up from four in, uh, uh, uh, in 20 alone, um, and averages of three kind of historically over the last 2030 years.
Yeah, I’m taking a look at that 30 year and I mean, we’ve now got a four week average of sub seven.
I mean, of course, it’s still, you know, uh, a hair’s breadth away from seven.
But all that considered, one of the huge things is potential home buyers who are trying to get into this market but trying to figure out how to plot their entry point.
What is the recommendation for them?
Yeah, I believe so for many of these home buyers, right.
This is an impossible market, right?
For all, but the highest income, most affluent, um, um, many households are, are having to sit out.
So, uh, the, the, the typical, uh, cost for the median price home, uh, is now at an all time high, hovering around $3000 if you make certain assumptions around a 3.5% down payment.
Um, the income needed to afford that.
Um, um, um, uh, payment in a medium price home has, has up from about, uh, uh, $82,000 annually in 20 in 2021 to 100 and $20,000 this year.
So that’s, that’s a $40,000 increase in just three years and that’s priced out many potential home buyers.
Certainly, you guys have some fresh data out as well.
And within your report, you really discuss the different and, and you were starting to go into it there with some of how the affluent portions of and, and groups out there are doing compared and, and faring compared to those who are earning less than $30,000 annually or those who are in middle income, but still having to, you know, pick and choose if this is the time or where the markets are that they feel comfortable at least submitting a bid for, break down some of that data for us that you’re seeing.
Yeah, absolutely.
You mentioned the cost burden data that we talked about.
Uh, we talked about in our report that we released just yesterday.
Um So cost burdens have increased significantly for homeowners.
Um, cost burdens a cost burden, homeowner cost burden household means they spent more than 30% of their income on housing costs and utilities.
Um So about 20 million homeowners uh were cost burdened by at last count in 2022.
And that’s an increase of 3 million.
And, and you’ve seen especially large increases among lower income households.
Um, so overall about a quarter of homeowners across the country, uh, we cost about 23% of them in total.
Um, in driving that increase in large part are just increases in housing costs.
Um, so even for homeowners who have an existing relatively modest payment, uh, mortgage payment due to their, their lower interest rate, you’ve seen pretty substantial increases in property taxes and insurance costs.
Um And that’s driving kind of this increase in cost burdens.
Um And that’s especially challenging, right, for lower income homeowners.
Um And, and older adults in particular on a fixed income who can’t quite absorb those cost increases in the same way.
Absolutely excellent research there, Alex Herman, who is the senior research associate for the Harvard Joint Center for Housing Studies.
Alex, thanks so much for taking the time here with us today.
Thank you.
Certainly, some large US cities among the most popular during the pandemic are seeing a rebalancing in the housing market here with some of the details on this and the full story.
We’ve got Yahoo Finance’s Rebecca Chen.
All right.
So what cities are we talking about here?
Rebecca.
Hey, Brad.
Yes.
So we saw some data that a lot of the uh or a handful of us cities are seeing a price decline and these markets are mostly relocated in Texas and Florida.
And what’s more is that a handful of them were known as the pandemic boom towns.
Um The city with the largest decline in May included San Antonio, Tampa and Austin.
Now, if we backtrack and look at what happened during the pandemic or just a couple of years ago, these were some of the most popular cities that Americans were moving to.
They were also the cities that saw home prices surge during those years.
For example, in Austin, home prices over two years increased almost 70%.
And now we are definitely seeing a reversal or a tight change in that.
We chatted with a couple of experts on why the markets are seeing a decline.
And there is really a couple of reasons the most and foremost is that there are a lot more inventory.
So from the builders, builders are ramping up developments in these markets.
In fact, Texas and Florida has some of the highest number of housing permits authorized than anywhere else in the nation.
So far in 2024 home sellers in these cities are also listing more homes on the market.
And the reason for that is really quite interesting and it is because the rising, there is a rising premium costs in health insurance.
As we can see the based because of the geographical location of Texas and Florida, they are really more subject to a lot of the natural disasters like flooding at the hurricane in Florida.
As you can see in this chart, the average premium is about $11,000.
Texas is about $5500 while the national average is about 2400.
So that’s a big difference is there.
And that is a lot of home sellers to list their house on the market that we are seeing today.
And the last thing is really from the demand side, we are seeing a lot less Americans moving to the cities.
One of the local agents I spoke with said that the allure of the city is the lower housing costs.
That’s why a lot of people move to them, moved there during the pandemic.
But as housing costs increase, the affordability factor really is just not there or not anymore or not as much as before.
And that is causing a lot less demand in these cities.
So a combination of all these reasonings is causing is sort of balancing a market that was hyper inflated during the pandemic.
But experts are saying that this is not a crash in these markets but more of a correction back to what is normal.
The area code correction is taking place.
Thanks so much Rebecca for breaking those downs for us.
Appreciate it.
Well, as tropical storm Alberto makes landfall off the Gulf of Mexico, the National Oceanic and Atmospheric Administration is reporting catastrophe losses topping $25 billion so far this year during 2024 due to extreme weather events.
And with Noah predicting a record number of hurricanes this season now could be a good time to make sure you have everything in place to protect you from heavy financial burdens due to weather for more.
Let’s bring in Rullan Washington, who is the Wells Fargo mortgage sustainability leader, Rullan, great to have you here on the show with us today.
I mean, I think it was pretty astounding even as we were thinking about the number of billion dollars weather events that Noah has already seen and marked over the course of this year when I think the historical average is something like 8.5 we’ve already seen, I believe 11 just by the beginning of June.
So what does this set up for catastrophe, losses and insurance and making sure that individuals and homes are protected?
Well, there, there are a few things that, you know, you must keep in mind that you’re going through a storm.
I’m, I’m based in Florida so I deal with hurricanes every year.
It’s, it is, it is a chore for me and my family over the last 18 years or so.
It’s always a mad scramble.
So, you know, a few tips I would provide to, to families out there is, is make a checklist.
One of the biggest tips to prepare for a natural disaster is to create your checklist.
You know, think about all the essential steps and items that you need to uh have accounted for during a storm.
I mean, it’s important if you plan to stay and ride the storm out.
I mean, I, I’m, I am guilty of that a few times of, of trying to ride out a storm.
But, you know, ultimately, if you’re planning to evacuate, you need to make sure that you have a checklist.
Uh I would also encourage folks to gather important documents, you know, make sure those critical items such as your birth certificates, passports, mortgage and insurance documents, and all of those possessions that you keep in a secure place.
Make sure that you know where they are, right?
Uh It’s hard to uh replace the originals, right?
So those documents that are extremely important and difficult to replace, you know, make sure they’re in a safe place.
This is especially important for those families that live in areas where there may be wildfires, tornadoes and, and also hurricanes, right?
Because unexpected disasters don’t give you much time to plan.
You also wanna make sure you’re stockpiling savings, make sure you’re reviewing your insurance that’s critical and make sure you’re protecting your credit.
I mean, that’s one of the most essential pieces after the disaster, making contact with your creditors early will help you get a better understanding of what assistance may be available for you if you’re impacted.
I mean, the goal is to find solutions to avoid any negative impacts on your credit report, right?
So protecting your finances involves protecting your credit ultimately, if there is a disaster, there is that obligation that still needs to be made.
So if there’s a scenario where you need to evacuate, reach out to your creditors as soon as possible to request a possible suspension for your payments or just to make sure that creditors know that you, you know need to be accommodated for your circumstances.
Certainly with, with that in mind, what payments do you still have to make?
Even in the meantime, while you’re submitting a claim if your property is damaged or in the worst case scenario destroyed.
Yeah, un unfortunately, with, with your mortgage payment, you’re still obligated to make that mortgage, but you know, work with your mortgage servicer to understand your options.
You know, making immediate contact will allow the mortgage company to start tracking your situation and to put initial protections in place to prepare you for insurance payout or, or for federal aid.
So that’s waving late fees or uh help you worry about any impacts on your credit.
So, so families that have experienced extreme damage in specific areas, you know, you can work with your mortgage servicer, but there’s also that F ma or disaster resistance that’s out there too.
So just make sure that you understand that that obligation still needs to be paid, but make sure you’re working with those entities that are at play.
Uh, also contact your insurance company.
Uh You wanna make sure you’re reaching out to your homeowners insurance company immediately start that claims process.
If you do have damage to your home, every insurance policy is unique.
So it’s important that you understand the protections that you have before that disaster hits.
You know, what about an emergency fund that people need to have set up?
I mean, we, we often hear this number tossed around of people not having $400 for an emergency, but it, it seems like that number has moved higher and should move higher.
And, and for an instance like this, it should perhaps be a little bit more encompassing what, what is the real figure that people should have earmarked for this.
Yeah, so stockpiling savings, I mentioned that earlier.
So an emergency fund is usually 3 to 6 months worth of savings.
It’s a key part of that, any financial household plan.
I mean, if you’re asking me, it’s, it’s hard sometimes to to, to save up six months worth of expenses.
But you know, that’s sort of the rule of thumb.
But you know, when the disaster strikes, only 18% of folks are when it comes down to have financial stability in that transition, right?
So consider setting aside some cash to see if you can get through those areas that may have lost power or they may not have access to banks or ATM S are out of commission.
It’s usually a power outage during and after a storm that really impacts you the most, right?
So having a few 100 bucks on hand can go a long way.
And usually that rule of thumb of 3 to 6 months of savings.
I mean, it’s critical, right?
If you have cash on hand, especially when there’s power outages during the storm, it’s really advantageous.
Having just savings on hand is really important when you’re going through any duress.
But ultimately think about what happens after the storm r on Washington, who is the Wells Fargo mortgage sustainability leader R on?
Thanks so much for taking the time here today.
Some very important tips uh for people to hopefully put some action around ahead of some of these severe weather events.
Appreciate it.
Thanks everyone.
We’ve got much more on wealth after the break.
You’re watching Yahoo Finance, wealth and asset management institutions are at the forefront of adopting innovative technologies like gen A I tools.
Nine out of 10 managers are currently using or planning to use A I in their investment processes according to consulting firm Mercer.
So the question no longer remains if, but how are managers implementing A I capabilities into their everyday investment strategies?
And at least that’s what our next guest says here to weigh in.
We’ve got Raylan Lambert who is the Mercer Global Alternatives leader.
Great to have you here in studio with us.
A pleasure to be here, Brad.
Thank you.
Let’s talk about this.
I mean, how much of a role can A I really play in some of those investment decisions and they brought a world of finance if you will.
Well, it really depends on where managers are incorporating them into their process.
You know, 5, 10 years ago, the focus was on data science and how can we mine the information we have to provide better, maybe intelligence and reporting.
But today A I has taken everything to a whole new level.
So you’re seeing managers deploying it um with respect to sourcing and screening new investment opportunities, you know, they might have a specific criteria that they’re looking for, say in the middle market, certain segments of the economy, um where they’re using it in that regard.
But compellingly, they’re also use using it as they look across their portfolio and understanding the data that they collectively have and ownership.
How can they then connect the dots of that data and maybe even bring to market new products and solutions on behalf of clients?
I mean, is this something that the client, the the client would engage directly with or something that managers would use and leverage as a tool to say?
Ok, this is the investment decisions that we’ve made in the past.
This is the mix of your portfolio or the risk propensity can that you can add on or where you should perhaps mitigate some of the risk that you currently have in your portfolio right now?
Like where is this, this touch point happening?
The touch point is happening on two places, at least in the most simplest form, right?
One is how the manager is integrating A I into their own investment decision making into uh the data.
As I mentioned that they’re sitting on how they’re utilizing that to um bring forth maybe new ideas across the portfolio, the second big place.
So that managers are using it as, as limited partners, you know, as investors in those managers funds, we like a lot of data and we like it, you know, immediately.
So managers too are finding ways to integrate that technology into uh their data rooms into how they’re reporting information to their investors.
Um And that’s cutting down on the amount of time so they can provide more value add analytics on other, you know, aspects of portfolio consideration.
So it’s both within their own portfolios but also in their reporting and monitoring and updates to investors.
OK.
So what are the early returns that we’ve seen that are that are showing a difference between?
OK, this is your portfolio without this layer of artificial intelligence and here’s your portfolio performance with this layer added in.
I would say that we haven’t seen it broken out that way yet.
Um I think, you know, when you, you, you briefed, uh you mentioned at the outset, you know, the 90% stat that we found with our A I study.
And you know, while that it’s 90% overall, roughly 40% of managers are still contemplating incorporating it into their processes.
So I think the real, you know, where we’ll probably start seeing it show up is as companies, you know, we know distributions have been down.
And so the big focus really now is on ebita enhancement.
We have.
How can these managers add value to the EBITA of the companies the longer if you were to sell that company at the same valuation?
One year later, your return, your rate of return is already down by 300 basis points.
So the focus is on EBITA.
So that’s where I think as we look at, you know, what value creation levers the managers have to add value to their portfolios.
We might see at one point A I as one of those levers, how are they utilizing it to enhance productivity to enhance um you know, streamline processes to cut down on other costs of the business?
And so in that regard, you know, we’ll see, but we haven’t seen that show up yet.
In terms of actual measurability, I think it’s still still early days just as long as A I does not shame me about my trades that I’m making that that would just hurt, add insult to injury on the portfolio performance basis.
Thanks so much for taking the time.
I appreciate it, Brad.
Thank you, Raylan Lambert, who is the Mercer Global alternative is leader.
Coming up, everyone.
We’ve got much more on wealth after the break.
You’re watching Yahoo finance high net worth individuals globally are reaching unprecedented numbers and wealth levels.
Wealth expanding by 4.7% in 2023.
As the population of high net worth individuals rises 5.1% to shed light on what moves the ultra wealthy are making with their money.
We have Elias Ganem who is the global head of Cap Gemini Research Institute for financial services.
I mean, this is particularly interesting because one of the interesting kind of markers that I’ve heard at least and many out there who are paying attention is the number of millionaires that are being minted on a daily basis, whether in major cities like New York or elsewhere.
So how is that playing into the investment strategy and the returns for some of the ultra high net worth individuals out there?
In fact, it all started last year when we looked at the numbers last year, everybody went in wealth preservation.
Things were very confusing last year.
So we saw all the numbers in total wealth and in total population of what is going down.
And we saw the asset classes where you put your money depending on how you are.
Last year, you throw all your money in cash.
So you know what, let’s wait and see what’s happening.
What are we observing this year is cash, cash equivalent is down back to 25%.
Fixed deposits is building up real estate is building up and alternative investment is building up, people are slowly but surely moving from wealth preservation, let’s be safe to wealth growth.
And so that sounds like taking on a little bit more appetite for risk potentially.
Where are some of the riskier elements of the portfolio that you are seeing being tapped into right now?
It’s starting, let’s be realistic.
It’s early days people start looking at such a geopolitical environment, so complex half of the global population going on election this year, all that and then all the wars that are happening left and right.
Unfortunately, all that makes people quite a little bit careful.
But on the other side, tech stock market is doing very well.
So there are bets, people are making bets and we have been observing that in our report that people are starting to say we are starting to do some bets and investing in some opportunities.
There were some of these individuals or households that were able to invest at times and other people needed to pull money out of the market.
And, and I think back to the COVID pandemic when we saw the massive dip, of course, the bottoming out in late March of 2020.
Uh and ultimately a heavy buying back in action when it felt like OK, at this level, we need to put some of this cash back to work.
That’s an opportunity that not a lot of other people had.
But where did some of the wealthier individuals and households buy into at that time, that helps solidify wealth and returns even further three categories.
Uh real estate, alternative investments in terms of private equity and some investment into bitcoins and cryptocurrencies at different scales, real estate.
We had high interest rate.
So logically, people start buying houses.
So the market went down if you have the cash, that’s the right time to do it.
Logically, private equity, ultra high net worth individual have a long term view and are able to make bets on a much longer term.
And by the way, we are in such a transformation of the economy from to renewable economy that there are bets to be made.
And in Cryptocurrency, depending on how the Bitcoin goes up and down.
People are interested.
We are observing that quite a lot recently.
Cap Gemini Research Institute, Elias Janam.
Thanks so much for taking the time here with us today.
Thank you so much for having me here.
That’s it for wealth, everyone.
I’m Brad Smith.
Thank you so much for watching.
You can stay tuned for market domination with Julie Hyman and Jared B Licky.
That’s coming up at 3 p.m. Eastern time.
You do not want to miss that.
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