New Energy Weekly – Historic Storm

Hurricane Helene’s landfall is a week behind us, but the fallout of that historic storm continues

We want to wish everyone impacted a speedy recovery. After such a strong storm, it’s nice to have some good news…
One thing that will make every investor smile is the continued performance of the stock market. Even after a couple of dips, the S&P 500 continues to bull its way higher. It’s up 20% for the year so far:

We will admit that, in August, things around the Mangrove offices looked a little grim. But thankfully our concerns did not materialize. And there’s nothing better than half a percentage point cut to interest rates to spur things higher.

Analysts at several major banks predict further cuts of another 0.5% this year and an additional 1.0% in 2025. That will have several impacts on the U.S. economy.

As we discussed in the past, interest rates function as brakes on spending. After the rate hikes in 2020, the cost of borrowing (for school, home loans, car loans, etc.) skyrocketed.

Higher interest rates means that the amount of money we pay to borrow the money skyrocketed. The cost of home loans, in particular, more than doubled.

Here’s a real example. If we borrowed $250,000 for 30 years at 3% (the 2020 rate), we would pay about $127,500 in interest. Our monthly payment would be $1,054.

Now let’s compare that to today’s rate.

If we borrowed that same amount at 6% (the current rate), we would pay $280,500 in interest. Our monthly payment would be $1,500.

As you can see, the cost of the loan doubled, and the monthly payment rose by 50%. That turned off many potential home buyers over the past four years.

But now, as interest rates fall, those buyers will come back to the market. As will other borrowers. And that will have a positive impact on the economy. And that should translate to a robust stock market as well.

For the good,

The Mangrove Investor Team