A preface to the newsletter: It was a mostly quiet week for markets, but at least we got some interesting economic updates. Inflation cooled slightly in July, however consumer spending fell more than expected and consumer confidence hit its lowest level in years. The market barely moved on the news and I'm curious to see if this data is just a blip or the beginning of a greater trend.
In this week's newsletter I dig into the inflation and consumer spending numbers, and what the Federal Reserve is saying about the path forward for interest rates. I also cover a topic that I am often asked about: investment accounts for children. This week is an overview of all the account types, and I'll do a more in-depth analysis of specific accounts over the next several weeks.
As always, please don't be shy about sharing feedback and please feel free to forward this on to anyone else who might be interested in reading it.
Have a nice week ahead,
Kevin
Stocks
It was a pretty flat week for the stock market. The S&P 500 gained about 0.4% and the Nasdaq Composite rose 0.1%, both logging their third straight weekly wins. Meanwhile, the Dow fell roughly 0.6%, after having risen for the last couple of weeks. Although there were some ups-and-downs in the market, overall there wasn't much movement and I generally don't consider any gains/losses less than 1% as material.
Bonds
Bonds were also flat for the week as well. Treasury yields edged slightly lower as inflation data came in largely in-line with expectations and retail sales data disappointed. When consumer spending is soft, bond investors typically buy Treasuries as a safer alternative, which pushes yields down - and that's what we saw happening last week.
Oil
Crude prices rose again this past week, climbing more than 6%. Brent crude ended Friday at $88.52 per barrel and WTI crude finished at $82.40 per barrel (Brent and WTI are two different types of crude oil and commonly used as benchmarks for oil prices). There were no major developments in the conflict with Iran, rather the oil markets seem to be pricing in the reality that the Strait of Hormuz will remain closed or constricted for a prolonged period.
Inflation cooled in July
The July Consumer Price Index (CPI) came in at 3.4% year-over-year, down from 3.5% in June and in-line with expectations. Core inflation (which strips out food and energy) landed at 2.5% annually. On the surface, that looks like progress, but it is still above the Fed's 2% target.
What struck me was how muted the market reaction was. Inflation data that once would have sent stocks soaring barely moved the needle. Investors have become skeptical of single-month inflation data points, and the Fed seems to share the same skepticism. The probability of a rate cut in September fell from 55% to 42% after the CPI release because the report wasn't bad enough to panic, but not good enough to force the Fed's hand. I believe we are still several months away from a rate change, if we get one at all before year-end.
Consumer spending fell and confidence is slipping
The more concerning report this week was retail sales, which fell 0.6% in July, a bigger drop than economists had expected. Online sales declined by 2.2%. Auto sales also shrunk by 1.8%. Restaurants and clothing bucked the trend with modest gains, but the overall picture is of a consumer who is pulling back on spending. Adding to that concern, the University of Michigan's preliminary consumer sentiment index for August came in at 51.0, well below the 55 level forecast and down nearly 8% from the prior month.
I pay close attention to what consumers do rather than what they say, especially since Americans have been complaining about high prices but not curtailing their spending on those goods. But when spending and sentiment fall in the same month as they did in July, consumers are putting their money where their mouth is. Whether this is a healthy normalization after years of unusually resilient spending or the beginning of a more meaningful slowdown is the critical question heading into fall. I don't have a definitive answer, but I'm watching this data closely.
"I love to see that those numbers are coming in lower - that's a good thing - but I don't have confidence that we're going to continue to see that, or that we're going to see them low enough that it's going to bring us back down to that 2% number."
- Beth Hammack, President, Federal Reserve Bank of Cleveland, commenting on the recent inflation data released last week
Beth Hammack was one of three Federal Reserve officials who dissented against the July vote to hold rates steady (she wanted to hike rates 0.25%). Her skepticism about the inflation trajectory is not a fringe view inside the Fed; it is a reminder that the central bank is not convinced the job is done.
Her comment captures something important: the Fed does not believe that we are on path to get below 2% inflation. One month of 3.4% CPI is welcome, but it does not change the calculus. The Fed wants to see sustained progress of declining CPI numbers, not a single data point. Nothing in this week's data gave them confidence that the trend will continue.
Accounts for Kids: A Brief Overview
How parents can help their children save and invest for later in life
With back-to-school happening this week and my son's due date just a month away, saving for children has been on the top of my mind lately. Furthermore, I get asked about this topic often enough that I felt that an overview of the types of accounts would be beneficial to my readers. There are several different account types available for saving on behalf of a child, each with its own rules, tax treatment, and best use case.
This is only a brief overview. Over the next several weeks I will go into more depth on each account type and do a deep dive on the newest addition to this list: the 530a Trump Account, which just launched in July.
529 Plans
These are the most popular education savings vehicle for minors. The account is owned by a parent or adult family member, and the child is the beneficiary. If your primary goal is education savings, then a 529 is almost always the right place to start. Contributions are made with after-tax dollars, meaning that you do not get a tax deduction for contributing, however the money grows tax-free like a Roth IRA. When you go to take the money out, withdrawals are tax-free if used for qualified education expenses: college tuition, room and board, books, and up to $10,000 per year for K-12 tuition.
Unused 529 funds can be rolled into a Roth IRA for the beneficiary after the account has been open for 15 years (up to a $35,000 lifetime limit). So if don't end up spending all of the money invested in the 529 or if you child decides not to go to college, they can still benefit from the account by rolling the funds into a Roth IRA instead. Roth money grows tax-free and can be withdrawn without any taxes or penalties after age 59.5, so converting $35,000 from a 529 into a Roth early in life can significantly help your child get a head start on saving for retirement.
Also 529 accounts are "portable" among immediate family members, allowing the owner to change the beneficiary to another family member. This is helpful when there is money left over in the 529 account after your child has completed their education - you can then change the beneficiary to another family member who can use the 529 for their educational expenses.
UTMA/UGMA Accounts
Uniform Transfers to Minors Act / Uniform Gifts to Minors Act (UTMA/UGMA) are custodial accounts where an adult manages assets on behalf of a minor. There are no contribution limits and no restrictions on how the money can ultimately be used, which makes them quite flexible. However there are no tax benefits, and investment income is taxed annually. If family member wants to gift a significant sum of money to a child, creating a UTMA/UGMA allows them to do it and ensure that the child will be the owner even though they are a minor.
The accounts have a downside: the money legally belongs to the child and transfers irrevocably at the age of majority (typically 18-25, depending on the state). This means that the child will have control of the money once they reach the age of majority without any guardrails on how they use it. These accounts also count heavily against college financial aid eligibility since up to 20% of the child's assets can be factored in versus roughly 5.6% of parent-owned assets.
Coverdell Education Savings Accounts
These accounts offer tax-free growth and tax-free withdrawals for qualified education expenses, similar to a 529. They can be used broadly for K-12 expenses without the $10,000 cap that applies to 529s. The catch is that you can only contribute $2,000 per year, there are income restrictions for contributors, all of the money in the account must be used by the time the beneficiary turns 30. Frankly I don't come across Coverdells much any more, 529s are more commonly used for saving for education these days, but they are still worth knowing about.
Custodial Roth IRAs
Roth IRAs can be opened by a parent/guardian on behalf of a minor child who has earned income. A child who babysits, mows lawns, or does paid work of any kind can contribute to a Roth IRA up to the lesser of $7,000 or their actual earned income for the year. For example, if your child earned $4,000 working a summer job, you could open a Roth IRA for them and contribute up to $4,000. The account transfers to the child's control when they reach adulthood.
The money grows tax-free, and the earnings can be withdrawn without taxes or penalties after the child reaches age 59.5. Given the decades of compound growth ahead of a young person, this is one of the most powerful savings vehicles available to families.
530a Trump Accounts
These are the newest option, launched recently in July. Any child under 18 is eligible for an account. For children born between January 1, 2025 and December 31, 2028, the federal government will deposit $1,000 into the new account. Parents, family members, and others can contribute up to $5,000 per year. Employers and outside third party donors may also contribute to 530a accounts (e.g. Michael Dell), and those contributions are counted toward the $5,000 per year limit. During childhood, investments are restricted to low-cost U.S. equity index funds, and no withdrawals are permitted before the child reaches age 18. After 18, the account converts into a Traditional IRA and the rules pertaining to Traditional IRAs apply. Think of it as a government-seeded head start on retirement savings for kids.
A note on I-Bonds
U.S. Series I savings bonds are worth knowing about as a complement to the accounts listed above. I-Bond interest is exempt from state and local income tax and can be excluded from federal income tax entirely if the proceeds are used for qualified higher education expenses. The annual purchase limit is $10,000 per person and there is a one-year lockup. I-Bonds are generally not a primary strategy for saving for education, but they can be a useful addition for families already maxing out the other accounts.
The right combination on savings strategies depends on your specific situation: your income, your goals, and whether education, retirement, or general wealth transfer is the primary priority. If you have questions about what makes sense for your family, let's talk.
This was fairly quiet week for markets. We have had several weeks of gains, but underneath all of it, there is a consumer who is spending less and feeling worse. The tension between the consumer and the Fed are the two forces that will shape the rest of 2026.
The Accounts for Kids section this week isn't tied to a market theme, it's simply a topic that has been on my mind lately. It's important to remember that the most powerful investing decisions aren't made in response to what the market did last week, they're made years or decades in advance. A 529 funded at birth has eighteen years to compound and a Roth IRA opened for a teenager has fifty. Most of the wealth I see in my clients' portfolios wasn't built by a single brilliant trade. It was built by consistent, patient, diligent decisions made over a long period of time.
The best investing decisions aren't made watching the ticker, they're made watching the calendar.
Longevity Science Foundation article of the week:
A Science-First Look at Exercise and Longevity
Family, hobbies, and other updates on my life
Mikaela and I attended our friends' wedding this past Saturday. We had a wonderful time at the reception, and enjoyed the good food and great conversations. The event was especially significant for us because this couple helped with our wedding (she was the planner and he the officiant) and we will be celebrating our two-year anniversary next week. I would like to give a big thank you and a congratulations to Frankie & Monica!
Before heading to the wedding yesterday, I spent some time in the garden harvesting a basketful of tomatoes, cucumbers, peppers, eggplant, and a squash. I plan on pickling the cucumbers - which will be a first for me - and I'll share the photos and recipes next week once I have some free time to do it. We're still in the early part of the harvest season for tomatoes and I expect to have many more (I have ten San Marzano tomato plants and two Cherry tomato plants going right now). Last year Mikaela made some amazing Tomato Jam that we will definitely make again, but the bulk of the tomatoes will be turned into sauce and canned for later use.
No fancy recipe to share this week, just a quick and easy one: Blistered Shishito Peppers. I harvested about a dozen Shishito peppers from the garden, sauteed them in olive and seasoned with kosher salt. They are a super simple and delicious snack.
Have a nice week ahead!
Kevin