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Weekly Market Commentary March 18, 2024

Weekly Market Commentary

March 18, 2024

 

 

 

The Markets

 

Here’s the tea on stock markets and presidential elections.

 

Last week, a slew of headlines mentioned stock market bubbles and frothy valuations. The implication was that markets might be headed lower because they’ve risen so high. Last Wednesday, Lewis Krauskopf of Reuters reported:

 

“Some market participants believe the relentless U.S. stock rally is poised for a breather, even if it remains unclear whether equities are in a bubble or a strong bull run. The benchmark S&P 500…is up over 25% in the last five months, a phenomenon that has occurred just 10 times since the 1930s, according to BofA Global Research…the S&P has already made 16 record highs this year, the most in any first quarter since 1945, CFRA Research data showed.”

 

By the end of last week, we’d seen 17 record highs for the Standard & Poor’s (S&P) 500 Index.

 

If there is a market downturn this year, election sentiment is likely to be one of the reasons for the move. “Market moves during election years do tend to follow a similar pattern—declines leading up to early November, then a surge through year end once the winner is revealed.” While past performance does not guarantee future results, the S&P 500 has typically finished presidential election years higher, reported Nicholas Jasinski of Barron’s.

 

Despite the historic record, election rhetoric can make it difficult to remember that markets are efficient and adjust to changing risks. While election sentiment may sway stock markets over the shorter term, global economic growth, company fundamentals, central bank policies, and other factors, such as “the implications of the artificial intelligence [AI] boom on corporate earnings” are likely to matter more over the longer term, reported Jasinski.

 

No matter how emotional the election becomes, remember that your portfolio was built to meet your financial goals. If your longer-term goals and risk tolerance have not changed, making significant portfolio changes because of worries about the election outcome is not a sound idea.

 

That said, if you’re uneasy about the election and its potential effect on your savings and investments, please get in touch. We want to hear about your concerns and will help you identify potential solutions.

 

Major U.S. stock indices finished last week with mixed results. The bond market retreated amid inflation pressures, and U.S. Treasury yields moved higher over the week.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

WHAT DO YOU KNOW ABOUT THE ECONOMIC POWER OF WOMEN? For decades, the number of women in the U.S. workforce has increased, yet the gender pay gap persists. White women who work full time earn about 84 cents for every dollar men earn, and earnings are even lower for women of color and women with disabilities. Despite the gap, the economic power of women is growing.

 

“Women…start more businesses than their male counterparts. They earn as much or more than their husbands in 45 percent of heterosexual marriages. Among solo households, they own more homes. And by the end of this decade, a 2020 study by the business consulting firm McKinsey found, women are poised to control much of the $30 trillion in wealth expected to be possessed by baby boomers,” reported Brittany Shammas of The Washington Post.

 

See what you know about the economic power of women by taking this brief quiz.

 

1.   What percentage of the billionaires in the United States are women, according to MillennialMoney?

a.   About 2%

b.   About 12%

c.    About 32%

d.   About 50%

 

2.   According to Pew Research, people in the 10 highest-paying occupations earn more than $100,000 a year, on average. That’s more than twice the national average of $41,000. Overall, women hold 35% of the jobs in those occupations. They are the minority in every occupation except one. Which one is it?

a.   Lawyers

b.   Dentists

c.    Pharmacists

d.   Actuaries

 

3.   A stay-at-home parent (SAHP) wears a lot of hats: childcare worker, housekeeper, cook, interior designer, event planner, and many others. A survey reported the median number of hours a SAHP worked was 106 per week. How much did Salary.com estimate a SAHP would earn if they were paid for their work?

a.   $31,000

b.   $56,000

c.    $103,000

d.   $184,000

 

4.   Women in the United States are responsible for a significant percentage of household assets. The amount is equal to about one-third of 2023 U.S. gross domestic product, which is the value of all goods and services our country produced last year.  About how much money do American women control?

a.   $5 trillion

b.   $10 trillion

c.    $15 trillion

d.   $20 trillion

 

Weekly Focus – Think About It 

“You may encounter many defeats, but you must not be defeated. In fact, it may be necessary to encounter the defeats, so you can know who you are, what you can rise from, how you can still come out of it.”

—Maya Angelou, poet

 

 

 

 

 

 

Answers: 1) b; 2) c; 3) d; 4) b

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Weekly Market Commentary March 11, 2024

Weekly Market Commentary

March 11, 2024

 

 

 

The Markets

 

The week got off to a good start...

 

In testimony before House and Senate committees, Federal Reserve (Fed) Chair Jerome Powell noted that prices had been falling and unemployment rates remained quite low. As a result, he expected the Fed to begin lowering the federal funds rate in 2024.

 

“I think we’re in the right place,” he said. “We’re waiting to become more confident that inflation is moving sustainably at two percent. When we do get that confidence—and we’re not far from it—it’ll be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession rather than normalizing policy as the economy gets back to normal.”

 

After Powell’s comments, the likelihood of a June rate cut rose, and so did U.S. stock indices. The bond market rallied, too, with yields across all maturities of U.S. Treasuries dropping lower through Thursday.

 

On Friday, a mixed bag of employment data arrived. It showed that:

 

  • Hiring was stronger than expected in February. Employers added 275,000 new jobs over the month – 75,000 more than expected – although gains in December and January were revised lower.
  • Wage growth was slower than expected, rising 4.3 percent year-over-year in February when economists had predicted a 4.5 percent annual increase, according to Meghan Leonhardt of Barron’s.
  • The unemployment rate rose, increasing from 3.7 percent to 3.9 percent. (The unemployment rate is derived from a separate and smaller survey of households.)

 

The data suggested that the labor market was strong but cooling, and bolstered hopes that a soft landing might be ahead. While that was positive news, it was overshadowed by weakness in technology stocks. Sarah Hansen of Morningstar reported, “The stock market started 2024 with a blistering rally…But the relentless pace of gains has some watchers worried about soaring valuations on stock prices and frothy trading.”

 

On Friday, major U.S. stock indices finished the week lower. However, U.S. Treasury bonds rallied as yields declined over the week.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

A REMINDER ABOUT SCAMS. Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

 

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it’s a scam if the person contacting you:

 

·        Indicates there is a problem with your benefits.

·        Asks you to pay to receive a prize.

·        Suggests that paying will increase the chance of winning.

·        Requests financial information, such as a bank account or credit card number.

·        Pressures you to act immediately.

·        Tells you to pay using a specific method, such as a gift card or cryptocurrency.

 

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

 

When you suspect a scam:

 

·        Hang up or close the message. Do not respond in any way.

·        Remain calm.

·        Think back over the call. Write down any personal information you may have inadvertently shared.

·        Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.

·        Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

 

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

 

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

 

Weekly Focus – Think About It 

“Common sense is genius dressed in its working clothes.”

—Ralph Waldo Emerson, Philosopher

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Weekly Market Commentary March 4, 2024

Weekly Market Commentary

March 4, 2024

 

 

 

The Markets

 

The bull market is alive and well.

 

“We know what investors are thinking,” reported Jacob Sonenshine of Barron’s. “The gains can keep coming, driven by an economy that is neither too hot nor too cold…The economy is growing, but only moderately, and the Federal Reserve can keep thinking about when it can start cutting interest rates…This dynamic is why nobody wants to miss out on the rally—and why they think it can keep going. A recent survey from Investors Intelligence shows the number of bulls outnumbered their bearish counterparts by the widest margin since late 2021.”

 

Recent market performance owes much to:

 

  • Solid earnings growth and strong corporate profits. Last week, 97 percent of the companies in the Standard & Poor’s 500 Index had shared how well they performed in the fourth quarter of 2023. Overall, blended earnings for companies in the Index grew 4 percent year-over-year, exceeding expectations. Blended net profits were stable at 11.2 percent year-over-year, reported John Butters of FactSet.
  • Slowing Inflation. Last week, one of the Fed’s favorite inflation gauges, the personal consumption expenditures (PCE) price index, showed inflation moved lower year-over-year. Prices rose 2.6 percent over the 12 months through December 2023 and 2.4 percent over the 12 months through January 2024. While inflation trended lower over the longer period, it increased month-to-month. In December 2023, prices rose 0.1 percent, and in January 2024, prices rose 0.3 percent.
  • Enthusiasm for artificial intelligence (AI). Investors expect AI to boost productivity and corporate earnings. “Innovations in electricity and personal computers unleashed investment booms of as much as 2% of U.S. GDP as the technologies were adopted into the broader economy. Now, investment in artificial intelligence is ramping up quickly and could eventually have an even bigger impact on [economic growth],” reported Goldman Sachs.

 

Last week, the Standard & Poor’s 500 and Nasdaq Composite Indices closed at record highs, while the Dow Jones Industrial Average retreated. All three indices finished February with gains, reported Chuck Mikolajczak of Reuters. The U.S. Treasury market rallied with yields falling for all but the shortest maturity of Treasuries.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

PRINTING HOUSES ON THE MOON. For decades, Star Trek and its many spinoffs told tales of space travel. In that fictional universe, the Starfleet explored space at the behest of an interstellar government following the rules and laws of that government.

 

For many years, actual space exploration fell under the purview of governments, too. However, that has been changing. Today, space is a rapidly growing private sector endeavor. Estimates suggest the private space industry could be valued at $770 billion by 2027, reported Reuters.

 

In the next decade or so, we may see:

 

·        Direct-to-device satellite programs. “Integrating satellite and terrestrial mobile networks could unlock new revenue for the satellite, semiconductor, and telecom industries,” wrote David Jarvis and colleagues in Deloitte Insights. “…this technology does not compete with terrestrial cellular services from mobile network operators. It provides limited connectivity in areas where there is no terrestrial cellular coverage.” (Extraterrestrial service is not yet available.)

 

·        Growth of the Low Earth Orbit (LEO) economy. An early area of growth in the space economy is expected to take place 99 to 1,200 miles above the Earth in what’s known as LEO. According to Deloitte, “…the industry can be dissected into six broad market segments that encompass specific commercial activities.” The segments include infrastructure, services, on-orbit research and development, on-orbit manufacturing, space tourism, and media, entertainment and advertising.

 

·        Habitable communities on the moon by 2040. “In the vast expanse of the cosmos, a visionary dream is becoming a reality: homes on the moon, an audacious endeavor spearheaded by NASA. This cosmic ambition…is now hurtling towards reality, fueled by cutting-edge technology, innovation, and unyielding determination...Imagine houses emerging from the moon’s surface…crafted from the very rock chips and mineral fragments that define the moon's rugged terrain. How, you may understandably ask? With 3D printers,” reported Architectural Digest.

 

The growing space industry will create opportunities for investors – and for new graduates who can pursue careers related to space in the private industry, as well as within governments.

 

Weekly Focus – Think About It 

“Live long and prosper.”

—Dr. Spock, Fictional Star Trek character

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Weekly Market Commentary February 26, 2024

Weekly Market Commentary

February 26, 2024

 

 

 

The Markets

 

Optimism abounds!

 

Enthusiasm for everything related to artificial intelligence (AI) drove a global stock market rally last week. Equity markets in the United States, Europe, and Japan hit all-time highs after a leading chipmaker reported better-than-expected earnings and an extraordinary surge in demand for its artificial intelligence-targeted processors, wrote Rita Nazareth of Bloomberg.

 

Investors took the news “as evidence that the generative AI boom is both real and spreading. [The company’s] spectacular earnings report and forward guidance are spurring investors to buy shares of almost any company with a stake in the AI race—everything from computer and networking hardware providers to cloud computing plays to enterprise application software,” reported Eric J. Savitz of Barron’s.

 

Investors weren’t the only ones feeling optimistic last week. Economists who participated in a February Bloomberg survey expect the U.S. economy to grow this year and next year, although a significant minority say that a recession is possible in 2025, reported Augusta Saraiva and Kyungjin Yoo of Bloomberg. They cited a source who stated:

 

“The U.S. economy remains the envy of the world…Both real economic growth and employment growth remain strong while inflation rates and interest rates are falling.”

 

Chief executive officers (CEOs) are feeling optimistic, too. The Conference Board Measure of CEO Confidence™ survey found that CEOs are feeling much better than they did at the end of last year.

 

·        32% said economic conditions were better than they were six months ago (up from 18% in the fourth quarter).

 

·        31% said conditions in their industries were better than they were six months ago (up from 27% in the fourth quarter).

 

·        36% expect economic conditions to improve over the next six months (up from 19% in the fourth quarter).

 

Last week, major U.S. stock indices moved higher, yields on longer maturities of U.S. Treasuries moved lower.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

WHAT INFLUENCES STOCK MARKETS? People use all kinds of information to make investment decisions. Benjamin Graham, who was Warren Buffett’s mentor, thought the proper approach was to evaluate company fundamentals. Graham wrote, “The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.”

 

British economist John Maynard Keynes cautioned that how “others” think about stocks can have a significant effect on performance. Keynes is famous for saying, “Markets can remain irrational longer than you can remain solvent.”

 

Meme stocks, which are shares of companies that become popular through social media, demonstrated Keynes’ point. These companies often have poor fundamentals, but their stock prices soar because they are well-liked online. Social sentiment indicators use aggregated social media data to evaluate how people feel about companies. These data can be valuable to asset managers because digital influence can affect stock prices.

 

While tracking digital sentiment is relatively new, some surveys have measured how people feel about the economy and financial markets for decades. These include:

 

·        The University of Michigan Index of Consumer Sentiment. The index ticked higher in February. Over the last three months, it has seen the sharpest gains in 30 years; however, consumer sentiment remains below the index’s long-term average, reported Christopher Rugaber of the Associated Press.

 

·        The AAII Investor Sentiment Survey. Investors remained more bullish than usual last week with 44.3 percent saying they expected markets to move higher over the next six months. The historic average is 37.5 percent bullish.

 

Many factors affect the value of stocks and stock markets. “…Investor confidence is only one of many forces on the market. Stock prices are of course determined by supply and demand, and there are numerous factors that affect these, fundamental factors, legal, tax-related, demographic, technological, international, as well as other psychological factors related to attention, regret, anchoring, and availability,” explained the International Center for Finance at Yale University.

 

Stock market performance also can be affected by geopolitical factors, like conflict in Ukraine and the Middle East. 

 

Weekly Focus – Think About It 

“A long habit of not thinking a thing wrong gives it a superficial appearance of being right.”

—Thomas Paine, founding father

 

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Weekly Market Commentary February 5, 2024

Weekly Market Commentary

February 5, 2024

 

 

 

The Markets

 

We’ve been hearing a lot about layoffs.

 

Last week, the January 2024 Challenger Report found that employers based in the United States cut more than 82,000 jobs in January. That’s a lot. In December 2023, about 35,000 layoffs were announced. The January job cuts were concentrated in a few industries, and the reasons for the cuts included companies restructuring to lower costs and reorienting toward artificial intelligence.

 

Layoffs often are a sign the economy is losing steam, but that doesn’t appear to have been the case in January since employers added more than 353,000 new jobs during the month, reported the Bureau of Labor Statistics (BLS).

 

If we subtract the number of layoffs from the number of new jobs (353,000 – 82,000 = 271,000), the total number of jobs created in January was still significantly higher than the 185,000 new jobs economists anticipated.

 

Overall, the U.S. unemployment rate remained at 3.7 percent, although there were differences by gender and race.

 

Women (over age 20)      3.2 percent

Men (over age 20)           3.6 percent

Asian                                2.9 percent

White                                3.4 percent

Hispanic/Latino                5.0 percent

Black                                5.3 percent

 

The BLS reported that wages moved higher in January. Average hourly earnings increased 4.5 percent over the 12 months through January 2024. If inflation continues to slow – it was 3.4 percent in December – that could be good news for consumers. However, the fight against rising prices continues. Katia Dmitrieva of Bloomberg explained:

 

“The [employment] report clearly shows that demand [for workers] and wage pressures are far from cooling. That is consequential for the Federal Reserve, which has been signaling that the strength in the labor market shows inflationary pressures are still in the system, and that’s something policymakers will keep in mind before pivoting to rate cuts.”

 

After falling for much of the week, U.S. Treasury yields rose after strong jobs data dashed hopes the Federal Reserve would cut rates sooner rather than later. Stock investors remained confident despite the possibility that rates would remain higher for longer, and major U.S. stock indices finished the week higher. 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

THE NATIONAL DEBT IS BIG. Last year, the U.S. economy produced about $27.9 trillion worth of goods and services. At the end of 2023, the U.S. national debt was about $33.2 trillion.

 

So, America’s debt is currently bigger than its economy.

 

The U.S. national debt has accumulated over decades. Each year the government spends more than it receives, the debt grows. When the government spends less than receives, the debt shrinks. Over the last 50 or so years, the government has taken in more than it spent only five times. The last time was 2001.

 

The debt generally falls into two categories:

 

Debt held by the public amounted to about $26.9 trillion in 2023. It includes U.S. Treasury securities that have been sold to investors. Economists generally consider this to be “the most meaningful measure of debt, because it reflects the amount that the Treasury has borrowed from outside lenders through financial markets to support government activities,” reported the Peter G. Peterson Foundation.

 

Debt the government owes itself, which amounted to about $7.1 trillion in 2023. This is the money the U.S. government owes to itself. For example, when Social Security, Medicare, and other national government programs take in more than they need. The extra is invested in U.S. Treasuries that are held in the program’s trust funds.

 

We’re not alone. The level of government debt has grown around the world. The Institute of International Finance forecasts that global debt would total $310 trillion for 2023, reported Sam Meredith of CNBC.

 

How do we finance the debt?

 

The U.S. government finances its debt by selling securities such as Treasury bills, notes, bonds. When the debt grows or interest rates rise, the cost of interest increases. As a result, less money may be available for programs that support economic growth, education, Social Security, and other programs.

 

Higher debt can lead to slower economic growth. “A study by the World Bank found that countries whose debt-to-GDP ratios exceed 77% for prolonged periods experience significant slowdowns in economic growth,” reported Will Kenton of Investopedia. Since the U.S. economy and the U.S. stock market tend to be highly correlated, market returns might slow, too.

 

Some economists point out that higher rates can stimulate economic growth because they put more money in the hands of consumers, and consumers tend to be the driving force behind the U.S. economy. “…People who are holding government bonds, paying higher rates of interest, are getting a huge windfall in the form of interest income and that income can be spent just like any other form of income,” explained a source cited by Charlotte Morabito of CNBC.

 

How much is too much?

 

Economists are uncertain how much debt is too much debt for developed nations to hold. Last year, though, researchers at Penn Wharton of the University of Pennsylvania suggested that 200 percent of gross domestic product (GDP) would be the limit for the United States. In 2023, U.S. debt-to-GDP ratio was 123 percent.

 

Weekly Focus – Think About It 

“The price of greatness is responsibility.”

—Winston Churchill, statesman

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