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Weekly Market Commentary May 20, 2024

Weekly Market Commentary

May 20, 2024

 

 

 

 

The Markets

 

Reading the economic tea leaves.

 

Tasseography practitioners read tea leaves to forecast the future. Some economic data serve a similar purpose. Policymakers, central bankers, economists, and investors look at leading economic indicators to forecast where the economy may be headed. Classic leading indicators include:

 

Consumer confidence. Consumer spending is the largest contributor to economic growth in the United States. When consumers feel confident about their finances, the economy may continue to grow, and vice versa.

 

The slope of the yield curve. When yields for short-term U.S. Treasuries are higher than yields for long-term U.S. Treasuries, then a recession may be ahead. “Yield curve inversions have preceded each of the last eight recessions,” reported the Federal Reserve Bank of Cleveland.

 

Stock market performance. Since investors make decisions based on how they believe the earnings of companies and the value of companies’ stocks will change over time, a rising or falling stock market is considered to offer insight to where the economy may be headed.

 

“The leading indicators for the U.S. economy fell in April for the second month in a row…The leading index declined mainly because of weaker business orders, fewer permits to build new homes and a decline in stock prices last month. Stocks have since rebounded, however, to fresh record highs,” reported Jeffry Bartash of MarketWatch. “The economy slowed in the first quarter after heady growth in the second half of 2023. It’s unlikely to speed up much until inflation tapers off and the Federal Reserve cuts interest rates.”

 

Some analysts believe rate cuts are still on the table for 2024, reported Sam Meredith of CNBC. Last week, the Consumer Price Index showed headline inflation (which measures price changes for a fixed basket of goods) and core inflation (which removes food and energy from the basket) both moved lower from March to April.

 

Investors found a lot to like in the inflation data. U.S. stocks finished the week higher with the Dow Jones Industrial Average closing above 40,000. Yields on most maturities of U.S. Treasuries moved lower over the week, lifting bond prices.

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.

 

 

WHICH STATE LOOKS THE MOST LIKE THE UNITED STATES? Fifty states joined the Union from 1787 through 1959. Every one of them has a distinct history and culture. States’ names originated from Latin, English, Spanish, French, Polynesian, Algonquian, Siouan, Iroquoian, Uto-Aztecan, and other languages. In Alabama, there are deep sea fishing rodeos and in Arizona there are sidewalk egg-frying contests. In Georgia, they like salted peanuts in cola, and in Michigan they call soda “pop.” Nebraska cheers for the Cornhuskers, while Oregon flies with the Ducks.

 

There are a lot of differences between U.S. states, but which state is most like the United States? That’s the question Lenny Bronner and Andrew Van Dam of The Washington Post wanted to answer. Bronner crunched U.S. Census data to create indices that compare U.S. states to one another and to the nation. Some of their findings can be found in this quiz.

 

1.   Which state most closely resembles the United States when it comes to income? (Hint: Its state flower is the violet.)

a.   Arizona

b.   Illinois

c.    Georgia

d.   Nevada

 

2.   Which state is most like the United States when it comes to residents’ educational achievement? (Hint: It has the oldest state park in the nation.)

a.   Rhode Island

b.   West Virginia

c.    Georgia

d.   Texas

 

3.   Which state most closely mirrors the country when it comes to employment? (Hint: Its known for a tasty sandwich.)

a.   Pennsylvania

b.   Utah

c.    Mississippi

d.   Ohio

 

4.   Bronner constructed a similarity index using 30 variables to predict which states are likely to vote similarly. Which states are the closest match to one another? (Hint: You may have a hard time believing it.)

a.   Arkansas – New Mexico

b.   California – Texas

c.    Florida – Wisconsin

d.   New Hampshire – Ohio

 

Financial plans are a lot like states. They reflect the unique characteristics and needs of individuals and families. If you have any questions about whether you are on track to achieve your financial goals, get in touch.

 

 

 

Weekly Focus – Think About It 

“A nation’s culture resides in the hearts and in the soul of its people.”

 

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

—Mahatma Gandhi, activist

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Weekly Market Commentary, May 13, 2024

Weekly Market Commentary

May 13, 2024

 

 

 

 

The Markets

 

Higher rates are doing what they’re supposed to do.

 

Last week, Federal Reserve officials spoke about keeping the federal funds rate higher until it becomes clear that inflation will reach the Fed’s two percent target rate.

 

While people typically don’t mind earning more interest on their saving and investment accounts, higher rates are painful for consumers. That pain is why higher rates help lower inflation. They discourage borrowing and cause people to buy fewer goods. Lower demand for goods and services should lead to lower inflation, reported Trina Paul of CNBC.

 

So far, the biggest fly in the inflation-reduction ointment is housing. Diccon Hyatt of Investopedia explained:

 

“In the first two decades of the 21st century, the U.S. built 5.5 million fewer homes than were needed, the National Association of Realtors estimated in a 2021 report…The effects of that housing shortage are rippling through the economy, most obviously in the form of soaring home prices…official inflation rates, which are designed to measure the cost of living, are highly sensitive to any changes in housing costs. Housing costs make up 45% of the Consumer Price Index (CPI), the most widely watched measure of inflation.”

 

May data show consumers are feeling discouraged.

 

The University of Michigan’s Index of Consumer Sentiment dropped 13 percent from April to May. “[The] decline is statistically significant and brings sentiment to its lowest reading in about six months. This month’s trend in sentiment is characterized by a broad consensus across consumers, with decreases across age, income, and education groups…They expressed worries that inflation, unemployment, and interest rates may all be moving in an unfavorable direction in the year ahead,” stated Surveys of Consumers Director Joanne Hsu.

 

While consumer sentiment dragged on markets, first quarter corporate earnings reports were stronger than expected, which lifted U.S. stocks. “With well over 80% of the S&P 500 having reported results, companies are on track to have increased earnings by 7.8%, well ahead of the April expectation of 5.1% growth,” reported a source cited by Lewis Krauskopf of Reuters.

 

Declining sentiment caused U.S. stocks to stumble on Friday; however, major indices finished the week higher. Yields on many maturities of U.S. Treasuries 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.

 

 

DATA PRIVACY WILL VARY. For decades, companies have plundered the digital world for valuable treasure – information about you. When it comes to controlling how personal data are used, some people are better protected than others. It often depends on where you live.

 

For example, in 2016, the European Union (EU) adopted its General Data Protection Regulation (GDPR). The law is built on the idea that individuals have the right to own their personal information and decide who can use it, reported Fredric Bellamy of Reuters.

 

In contrast, federal law in the U.S. allows businesses and organizations to collect personal data without the express consent of the people whose information is being collected. The government may step in to prevent or mitigate harm to the individual in certain sectors.

 

In addition to choosing the type of data websites may collect, consumers can consult the free buyer’s guide created by a software firm’s foundation. The guide, called *Privacy Not Included, rates the privacy and security of connected toys, gadgets, and smart products. Among the many groups that have earned a warning label in the buyer’s guide are:

 

·        Dating apps. “Most dating apps (80%) may share or sell your personal information for advertising…It’s a bit strange because…apps work on a subscription model. So with dating apps, it’s not your money or your privacy. It’s often both. We also couldn’t confirm whether half (52%) of the apps do the bare minimum to keep all your personal information safe, by meeting our Minimum Security Standards,” reported Jen Caltrider, Misha Rykov and Zoë MacDonald.

 

·        Automobile companies. “Car makers have been bragging about their cars being ‘computers on wheels’ for years to promote their advanced features. However, the conversation about what driving a computer means for its occupants' privacy hasn’t really caught up…[car brands] can collect personal information from how you interact with your car, the connected services you use in your car, the car’s app (which provides a gateway to information on your phone), and can gather even more information about you from third party sources.” One company sold personal driving data to brokers who used the information to formulate “risk scores”. The scores were then sold to insurance companies, causing some drivers’ premiums to increase significantly.

 

Some states have stepped in to provide additional protections for their residents. In March of 2024, there were “…15 states – California, Virginia, Connecticut, Colorado, Utah, Iowa, Indiana, Tennessee, Oregon, Montana, Texas, Delaware, Florida, New Jersey, and New Hampshire – that have comprehensive data privacy laws in place,” reported Bloomberg Law.

 

In April, federal lawmakers proposed a law, the American Privacy Rights Act, that could give consumers control over how their information is used by companies that collect it, as well as the right to opt out of certain types of data collection, reported Cristiano Lima-Strong of The Washington Post.

 

Weekly Focus – Think About It 

 

“If you make customers unhappy in the physical world, they might each tell 6 friends. If you make customers unhappy on the Internet, they can each tell 6,000 friends.”

--Jeff Bezos, CEO

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Weekly Market Commentary May 6, 2024

Weekly Market Commentary

May 6, 2024

 

 

 

 

The Markets

 

What will the Federal Reserve do?

 

Uncertainty about the direction and timing of Fed rate cuts is causing stock markets in the United States to charge and retreat. U.S. stocks rallied for five consecutive months (anticipating rate cuts early in 2024) before retreating in April after higher-than-anticipated inflation suggested the Fed might delay any rate reductions.

 

Markets retreated early last week on concerns the Fed might take a more hawkish tone following the Federal Open Market Committee (FOMC) meeting – but it did not. Following the meeting, the FOMC release stated:

 

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective…The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

 

While the Fed left its rate policy unchanged, it eased a bit using a different policy lever. “…[FOMC] policymakers gave a green light to slowing the pace at which the Fed is shrinking its Treasury holdings, which may modestly work against the rise in market interest rates,” reported Jed Graham of Investor’s Business Daily.

 

Markets found the Fed’s moderate tone encouraging, and optimism expanded after the U.S. employment report suggested the labor market might be cooling off.

 

“The indexes bounced back from early-week lows after the employment report revealed that the U.S. added fewer jobs than expected in April—but enough to indicate a still-growing economy. For now, that could help keep a lid on inflation, prevent the Federal Reserve from needing to raise rates again, and maybe even allow it to cut them,” reported Jacob Sonenshine of Barron’s.

 

Major U.S. stock indices finished the week higher, according to Barron’s. The U.S. Treasury market rallied, too. Yields on longer maturities of U.S. Treasuries moved lower 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.

 

 

WHO’S YOUR BENEFICIARY? Beneficiaries are the people who will inherit your assets –savings and investment accounts, life insurance policies, homes, cars, and other possessions. In general, there are two ways to name beneficiaries. You can:

 

·        Designate a beneficiary on an account. For example, when you signed up for a retirement plan at work, you were probably asked to name a primary (and, sometimes, a secondary) beneficiary for the account. If you have life insurance or a health savings plan at work, you probably named beneficiaries for these accounts, too.

·        Name an heir in your will. As part of the estate planning process, people write wills that indicate who should inherit various assets.

 

What many people don’t understand is that designated beneficiaries trump wills.

 

“Wills are malleable documents, subject to interpretation from probate court and contestable by family members demonstrating an interest in your estate (even if you don’t list them in your will).

Conversely, your contract with a financial institution creates an unimpeachable beneficiary designation. The financial company and relevant laws ensure your beneficiary will receive payment, even if other family members try to claim the benefit,” reported Ashley Kilroy of SmartAsset.

 

If you’re itching to go online and see who you named as the beneficiaries for various accounts, you should. It’s important to review your financial accounts – life insurance policies, retirement plan accounts, health savings accounts, and investment and bank accounts – and confirm that the correct beneficiary is named.

 

The good news is that checking designated beneficiaries is easier than it used to be. Just log in to your account. If your designation is outdated, you may be able to update the information by completing a beneficiary change form. If you have any questions, get in touch. We’re happy to help.

 

Weekly Focus – Think About It 

 

“Responsibility to yourself means refusing to let others do your thinking, talking, and naming for you; it means learning to respect and use your own brains and instincts; hence, grappling with hard work.”

—Adrienne Rich, poet

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Weekly Market Commentary April 29, 2024

Weekly Market Commentary

April 29, 2024

 

 

 

 

The Markets

 

The economy appears to be slowing down.

 

Last week, many investors were focused on economic data. The Personal Consumption report offers information about Americans’ income and spending over the previous month. It includes one of the Federal Reserve’s preferred inflation gauges, the personal consumption expenditures (PCE) price index. The March report showed:

 

  • Disposable income, which is the amount of money available for Americans to spend and save (after taxes), rose by 1.4 percent, year-over-year.

 

  • The U.S. personal saving rate moved lower, falling to 3.2 percent, year-over-year.

 

  • Consumer spending was higher than expected, up 0.8 percent from February to March, as Americans spent more on both goods and services.

 

  • Headline inflation increased from 2.5 percent year-over-year in February to 2.7 percent year-over-year in March.

 

  • Core inflation, which excludes volatile food and energy prices, did not change from month to month and remained at 2.8 percent.

 

What does it all mean?

 

“More spending is good for the U.S. economy, with consumption accounting for more than two-thirds of the country’s economic activity. But falling savings rates suggest consumers might need to extend themselves financially to keep the shopping going. Friday’s data add to other evidence—such as rising credit card balances and falling excess savings—that suggests, while still strong, the consumer-spending binge won’t continue forever,” explained Nicholas Jasinski of Barron’s.

 

Investors also had an eye on economic growth. The Fed has been raising rates to slow economic growth which, in turn, should help bring inflation lower.

 

One way to measure economic growth is through gross domestic product (GDP), which is the value of all goods and services produced over a specific period. Last week, data showed that U.S. GDP growth slowed in 2024. After inflation, the U.S. economy grew by 1.6 percent in the first quarter. That’s down from 3.4 percent growth in the fourth quarter of 2023.

 

Major U.S. stock indices moved higher last week, according to Barron’s. Yields on most maturities of U.S. Treasuries finished the week higher. However, yields moved lower on Friday after investors decided the Fed is likely to lower the federal funds rate at least once in 2024, reported Ye Xie of Bloomberg.

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.

 

 

COZZIE LIVS. In 2023, Australia’s Macquarie Dictionary’s word of the year was “cozzie livs”, which the dictionary defines as “the average retail prices of food, clothing, and other necessities paid by a person, family, etc., in order to live at their usual standard,” reported Hanan Dervisevic of the Australian Broadcasting Corporation News.

 

It’s slang for the cost of living.

 

Like much of the world, Australia is experiencing a cost-of-living crisis. People have been squeezed by higher prices since 2022 when global inflation was 8.7 percent. Inflation is moving lower. It fell to 6.8 percent in 2023, according to the World Economic Outlook. That’s still well above the inflation rate targets of many central banks.

 

In the United States, we’ve fared slightly better. Prices rose 6.5 percent in 2022, and 3.4 percent in 2023.

 

Lower inflation may explain why New York City dropped lower on the list of the world’s most expensive cities. Every year, The Economist Intelligence Unit (EIU) conducts a Worldwide Cost of Living survey. In 2023, the most expensive cities in the world – tied for first – were Singapore, Malaysia, and Zurich, Switzerland. 

 

In Singapore, “The cost of a certificate needed to own a car (which the government wants to discourage) recently topped $106,000, reported The Economist.

 

“The three biggest climbers were Santiago de Querétaro and Aguascalientes in Mexico, and Costa Rica’s capital, San José. Beijing was one of four Chinese cities among the ten biggest decliners in the ranking. That reflects the depreciation of the renminbi and the faltering of China’s recovery from the pandemic. Moscow and St. Petersburg fell furthest, plummeting by 105 places to 142nd and by 74 places to 147th, respectively,” reported The Economist.

 

The global cost of living could remain relatively high if the Israel-Hamas war spreads in the Middle East and energy prices rise. However, Oxford Economics forecast that global food prices will fall in 2024 as bumper harvests produce abundant supplies of many crops, reported Lee Ying Shan of CNBC.

 

Weekly Focus – Think About It 

 

“The price of anything is the amount of life you exchange for it.”

—Henry David Thoreau, naturalist

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Weekly Market Commentary April 22, 2024

Weekly Market Commentary

April 22, 2024

 

 

 

 

The Markets

 

Investors have been recalibrating their expectations.

 

There is a lot going on in the world that could affect the value of financial markets – wars, tensions between major powers, a strong dollar, and rising oil prices – just to name a few. Last week, it was Federal Reserve policy. The possibility that the Fed might keep rates higher for longer shook investors, reported Naomi Rovnick of Reuters.

 

At a policy forum early in the week, Fed Chair Jerome Powell told the audience:

 

“The performance of the U.S. economy over the past year has really been quite strong. We had growth of more than three percent last year as rebounding supply supported both robust growth and spending, and also employment alongside a considerable decline in inflation. More recent data show solid growth and continued strength in the labor market but also a lack of further progress so far this year on returning to our two percent inflation goal…we’ll need greater confidence that inflation is moving sustainably toward two percent before it would be appropriate to ease policy.”

 

With the federal funds rate likely to remain at its current level for longer than expected, markets reconsidered how that might affect economic growth and corporate earnings, reported Jacob Sonenshine of Barron’s.

 

“Big investors are not rushing to change long-term holdings, but in a sign of things to come, stock market volatility is around a six-month peak as traders debate how high the U.S. rate…against which financial assets are valued will stay,” reported Rovnick.

 

The Standard & Poor’s 500 Index moved lower over the week as investors sold technology stocks on fears that first-quarter earnings reports might disappoint, reported Rita Nazareth of Bloomberg. The Nasdaq Composite and Dow Jones Industrial Average moved lower, too, while yields on many maturities of U.S. Treasuries moved 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.

 

 

CHIEF EXECUTIVE OFFICER (CEO) PAY INCREASED. It’s not an economic indicator, but the compensation companies pay CEOs affects employee, customer, and public perceptions.

 

“Pay is critical for attracting, retaining, and motivating a CEO, and affects the wider company beyond the CEO – high pay may demotivate employees or damage a company's customer reputation. Even more broadly, CEO pay across the economy influences the public's perception of capitalism,” explained researchers Alex Edmans, Tom Gosling, and Dirk Jenter in the Journal of Financial Economics.

 

Last year, median annual pay for America’s CEOs hit a new record: $23.7 million, an 11.4 percent increase from the prior year, reported Andy Serwer and Angela Palumbo of Barron’s. “Median pay for CEOs in this group is now a record 300 times that of their median employee’s, compared with a ratio of 255 in 2018,” reported Serwer and Palumbo.

 

Serwer and Palumbo cited data from an analysis of the largest pay packages for CEOs at U.S. public companies with revenues of $1 billion or more. (Median is the number in the middle, not the average.) CEO pay at the companies measured ranged from about $162 million to about $19 million in 2023.

 

So, how does the increase in CEO pay stack up? It was:

 

·        Higher than inflation, which was up 3.4 percent in 2023.

·        Higher than wage and salary increases for union workers, which averaged 5.4 percent.

·        Higher than wage and salary gains for non-union workers, which averaged 4.2 percent.

·        Higher than benefits cost increases, which averaged 3.6 percent.

 

Median annual pay for U.S. workers was about $58,000 in 2023, according to Eric Van Nostrand, Laura Feiveson, and Tara Sinclair of the U.S. Treasury Department.

 

“Before anyone feels compelled to storm the barricades, it’s worth noting that the 11.4% gain in CEO pay is less than the 13.8% total return to shareholders produced by these companies last year. In fact, CEO pay for top companies climbed 8.77% on average annually over the past six years, while the total annual average return for these companies was 12.02%.” reported Serwer and Palumbo.

 

Weekly Focus – Think About It 

 

“I have been struck again and again by how important measurement is to improving the human condition.”

—Bill Gates, businessman and philanthropist

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