Weekly Market Commentary

September 26, 2022

The Markets

Central bank tightening sparked recession fears.

Last week, the Federal Reserve (Fed) raised the federal funds rate for the fifth time this year. During 2022, the Fed has lifted its benchmark rate from near zero to 3.12 percent. Fed policymakers indicated that they expect to raise the rate again this year. That’s going to make borrowing more expensive as rates on credit cards, home mortgages and business loans increase.

Frankly, that’s the Fed’s goal. It wants to tamp down consumer and business spending. When spending falls, demand for goods and services falls and so do prices. Lower prices mean lower inflation. Unfortunately, inflation has a long way to fall. The Fed’s inflation target is two percent. In August, the Consumer Price Index showed inflation was 8.3 percent.

The Fed isn’t the only central bank hiking its country’s rate. “We are experiencing one of the most synchronized bouts of monetary and fiscal tightening in the past five decades,” reported Daniel Moss of Bloomberg. Ninety central banks have raised rates during 2022.

“The relentlessness with which central banks are increasing interest rates reflects alarm at rising prices — and an aversion to being portrayed as insufficiently courageous at a time of economic peril. With so much hiking, officials should fret about the broader impact of the course they are on. The recession they are courting may be no ordinary downturn.”

The possibility of a global recession was top of mind for investors last week. Major U.S. stock indices dropped lower, and yields on U.S. Treasury yields reached multi-year highs.

In times like these, people often worry about how to protect the wealth they have accumulated. In the investment industry, we say that past performance is no guarantee of future results; however, during market downturns, it can be reassuring to consider current market events within the context of long-term market events.

A chart of the performance of the Standard & Poor’s 500 Index shows that the path of investing is rarely smooth and upward. Bull markets follow bear markets with corrections along the way. The accumulation of evidence over time supports the idea that staying the course is a sound choice during market downturns. It takes patience and discipline, and it can be particularly difficult to do during times like these.

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.

YEET! THEY ADDED PUMPKIN SPICE. You may be more familiar with some of the new words Merriam Webster added to its dictionary than others. Earlier this month, 370 words were added to the lexicon, including:

·        Pumpkin spice. Autumn is pumpkin spice season. The flavor, which is now two decades old, is available in lattes, candles, pancake mix, lip balm, beer and deodorant, among other items. It also can be found in the dictionary where it is defined as “a mixture of usually cinnamon, nutmeg, ginger, cloves, and often allspice that is commonly used in pumpkin pie.”

·        Yeet. Even though ‘yeet’ was the American Dialect Society’s slang word of the year in 2018, Merriam Webster did not add it to the dictionary until this year. They explained, “When a new word starts making the rounds, we don’t just yeet it into the dictionary the first time we encounter it.” Yeet is slang, “used to express surprise, approval, or excited enthusiasm” or “to throw especially with force and without regard for the thing being thrown.”

·        Magnet fishing. Rather than tie a hook on a line and cast for fish, magnet fishers are hoping to attract sunken treasures. The activity is a meld of environmentalism and treasure hunting that is defined as, “the sport or hobby of using a strong magnet attached to the end of a rope to find metal objects in bodies of water.”

Some of the new entries are abbreviated versions of words that have been part of our vocabulary for a long time. This may be the inevitable outcome of adapting to text and social media communications. See if you can guess the longer version of these new words:

·        FWIW

·        ICYMI

·        Sus

·        Laggy

If you get stumped, visit merriam-webster.com or give us a call.

Weekly Focus – Think About It

“Knowledge is the treasure of a wise man.”

—William Penn, founder of Pennsylvania

Weekly Market Commentary

September 19, 2022

The Markets

It’s open to interpretation.

Jackson Pollock was an action painter. He poured, dropped, and dripped paint onto horizontal canvases. Some people look at his work and wonder why it’s highly valued. Others find deep meaning in the paintings. For instance, Pollock’s Convergence is a collage of splattered colors that has been described as “the embodiment of free speech and freedom of expression…It was everything that America stood for all wrapped up in a messy, but deep package.” 

Today, gauging the state of the American economy is akin to interpreting abstract art. Many economic indicators suggest the economy remains strong despite the Federal Reserve’s efforts to cool it off. For example:

·        Inflation is sticky. Last week’s inflation report wasn’t everything Americans hoped it would be. Overall, prices moved 8.3 percent higher over the 12-month period that ended in August. Core inflation, which does not include food and energy, moved higher from July to August. Taming inflation is the Federal Reserve (Fed)’s job.

·        Rates have been moving higher. As it works to tame inflation, the Fed is raising the federal funds rate at a rapid pace. Some are concerned that the Fed will make a policy mistake and raise rates too much, causing a recession. In August, Fed Chair Jerome Powell warned some pain may be ahead for the U.S. economy. 

·        The labor market remained vibrant. Despite the Fed’s efforts, U.S. employers added jobs last month and more Americans returned to the workforce. At the end of August, the unemployment rate was slightly higher at 3.7 percent, reported Megan Cassella of Barron’s, which could mean Fed tightening is beginning to have an effect.

·        The manufacturing sector continued to grow, and so did the services sector. The Institute for Supply Management reported the Manufacturing Purchasing Manager’s Index (PMI)^® and the Services PMI^® showed the economy expanded for the 27th consecutive month. Readings above 50 indicate economic growth. New orders were up in August, and prices were down.

·        Consumers were more optimistic. As gasoline prices dropped, the University of Michigan’s Consumer Sentiment Index showed that consumer sentiment rose to a five-month high last week. That’s not as positive as it may seem. Sentiment levels were comparable to those during the Great Recession, reported Alicia Wallace of CNN.

While economic data are open to interpretation, one thing is for sure: many investors are not happy. Retail investors remained strongly bearish last week, according to the AAII Sentiment Survey, and institutional investors had little appetite for risk. Some investors are making losses permanent by moving from equities to cash. Some are holding investments as they wait for the turmoil to end, and others are waiting patiently for opportunities to arise in the midst of market volatility.

Major U.S. stock indices moved lower last week, and U.S. Treasury yields moved higher across the yield curve.

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.

MAKING WAVES. Ocean waves pack a lot of power. According to the Office of Energy Efficiency and Renewable Energy, a single wave could power an electric car for hundreds of miles. And yet,

when people talk about renewable energy, you don’t hear much about wave power.

Americans have been working to harness the energy of waves since the late 1800s. Christine Miller of the Western Neighborhoods Project described the excitement around wave energy in California at the turn of the 20^th century.

“In December of 1881 the San Francisco News Letter ran a small article about the tremendous potential of the wave motor developed by a Californian named John W. Swailes. His invention was to be used for ‘public and private baths in this city, watering streets, flushing sewers, generating compressed air for driving machinery, also electric energy for illuminating the streets, etc. together with the last and most important purpose of extinguishing fires…’

“For two decades [1890-1910] wave motors of various designs were experimented with along Southern California's beaches…Most notable was the Starr Wave Motor of Redondo Beach which began construction in 1907. It was a large project that hoped to supply power for six counties. In the end, the enormous machine collapsed in 1909 because of the flimsy construction of the pier on which it was attached.”

Today, waves have the potential to provide about 64 percent of total U.S. electricity generation, according to the U.S. Energy Information Administration (EIA), if we can figure out how to efficiently harvest wave power. A variety of methods and technologies are being developed and tested.

Weekly Focus – Think About It

“There's nothing wrong with enjoying looking at the surface of the ocean itself, except that when you finally see what goes on underwater, you realize that you've been missing the whole point of the ocean. Staying on the surface all the time is like going to the circus and staring at the outside of the tent.”

—Dave Barry, humorist

Weekly Market Commentary

September 12, 2022

The Markets

Central banks are hawkish. Stocks popped higher, anyway.

Last week, despite signs that inflation is slowing, U.S. Federal Reserve (Fed) officials emphasized their commitment to tightening monetary policy to lower inflation. Several indicated they anticipate a third consecutive rate hike of 75 basis points, reported Craig Torres and Matthew Boesler of Bloomberg.

Investors seemed to disregard the Fed as U.S. stocks moved higher, snapping a three-week losing streak. The Standard & Poor’s 500 Index finished the week up 3.6 percent, the Dow Jones Industrial Average gained 2.7 percent, and the Nasdaq Composite rose 4.1 percent, reported Christine Idzelis and Joseph Adinolfi of MarketWatch.

The European Central Bank (ECB) announced a rate increase of 75 basis points and revised its expectations for inflation higher last week. The ECB emphasized that tightening will continue and more rate hikes are likely. European stocks rose following the ECB’s announcement, reported Karen Gilchrist and Katrina Bishop of CNBC.

Last week’s stock market gains were a bit confounding, especially when you consider the fact that money has been flowing out of global equities and bonds and into cash and investments that are perceived to be safe havens. The stock market’s performance may be the result of investors whose only option was to buy shares. Bloomberg’s Lu Wang and Isabelle Lee explained:

“In a week that saw discretionary buyers beat a quick retreat from risky assets, another set of traders stood up to halt a three-week plunge in the S&P 500: those with little choice but to buy. They included short sellers, whose rush to cover lifted stocks [that] they’re betting against to gains of more than twice the market’s. Options dealers were another bullish force after getting caught needing to boost hedges by buying stocks when they rise.”

Major U.S. stock indices moved higher last week, and U.S. Treasury yields moved higher across the yield curve.

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.

STAY SAFE WHEN MAKING PEER-TO-PEER PAYMENTS. Peer-to-peer (P2P) payment apps let you quickly send money to other people from a bank account, credit card or another source. All you need is their phone number, email address or username. P2P apps are convenient ways for friends to split the bill for dinner, roommates to pay their share of utility, streaming, or other bills, and parents to send money to children, reported Ellen Sheng of CNBC.

Before getting too comfortable with the convenience of P2P apps, it's important to understand their risks and limitations. “No app provides fraud protection beyond tools to protect your account. If you authorize a payment and the transaction turns out to be a scam or fraud, there’s not much you can do. If your account is hacked, you can reach out to customer support for help. In any case, treat your electronic payments with the same care you apply to cash payments,” reported The New York Times’ Wirecutter.

According to Consumer Reports, there were more than 70,000 reports of fraud in mobile payment apps in 2021. Here are a few things to consider and some steps to take to protect your money when using P2P payment apps.

·        Download apps from a safe source. Only download apps from recognized app stores. Banks and businesses that offer payment apps often have links on their websites, according to Malwarebytes Labs. If you’re not sure whether the app source is legitimate, ask someone you trust for help.

·        Enable security settings. Use the account settings to turn on additional security measures, such as two-factor authentication. Also, if you will be making payments via phone, make sure your phone is protected by a password, fingerprint identification or facial recognition.

·        Don’t send money to strangers. Most apps recommend using P2P apps only with friends and family. That’s because, once you send the money, it’s gone. If a typo results in the transfer of $500 rather than $50, the mistake isn’t correctable unless the receiver sends the overpayment back.

·        Check the information twice. Some banks limit the amount that can be sent through P2P apps because transactions cannot be cancelled. So, double-check the phone number, email address, or username before you choose “send”.

·        Connect your P2P service to a credit card instead of a bank account. “Credit cards are subject to the Electronic Fund Transfers rule (Regulation E), which requires that users be held liable for no more than $50 in the event of fraud or a payment made in error,” reported Consumer Reports.

Digital transfers are handy. That may be one reason P2P payments and digital banking are becoming more common. To stay safe, make sure to protect your login information and know who is receiving the money.

Weekly Focus – Think About It

“I know of no single formula for success. But over the years I have observed that some attributes of leadership are universal and are often about finding ways of encouraging people to combine their efforts, their talents, their insights, their enthusiasm and their inspiration to work together.”

—Elizabeth Alexandra Mary Windsor, Queen Elizabeth II

Weekly Market Commentary

September 06, 2022

The Markets

You may have heard this one: Don’t fight the Fed.

The Fed is the Federal Reserve Bank of the United States. Among other things, the Fed influences monetary conditions in pursuit of price stability and full employment. As we’ve seen recently – with unemployment low and inflation high – the Fed’s job isn’t simple or straightforward.

“Don’t fight the Fed” is a bit of wisdom that encourages investors to align their portfolios with current monetary policy. “The rationale is deceptively intuitive. If the Federal Reserve is cutting interest rates or is generally accommodative, then the ensuing liquidity should provide a positive backdrop for risk assets like stocks. If the Fed is raising rates or constraining liquidity, that activity tends to be a headwind for equities and other assets,” reported Steve Sosnick of Barron’s.

After the Fed confirmed its commitment to rein in inflation by raising rates, the Standard & Poor’s 500 Index finished August lower.

“In retrospect, bulls should maybe have been more worried that one of the most reliable tools the Federal Reserve has for subduing inflation is to scare the U.S. equity market,” reported Isabelle Lee and Lu Wang of Bloomberg. They cited studies that found, “Disinflationary effects have historically kicked in when the S&P 500 drops more than 19%...It breached that level in June and is now approaching it again…every dollar lost in stocks leads to a 3-cent reduction in spending.”

It will be interesting to see whether spending moves lower. While stock markets dropped in August, consumer sentiment moved higher. After falling for three consecutive months, the Conference Board’s Consumer Confidence Index^® increased in August. (The Index sets 100 at 1985 sentiment levels. In 1985, the United States was in its third year of economic growth following a recession.) Last month, sentiment was 103.2, up from 95.3 in July.

Some economists see consumer sentiment as a lagging economic indicator, meaning that it reflects what happened in the past, because it takes time for consumers to respond to economic events. Others think consumer sentiment is a leading indicator because it suggests where spending, which is the biggest driver of U.S. economic growth, may be headed. Consumer spending accounts for close to 70 percent of gross domestic product (GDP), which is how economic growth is measured.

Last week, major U.S. stock indices finished lower after the U.S. employment report showed solid jobs growth, suggesting that the Federal Reserve will continue to raise rates, reported Ben Levisohn of Barron’s. U.S. Treasury yields rose across the yield curve when compared to the previous week’s close.

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.

BACK TO SCHOOL. Across the country, school supplies have been purchased and many children have returned to the classroom to start a new school year. The give and take between teachers and students can produce some memorable – and humorous – moments. The following are from stories shared in Reader’s Digest.

Teacher: Where is your homework?

Student: It’s still in my pencil.

Teacher: Why can’t freshwater fish live in salt water?

Student: The salt would give them high blood pressure.

Teacher: How would you make the world a better place?

Student: I’d make potato skins a main dish rather than an appetizer.

Teacher: Mira went to the library at 5:15 and left at 6:45. How long was Mira at the library?

Student: Not long.

Teacher: Why do you think our librarian is leaving?

Student: Because she’s read all our books?

Teacher: In Franz Kafka’s The Metamorphosis, a man who is discontented with his life, wakes up to find he has been transformed into a large, disgusting insect.

Student: So, is this fiction or nonfiction?

Teacher: Why aren’t you wearing your glasses?

Student: My glasses are for reading, not math.

What are your favorite school stories?

Weekly Focus – Think About It

“I have learned silence from the talkative, toleration from the intolerant, and kindness from the unkind; yet strange, I am ungrateful to those teachers.”

—Khalil Gibran, writer and poet

Weekly Market Commentary

August 29, 2022

The Markets

Markets were tuned to the signals coming from Jackson Hole, Wyoming.

During World War II, United States armed forces often relied on high-powered radio sets to communicate. When determining whether transmissions were garbled by static or obscured by the sounds of battle, the sender would ask, “Do you read me?” If communications were easily understood, the answer was, “Loud and clear.”

Last week, markets heard U.S. Federal Reserve Chair Jerome Powell loud and clear. He spoke at the Federal Reserve (Fed)’s policy forum in Jackson Hole, Wyoming, and said:

“The U.S. economy is clearly slowing from the historically high growth rates of 2021, which reflected the reopening of the economy following the pandemic recession. While the latest economic data have been mixed, in my view our economy continues to show strong underlying momentum. The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 percent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent.”

It wasn’t the speech stock market bulls had hoped to hear. They were anticipating the Fed would take a doveish policy turn, and would soon begin to raise rates less aggressively, according to sources cited by Lu Wang and Elaine Chen of Bloomberg.

Following Chair Powell’s remarks, major U.S. stock indices headed south.

“The Dow Jones Industrial Average declined 3% on Friday…while the S&P 500 index fell 3.4%...the tech-heavy Nasdaq Composite took the brunt of the damage, falling 3.9% on Friday to end the week down 4.4%. That makes sense, given that expensive growth stocks are most sensitive to rising interest rates,” reported Ben Levisohn of Barron’s.

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.

OF LESSER-KNOWN ATHLETES AND ECONOMIC STATISTICS. You may never have heard of him, but Joss Naylor might be one of the greatest endurance athletes of all time. He’s a sheep farmer and a fell runner whose nickname is the Bionic Shepherd. “Fell” is British for hill or mountain. At the age of 50, he climbed 214 peaks, covering 520 miles of mountainous terrain, in seven days, one hour and 25 minutes. 

Mildred Ella “Babe” Didrikson Zaharias was one of the first female athletes to gain recognition. Babe won accolades in golf, where she won 10 LPGA championships; basketball, where she led the Amateur Athletic Union Golden Cyclones to a championship; and track and field, where she earned two gold medals in the 1932 Summer Olympics. She also pitched four innings during three Major League spring training exhibition games in the 1930s.

Last week, you may have heard about a relatively unknown economic statistic that rarely receives recognition. It’s called Gross Domestic Income or GDI. Analysts and economists have been wondering why GDI is outperforming Gross Domestic Product, or GDP, which is a better-known economic indicator.

In theory, the performance of GDP and GDI should be about the same, according to Reade Pickert of Bloomberg, which may explain why GDI is often overlooked. Recently, however, the performance gap between the two has been significant.

·        GDP measures the total value of all of the goods and services produced by the economy. Last week, the Bureau of Economic Analysis (BEA) reported that, after inflation, GDP declined 0.6 percent annualized from April to June, after declining 1.9 percent from January to March.

·        GDI measures the total value of all of the income generated from producing goods and services. It includes compensation and company profits. After inflation, GDI was up 1.4 percent annualized from April to June, after rising 1.8 percent from January to March.

“GDP figures suggest an abrupt slowdown in economic momentum in the first half of the year…The back-to-back negative quarters, a common rule of thumb for recessions, have not only fueled fears of an imminent downturn but also led some to believe it was already under way…GDI, however, points to a more gradual cooling. It paints a picture of an economy supported by a robust labor market and resilient consumer spending, though one that’s starting to feel the pinch of the worst inflation in a generation,” reported Bloomberg.

The BEA will take another look and offer final revisions to GDP and GDI in September.

Weekly Focus – Think About It

“The way to catch a knuckleball is to wait until it stops rolling and then pick it up.”

—Bob Uecker, baseball player and broadcast announcer