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Weekly Market Commentary December 27, 2022

Weekly Market Commentary

December 27, 2022

 

The Markets

 

What a year!  

 

In some ways, it feels as though we lived through several years in 2022. The onslaught of events included, “The first major European war since the 1990s, unprecedented sanctions, energy-price mayhem, bail-outs, global interest rates rising at their fastest pace in four decades, a faltering Chinese economy, an overheating American one, housing markets looking peaky across the rich world, [and] a crypto blow-up for the ages…,” reported Hamish Birrell in The Economist’s Money Talks newsletter.

 

The impact of these events was felt around the world. Global inflation averaged 10 percent, and global stock markets were down about 20 percent through November, reported The Economist. Yet, some countries showed remarkable economic resilience, performing far better than average. The Economist surveyed economic and financial data from 34 wealthy countries. The data included gross domestic product or GDP (which is the value of all goods and services produced in a nation), inflation, breadth of inflation, stock market performance and government debt.

 

Many of the top performers were in the Mediterranean. They tended to have better-than-average stock market performance, declining debt-to-GDP ratios*, strong economic growth, and/or below average inflation. The top 10 included:

 

·        Greece

·        Portugal

·        Ireland

·        Israel

·        Spain

·        Mexico

·        Canada

·        Japan

·        France

·        Italy

 

The United States ranked 20th, although its position may have skewed low. The author opined, “America’s GDP numbers are misleadingly weak: in recent quarters official statisticians have struggled to account for the impact of enormous stimulus packages.”

 

Last week, major U.S. stock indices delivered mixed results as economic data, created uncertainty reported Nicholas Jasinski of Barron’s. Positive earnings news and strong labor market data were countered by cooling inflation and slower consumer spending. The Standard & Poor’s 500 Index and the Nasdaq Composite moved lower, and the Dow Jones Industrial Average rose. Treasury bond yields generally moved higher.

 

*Debt as a percent of GDP measures a country’s ability to repay its debt. In addition, research from the World Bank found a high debt-to-GDP ratio may impede economic growth. 

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.

 

OUT WITH THE OLD. IN WITH THE NEW. Every new year brings new ways of doing things. Here are some of the trends and ideas that may shape 2023 (or not).

 

Challenging your taste buds. “Flavors that violate [consumers’] expectations are sure to be a hit…unexpected and unique flavor combinations will be in demand going into 2023.” Spoiler alert. If you want to be surprised by 2023’s new flavors stop reading here. If you want to warn your tongue what may be coming, prepare for dragon fruit and Vietnamese-Cajun.

 

Traveling for inner growth. One of the top travel trends in 2023 will be transformation retreats, according to Sarah Allard of Condé Nast Traveler. “…2023 will be the year we travel for personal betterment. Whether you are seeking to overcome grief, identify your life’s mission, or discover what your body is physically capable of, there will be a transformation retreat that caters to it.” Another anticipated trend is “set-jetting,” visiting countries where your favorite movies and television shows are filmed.

 

Dowsing for fresh water. 2023 may be the year that water-strapped cities and regions begin harvesting water vapor. That’s the suggestion offered by scientists at the University of Illinois at Urbana-Champaign who have been researching sources of fresh water. “A new study suggests an investment in new infrastructure capable of harvesting oceanic water vapor as a solution to limited supplies of fresh water in various locations around the world,” reported Science Daily.

 

And now for something completely different. If you’re bored with your current exercise routine, you might consider the Ministry of Silly Walks workout. A tongue-in-cheek study published in the British Medical Journal found that inefficient walking (of the type seen in Monty Python’s Ministry of Silly Walks skit) burns lots of calories. “Adults could achieve 75 minutes of vigorous intensity physical activity per week by walking inefficiently for about 11 min/day. Had an initiative to promote inefficient movement been adopted in the early 1970s, we might now be living among a healthier society.”

 

We hope you have a safe and happy New Year celebration.

 

Weekly Focus – Think About It

“Write it on your heart that every day is the best day in the year.”

—Ralph Waldo Emerson, philosopher

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Weekly Market Commentary December 19, 2022

Weekly Market Commentary

December 19, 2022

 

The Markets

 

Bad news is bad news, once again.

 

For months, investors have cheered bad economic news. When the United States economy showed signs of weakness, stock markets often reflected investor enthusiasm. The thinking was that bad economic news would persuade the Federal Reserve to slow the pace of rate hikes. Inflation would slide lower, and recession would be avoided.

 

Last week, there was a shift in attitude.

 

On Wednesday, the Federal Reserve raised the federal funds rate by half a percent, as expected. Over the course of this year, the fed funds rate has risen from near zero to 4.33 percent. That’s an enormous increase designed to drop inflation by slowing economic growth – and the Fed expects growth to slow.

 

The dot plot is a chart that reflects the expectations of each member of the Fed’s decision-making committee. It showed that Fed officials expect U.S. economic growth to slow next year. The forecasts indicated gross domestic product (GDP), which is the value of all goods and services produced in the U.S., could grow very slowly or even contract next year (it could contract -0.5 percent or grow to 1.0 percent). Fed officials also anticipated the unemployment rate could rise from a relatively low 3.7 percent to 4.6 percent.

 

The day after the Fed’s statement, the Commerce Department reported that retail sales declined more than expected in November. That suggests economic growth may be slowing.

 

The stock market didn’t surge on the bad economic news. It retreated. Vildana Hajric and Lu Wang of Bloomberg reported:

 

“For the first time in a long time, news that was bad for the economy was bad for the stock market as well, more proof that recession fear has replaced inflation angst as that market’s biggest bugaboo… Rather than rise on speculation that weak data would curb Federal Reserve tightening, the S&P 500 dropped 2.5% on Thursday, while the Nasdaq 100 lost 3.4%. Small-cap stocks lost more than 2.5% and the VIX volatility gauge shot back above 22. The yield on 10-year Treasuries hovered around 3.45%, down from a peak of 3.63% earlier this week.” 

 

Last week, major U.S. stock indices finished lower, and the Treasury yield curve remained inverted.

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 MONEY AND FINANCES? When Annamaria Lusardi was a graduate student, she noticed something remarkable. People who earned similar amounts during their working years didn’t arrive at retirement with the same amount of wealth. The reason had a lot to do with financial decision-making that resulted from low financial literacy.

 

A 2022 report from the Global Financial Literacy Excellence Center (GFLEC) found that, on average, American adults answered about 50 percent of financial literacy questions correctly. This quiz has a lot fewer questions than the GFLEC survey, but they may be quite challenging.

 

1.   You have $1,000 in an account. It earns 4 percent interest each year, and you keep the interest in the account. After two years, will you have:

a.   $1,080

b.   More than $1,080

c.    Less than $1,080

d.   I don’t know

 

2.   Your account earns 4 percent interest per year and inflation is 5 percent per year. After one year, the money in the account will buy:

a.   Exactly what it buys today

b.   More than it buys today

c.    Less than it buys today

d.   I don’t know

 

3.   The monthly payments on a variable rate mortgage are not fixed. What happens to those payments when rates increase? 

a.   Payments rise

b.   Payments fall

c.    Payments stay the same

d.   I don’t know

 

4.   When interest rates move higher, bond prices move:

a.   Higher

b.   Lower

c.    Stay the same

d.   I don’t know

 

5.   You owe $1,000 on your credit card. The card company charges an interest rate of 25 percent compounded annually. If you make no payments on this credit card, how many years will it take before you owe twice as much?

a.   Two years

b.   Three to four years

c.    Four to five years

d.   Six or more years.

 

If you have any questions about the answers, let us know.

 

Weekly Focus – Think About It

“I cannot teach anybody anything. I can only make them think.”

—Socrates, philosopher

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Weekly Market Commentary December 12, 2022

Weekly Market Commentary

December 12, 2022

 

The Markets

 

What comes next?

 

The U.S. stock market tends to be a forward-looking vehicle. Investors make decisions today based on what they think may be ahead for the economy, and how economic change may affect the companies they’re considering for investment. Currently, key questions include:

 

·        Will inflation be lower in 2023?

·        Will Federal Reserve (Fed) policies change? When will they change?

·        Will economic growth remain strong next year? Or will it slow or contract?

 

Opinions about the answers to these questions vary, and that’s one reason markets have been volatile lately. For example, some think the U.S. economy is headed for:

 

·        A soft landing. This is the Goldilocks ideal. In December, a large investment bank said there was a 35 percent chance the United States is headed for a soft landing, which the bank defined as inflation falling to 4 percent, the Fed funds rate rising to 5 percent, and economic growth settling at 1 percent.

 

·        A period of stagflation. A November survey of 272 asset managers with $790 billion under management reported that 92 percent of respondents expected the United States to experience a period of stagflation over the next 12 months, reported Sagarika Jaisinghani of Bloomberg. Stagflation is characterized by above average inflation and slowing economic growth.

 

·        A recession. There is a diversity of opinion about whether the U.S. will experience a recession in 2023. The Fed put the odds of recession at 50 percent. However, “economists surveyed by Bloomberg [in November] saw a 65% chance of recession in the next year, based on the median estimate. A Bloomberg Economics model puts the probability at 100%,” reported Matthew Boesler of Bloomberg.

 

It’s important to remember the economy is not the stock market. It is just one of the many factors that influence share prices. Each of the economic possibilities would affect share prices and market sectors differently.

 

With so much uncertainty, it’s hard to know what will happen. As baseball great Yogi Berra said, “It’s tough to make predictions, especially about the future.” That’s why it’s a good idea to hold a well-allocated and diversified portfolio that targets your financial goals.

 

Last week, major U.S. stock indices finished lower, and the Treasury yield curve remained inverted.

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.

 

FEELING SOME HOLIDAY STRESS? Holidays can be wonderful, and they can be a lot. If the joy of the season is eclipsed by stress, anxiety or depression, here are some tips that can help.

 

·        Pet a pup. Find a few minutes to spend with your pets. Loving on animals – dogs, cats, bunnies, guinea pigs, reindeer – engages the social and emotional section of the human brain. As a result, it can help you cope when you feel stressed or depressed.

 

·        Find the humor. Humor can help, too. When kids find the gifts and unwrap them early, the cat tips the tree over – again, or your parents or in-laws say things they shouldn’t, try to find the ridiculous, over-the-top angle that makes it funny. If you just can’t, try smiling. Even a fake smile will cause endorphins to be released.

 

·        Reach out. Performing acts of kindness can lift your spirits during the holidays. Set up a food drive. Donate gifts to a homeless shelter. Make a charitable contribution to an animal rescue or another cause. Visit people in a nursing home. Run a race for a good cause. You get the idea.

 

·        Spend less. One of the biggest holiday stressors is money. Before you start shopping and entertaining, decide what you can afford to spend this year, and then stick to your budget. If you regularly overspend on gifts, decide how much you are going to spend and stick to it. Ways to control costs include making homemade gifts and donating to a good cause in the recipient’s name.

 

·        Just say “No.” You don’t have to accept every invitation this season. When you’re tired of people and celebrations, make time to do something that you enjoy. Listen to music. Take a walk. Watch funny videos. Read a book. Give yourself an opportunity to rest and recover.

 

We hope you have happy and healthy holidays!

 

Weekly Focus – Think About It

“Kindness in words creates confidence. Kindness in thinking creates profoundness. Kindness in giving creates love.”

—Lao Tzu, philosopher

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Weekly Market Commentary December 5, 2022

Weekly Market Commentary

December 05, 2022

 

The Markets

 

What will it take to slow this economy down?

 

In 2001, railway workers slowed a runaway train in Ohio by latching a second engine to the back of the locomotive and applying the brakes. In all, the train traveled sixty-six miles over two hours, decelerating from a maximum speed of 47 miles per hour to 10 miles per hour before workers regained control of it, according to CNN.

 

Throughout 2022, the United States Federal Reserve has been trying to slow inflation by putting the brakes on the U.S. economy. So far, the Fed has raised rates six times, but the economy continues to grow apace. Last week, the Bureau of Economic Analysis reported the economy grew faster than originally thought from July through September 2022. Gross domestic product (GDP), which is the value of all goods and services produced by the U.S., was up 2.9 percent, annualized, rather than 2.6 percent as the advance estimate indicated.

 

Last week’s unemployment report also suggested the economy remains strong. More jobs were added than economists expected, and the unemployment rate remained at 3.7 percent. Average hourly earnings also increased faster than expected, up 5.1 percent over the last 12 months.

 

Megan Cassella of Barron’s reported, “The biggest outstanding obstacle to the Federal Reserve’s success in reining in inflation boils down to a numbers problem: There aren’t enough workers in the [United States]. Simply put, labor supply and demand need to come back into balance to contain wage growth and services inflation, which continues to climb…A combination of factors is contributing to the dearth of workers, from Baby Boomer retirements and falling immigration to a low birth rate and long COVID. Together, they suggest that shortages are here to stay.”

 

Last week, stock and bond markets rallied following Fed Chair Jerome Powell’s mid-week speech, in which he confirmed it was likely December’s rate increase would be smaller than the last few increases have been. Later in the week, the strong employment report checked investors’ enthusiasm. Regardless, major U.S. indices finished higher, reported Nicholas Jasinski of Barron’s, and Treasury yields finished the week mostly 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.

 

CAN YOU BELIEVE IT’S DECEMBER ALREADY? According to Andy Williams, Garth Brooks and Kylie Minogue, “It’s the Most Wonderful Time of the Year.” During December, holiday enthusiasts don ugly sweaters, wheedle recipes out of relatives, light a wealth of candles, and celebrate a diversity of holidays. See what you know about this magical time of the year by taking our brief quiz.

 

1.   Which of the following holidays is NOT celebrated in December?

a.   International Ninja Day

b.   Sacher-Torte Day

c.    Dewey-Decimal System Day

d.   National Take Down the Christmas Tree Day

 

2.   Scientists have studied the psychology of gift giving. They find that the most valued presents are:

a.   Expensive gifts that make others envious

b.   Beautifully wrapped gifts that are pleasing to the eye

c.    Sentimental gifts that bring joy and happiness

d.   Thoughtful gifts that reflect the recipient’s hobbies and interests

 

3.   Which generation is expected to spend the most ($1,823) on gifts, travel and entertainment this holiday season?

a.   Gen Z (Ages 9 to 24)

b.   Millennials (Ages 25 to 40)

c.    Gen X (Ages 41 to 56)

d.   Boomers (Ages 57 to 75)

 

4.   When did the New Year’s Eve ball drop first take place in Times Square? (Hint: Teddy Roosevelt was President.)

a.   1893

b.   1907

c.    1920

d.   1945

 

If you have any questions, get in touch.

 

Weekly Focus – Think About It

“Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend.”

—Melody Beattie, author

 

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

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Weekly Market Commentary November 28, 2022

Weekly Market Commentary

November 28, 2022

 

The Markets

 

There was a shift in the winds of monetary policy.

 

Last week, it became clear the Federal Reserve (Fed) had softened its hawkish stance. The minutes of the central bank’s November policy meeting indicated the Fed was likely to slow the pace of rate hikes soon. There was a caveat, though. The minutes noted:

 

“…with inflation showing little sign thus far of abating, and with supply and demand imbalances in the economy persisting…the ultimate level of the federal funds rate that would be necessary to achieve the Committee’s goals was somewhat higher than [Fed officials] had previously expected.”

 

In other words, rate hikes are likely to be smaller in the future, but the federal funds rate will probably move higher than previously expected. Last week, the CME FedWatch Tool suggested that the federal funds target range will:

 

·        Increase 0.50 percent in December to 4.25 to 4.50 percent.

·        Rise to 5.0 percent to 5.25 percent during 2023.

·        Fall to 4.5 percent to 4.75 percent by the end of next year.

 

Weaker economic data seemed to support the Fed’s pivot. Molly Smith of Bloomberg reported, “Fresh evidence Wednesday pointed to a slowing U.S. economy and a cooling labor market that suggests steep interest-rate hikes by the Federal Reserve are starting to have a broader impact. Business activity contracted for a fifth month in November and applications for unemployment benefits rose last week to a three-month high. While consumer sentiment and new-home sales improved, both remain depressed and indicate a weaker spending appetite and subdued housing demand.”

 

Investors celebrated the Fed’s stance adjustment, and major U.S. stock indices pushed higher last week. Yields on U.S. Treasuries with maturities of one year or less moved higher last week, while yields on longer maturities 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.

 

SHORT TAKES. The Federal Reserve’s pivot wasn’t the only interesting event last week. Here are some other occurrences that may prove to be of interest to investors.

 

A cure for the “Royal disease”. In the 1800s and early 1900s, royalty in Britain, Germany, Russia and Spain suffered from hemophilia, a genetic disorder that prevents blood from clotting. Last week, the U.S. Food and Drug Administration approved the first gene therapy treatment for hemophilia. The treatment, which is administered once, has a price tag of $3.5 million. Cell and gene therapies are expected to change the way disease is treated, but the price begs the question: Could Royals even have afforded it?

 

Ready, set, shop! About two-thirds of American holiday shoppers – and the National Retail Federation (NRF) anticipate that number will be more than 166 million this year – planned to shop in brick-and-mortar to stores over Thanksgiving weekend. More than a third were planning to go online on Cyber Monday. The NRF estimates sales will be up 6 percent to 8 percent over November and December. It remains to be seen how holiday deals will affect companies’ profits.

 

Pandemic redux. The number of daily COVID-19 cases in China reached a record high last week, affecting the cities of Beijing, Chongqing and Guangzhou. “Cities are once again expanding their testing efforts and building makeshift hospitals to quarantine the growing number of people who are infected. Though no city-wide lockdowns have been announced, the widespread restrictions are increasingly paralyzing economic activities, even as authorities pledge to make their responses more targeted and less disruptive,” reported Bloomberg News.

 

We hope you stay healthy and achieve all your shopping goals during the holidays! 

 

Weekly Focus – Think About It

“Never be limited by other people's limited imaginations. If you adopt their attitudes, then the possibility won't exist because you'll have already shut it out...You can hear other people's wisdom, but you've got to re-evaluate the world for yourself.”

—Mae C. Jemison, astronaut

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