Weekly Market Commentary

October 10, 2022

The Markets

Bah humbug!

Last week, OPEC+, which includes the Organization of the Petroleum Exporting Countries and allied oil producers like Russia, chose to cut production by two million barrels a day. The stated goal is to keep crude oil prices above $90 a barrel. The production cut, which will push gasoline and other prices higher, complicates efforts to fight inflation, reported Salma El Wardany and colleagues at Bloomberg.

According to economic data, the Federal Reserve’s inflation fight has produced mixed results, so far. Like the ghosts that visit Scrooge in A Christmas Carol, economic data offers information about what has happened in the past, what is occurring in the present, and what could happen in the future. Recently, the data has been sending mixed signals. Nicholas Jasinski of Barron’s explained:

“For the early part of this past week, a bad-news-is-good-news mentality ruled as each ‘disappointment’ was greeted with a surge. Fueled by data showing softer manufacturing activity and a sharp decline in job openings, the [Standard & Poor’s 500 Index] put together a 5.7% jump on Monday and Tuesday…It was all downhill from there, though, as hawkish remarks from Fed officials, stronger services data and Friday’s jobs report drove home the point that we’re still a ways away from an economy or labor market that justifies the end of tightening.”

Stock prices are considered to be a leading indicator. They offer information about what investors expect to happen in the future. Last week, investors changed their minds mid-week. Despite price volatility, major U.S. stock indices finished the week higher.

U.S. Treasury yields moved higher last week, too, with the yield on the two-year Treasury finishing the week at 4.3 percent, while the yield on the 10-year Treasury finished at 3.9 percent. When short-term yields are higher than long-term yields, the yield curve is “inverted,” which has historically been a sign that the bond market thinks the U.S. is headed for a recession.

“The shape of the curve is among the most widely watched financial-market barometers because it reflects bondholders’ views of where interest rates and the economy are headed. When the curve inverts, with long yields dropping below short ones, it signals expectations of a slowdown that will drive rates lower in the future,” reported Michael Mackenzie and Ye Xie of Bloomberg.

It’s difficult to know what will happen in the future. That’s why investment portfolios are built around investors’ short- and long-term financial goals. It is easy to lose sight of your goals, though, when markets are volatile. If you’re feeling overwhelmed and uncertain, please get in touch. We’re happy to talk about your concerns and help you find solutions.

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.

AND THE WINNER IS…They didn’t get as much press as the Nobel Prizes, but 10 Ig Nobel Prize winners were also named recently. The Igs honor “…achievements that make people laugh, then think. Good achievements can also be odd, funny, and even absurd, so can bad achievements. A lot of good science gets attacked because of its absurdity. A lot of bad science gets revered despite its absurdity.”

This year’s winners included scholars of scorpion constipation, duckling swimming, ice cream cryogenics, romantic heart rate synchronization and other scintillating scientific topics. For example,

·        The Biology Prize went to Solimary García-Hernández and Glauco Machado for “Short- and Long-Term Effects of an Extreme Case of Autotomy: Does ‘Tail’ Loss and Subsequent Constipation Decrease the Locomotor Performance of Male and Female Scorpions”

To escape predation, some types of scorpions shed their tails, losing a portion of their digestive tracts. This causes constipation. García-Hernández and Machado’s research investigated whether scorpions’ ability to move was affected by the change. They found that running speed was unaffected over the short-term. However, over the longer-term, tail loss and constipation hurt the running speed of males but not females.

·        The Economics Prize went to Alessandro Pluchino, Alessio Emanuele Biondo, and Andrea Rapisarda for “Talent vs. Luck: The Role of Randomness in Success and Failure.”

Western culture often asserts that success is the result of talent, intelligence, hard work, commitment and other personal traits. The research found that luck plays an outsized role. The researchers used mathematics to explain “why success most often goes not to the most talented people, but instead to the luckiest.” This was the second Ig for Pluchino and Rapisarda, whose previous win was for a paper explaining that promoting people at random could make organizations more efficient.

·        The Peace Prize went to Junhui Wu, Szabolcs Számadó, and their co-authors for “Honesty and Dishonesty in Gossip Strategies: A Fitness Interdependence Analysis.”

The researchers investigated gossip and developed a mathematical model for honest and dishonest gossip. During their acceptance speech, the researchers explained, “…gossiping people can be honest or dishonest, depending on how much they value the targets and recipients of gossip.”

Each of the Ig Nobel winners received a $10 trillion Zimbabwean banknote worth about far less than one trillion dollars. The awards were presented by actual Nobel Prize winners.

Weekly Focus – Think About It

"The most difficult thing is the decision to act, the rest is merely tenacity."

—Amelia Earhart, aviator

Weekly Market Commentary

October 03, 2022

The Markets

The third quarter marked a change in attitude.

So far, 2022 has been a tough year for investing. We’ve experienced an unusual phenomenon – the simultaneous decline of stock and bond markets. Throughout the third quarter, investors’ concerns focused on global instability, rising prices and the possibility that central bank efforts to tame inflation would cause economic growth to falter. The result has been tremendous volatility in stock and bond markets.

Early in the third quarter, U.S. stock markets gained ground as investors latched onto the idea that inflation had peaked, and the Federal Reserve would soon moderate the pace of rate hikes. Following the release of July’s Consumer Price Index (CPI), Carleton English of Barron’s reported:

“Wall Street got a dose of good news this week. It also got a little ahead of itself. Inflation slowed in July, according to Department of Labor data released on Wednesday…It makes sense that investors would celebrate the easing of prices. But it may be too early to pop the Champagne – inflation standing at 8.5% is still a long way from the Federal Reserve’s target of 2%, and the Fed is likely to continue tightening until it is under control.”

U.S. stock markets trended higher through mid-August when Fed Chair Jerome Powell made it clear the Fed did not share investors’ optimistic inflation outlook. It still viewed inflation as a threat and planned to continue to raise rates aggressively into 2023.

Other central banks concurred. Last week, Katie Martin of Financial Times reported, “In an extraordinary sweep, central banks from the U.S. to Switzerland embarked on what looked like competitive policy tightening…10 central banks delivered a massive combined total of 6 percentage points of rate rises just this week. Several rises, including the latest from the U.S., were of some 0.75 percentage points, three times the usual scale of rate moves.”

Aggressive central bank tightening caused investors to reassess their expectations. The result was a market sell off. “In the month since Federal Reserve Chair Jerome Powell laid down a hard line on inflation, stocks have suffered double-digit losses, chasms have opened in global currency markets, and yields on the safest U.S. government debt have surged to their highest levels since the dark days of the financial crisis nearly a decade and a half ago,” reported Howard Schneider of Reuters.

There is a concept in financial markets known as capitulation. It occurs when fear takes hold. Investors abandon hope that the stock market will deliver positive returns and they sell. Capitulation often is a sign the market has bottomed, reported Nicholas Jasinski and Jacob Sonenshine of Barron’s. In recent weeks, investors have been selling, but some say the market has not yet reached capitulation. 

If you’re tempted to sell, think carefully. The wiser course may be to stay invested. A recession is at least partly priced into current U.S. stock prices. In addition, the strength of the dollar will help the Fed’s effort to bring inflation down, reported Financial Times.

It’s important to remember that stock markets are leading indicators. They reflect what investors anticipate will happen in the future. As a result, the market often bottoms during a recession and begins to rise before the recession ends, reported Sergei Klebnikov of Forbes.

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 WEEKLY WRAP-UP. It was a tumultuous week. In the United States, Hurricane Ian pummeled Florida and South Carolina. Analysts estimate the destruction in Florida will cost U.S. insurance companies about $63 billion, although the cost of recovery will be much higher. “The total economic damage will be well over $100 billion, including uninsured properties, damage to infrastructure, and other cleanup and recovery costs,” according to a source cited by Max Reyes of Bloomberg.

In the United Kingdom, fiscal and monetary policies collided last week. Britain’s new government plans to encourage economic growth with a stimulus package to offset energy costs and big unfunded tax cuts. The government’s fiscal stimulus plan could spark at the same time Britain’s central bank is trying to tamp inflation down. Investors showed their disapproval by selling U.K. government bonds, which are known as gilts. As yields surged, gilts rapidly lost value, imperiling the nation’s pension funds. The Bank of England staged an emergency intervention, calming bond markets by promising to continue its bond purchases, reported Brian Swint of Barron’s.

Inflation continued to be a concern around the globe. In the U.S., the Personal Consumption Expenditures Index was released last week. It showed prices rose 6.2 percent year-over-year in August. In the 19-member Eurozone, inflation was up 10 percent in September, largely because energy prices are up more than 40 percent year-over-year, reported Elliot Smith of CNBC. In Argentina, the central bank lifted its benchmark rate for the ninth time – to 75 percent – in an effort to tame inflation.

The war in Ukraine continued to affect food and energy supplies, driving prices higher. The agreement between Russia and Ukraine that allowed some grain exports to Europe, Asia, the Middle East and Africa in July and August appears to be in jeopardy. Russia is reconsidering the agreement, and has threatened to reject it, which could exacerbate food insecurity in some countries and drive food prices higher. 

On Friday, major U.S. stock indices were in bear territory, closing at 52-week lows, reported Ben Levisohn of Barron’s. The yield on benchmark U.S. Treasury notes rose to a 14-year high before falling back a bit to finish the week at 3.8 percent.

Weekly Focus – Think About It

“Earnings don’t move the overall market; it’s the Federal Reserve Board...focus on the central banks, and focus on the movement of liquidity...most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets.”

—Stanley Druckenmiller, asset manager

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