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Weekly Market Commentary February 27, 2023

Weekly Market Commentary

February 27, 2023

 

The Markets

 

Is it good news or bad news?

 

The answer depends on your perspective. Last week, we learned that:

 

Consumer sentiment is at its highest level in more than a year. Consumers are feeling better about current economic conditions and the future. That said, the University of Michigan Index of Consumer Sentiment remains 20 points below its long-term average. Consumer expectations for inflation over the next year increased from 3.9 percent to 4.1 percent and, over the longer term, consumers anticipate inflation will average about 2.9 percent.

 

Americans spent more money in January. Consumer spending is the primary driver of economic growth in the United States. In January, “consumers’ spending increased and after-tax incomes rose...Taken together, these indicators are the latest evidence that the U.S. economy started the year on a strong note — bucking signs of a slowdown at the end of last year,” reported Courtenay Brown of Axios.

 

Business conditions improved in the U.S., overall. In the United States, business conditions improved as demand for services increased, reported Lucia Mutikani of Reuters. In February, the S&P Global Flash U.S. Composite PMI Output Index came in at 50.2. Readings above 50 indicate the economy is expanding. For the last seven months, the reading has been below 50.

 

“The long tails of fiscal stimulus, for example, have propped up the economy for far longer than anyone expected. Excess consumer savings and an ebullient labor market fueled demand for travel, restaurant dining, and other services, where spending still has room to grow. And years of low interest rates have transformed the debt dynamics for the overwhelming majority of U.S. households, leaving them largely shielded, through fixed-rate mortgages, from the impacts of the Federal Reserve’s primary tightening tool,” reported Megan Cassella of Barron’s.

 

Business conditions improved in many parts of the world. February’s Flash PMI readings were above 50 for many regions, including the Eurozone (52.3), the United Kingdom (53.0), Japan (50.7), and China (50.1).

 

Greater optimism, improving business conditions, higher incomes, and more spending appear to be positive developments. The kicker is that they helped push inflation in the wrong direction. One of the Federal Reserve’s favored inflation indices showed inflation moving higher from December to January. That’s not what the Fed wanted to see. It has been working aggressively to tame inflation and recent economic data suggests it has more to work to do.

 

Major U.S. stock indices finished the week lower, according to Nicholas Jasinski of Barron’s. Treasury yields rose across many maturities.

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.

 

FUN WITH MONEY IDIOMS. We know that money doesn’t grow on trees, but that doesn’t stop us from saying it. We also say that people bring home the bacon, time is money, and money talks. These all are idioms – phrases that don’t mean what they say. For instance, money doesn’t really talk. Every country has its own money slang. See what you know about global money idioms by taking this quiz.

 

1.   In Germany, they may say that someone ‘lives like a maggot in bacon.’ It means:

a.   They borrow from others and do not repay them

b.   They live a decadent lifestyle

c.    They pay too much for everything

d.   They live in a house full of flies

 

2.   In Poland, this saying describes a person who doesn’t like to spend money:

a.   To slide in on a shrimp sandwich

b.   To be eating cables

c.    To be as phony as a $3 bill

d.   To have a snake in your pocket

 

3.   If you live in Spain and ‘have more wool than a lamb,’ then you:

a.   Are very rich

b.   Talk about money too much

c.    Shop at expensive stores

d.   Prefer natural fabrics

 

4.   In Holland, if you ‘buy something for an apple and an egg,’ what have you done?

a.   Bartered for goods

b.   Paid too much

c.    Found a real bargain

d.   Are a vegetarian

 

Whenever you need help getting your financial ducks in a row, get in touch. We’re happy to share our two cents!

 

Weekly Focus – Think About It

A day without laughter is a day wasted.”

—Charlie Chaplin, Comic actor

 

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

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Weekly Market Commentary February 21, 2023

Weekly Market Commentary

February 20, 2023

 

The Markets

 

Brace for a bumpy ride.

 

There were some unwelcome surprises in last week’s economic data that caused markets to reassess expectations for 2023. For example:

 

Inflation didn’t fall as fast as expected. Last week, the Consumer Price Index showed inflation rose 6.4 percent, year-over-year, in January. That was an improvement over December’s pace and the seventh consecutive month of falling prices, but economists expected price increases to slow more quickly, reported Megan Cassella of Barron’s.

 

“Look into the details, and it is easy to see that the inflation problem is not fixed. America’s ‘core’ prices, which exclude volatile food and energy, grew at an annualized pace of 4.6% over the past three months, and have started gently accelerating. The main source of inflation is now the services sector, which is more exposed to labor costs…It is hard to see how underlying inflation can dissipate while labor markets stay so tight,” reported The Economist.

 

Consumer spending accelerated. Americans were in a buying mood. Retail sales, which is a proxy for consumer spending, rose 3.0 percent in January after declining in November and December of last year, reported the U.S. Census Bureau. John Authers of Bloomberg opined:

 

“Another day, another item of evidence that the U.S. economy isn’t slowing down anything like as much as many had thought. U.S. retail sales in January rose the most in almost two years, reinforcing the narrative that consumer demand remains strong.”

 

Bullish sentiment in stock markets has been supported by the idea that inflation will continue to slow, and the Fed will be able to ease up on interest rates, reported Al Root of Barron’s. Last week, The Economist suggested stock markets may be overly optimistic. “Investors are pricing stocks for a Goldilocks economy in which companies’ profits grow healthily while the cost of capital falls…This is a rosy picture. Unfortunately, as we explain this week, it is probably misguided. The world’s battle with inflation is far from over.”

 

Bond markets were less sanguine. After a chorus of Fed officials took the stage to let everyone listening know the federal funds rate would likely need to move higher – and stay higher – for longer, the bond market capitulated, reported William Watts of MarketWatch. As expectations shifted, the yield on a six-month Treasury moved above 5 percent for the first time since 2007 and the yield on a 10-year Treasury hit a new high for the year.

 

Major U.S. stock indices finished the week mixed. The S&P 500 Index and Dow Jones Industrial Average moved lower, while the Nasdaq Composite Index finished slightly higher. Treasury yields rose across most maturities.

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 VALUE MOST? The 2022 Modern Wealth Survey, which is conducted for Charles Schwab by Logica Research, asked Americans whether personal values are more important to life decisions than they once were. The majority said yes.

 

“Almost three-quarters of Americans (73%) say their personal values guide how they make life decisions more today than they did two years ago, and nearly an equal number (69%) say that supporting causes they care most about are a top consideration when it comes to their financial decisions…When asked which personal values are their biggest motivators, Americans prioritize doing what’s best for others, including the environment and the greater good as well as their family and friends, followed by saving more and reducing unnecessary spending.”

 

Defining and prioritizing values takes time and can be a challenging exercise. The Good Project, a research initiative at the Harvard Graduate School of Education’s Project Zero, offers an online value sorting activity. Visitors review a list of 30 values and choose 10 to begin. The list includes options like:

 

·        Fame and success,

·        Courage and risk taking,

·        Creativity and originality,

·        Power and influence,

·        Hard work and commitment,

·        Faith,

·        Pursuing the common good,

·        Recognition in your field, and

·        Solitude and contemplation.

 

A majority of each generational group that participated in the Modern Wealth Survey agreed that values affect their investment choices: 68 percent of Baby Boomers, 73 percent of Gen X, 75 percent of Millennials, and 82 percent of Gen Z.

 

Overall, “When looking at the factors that influence investing decisions, a company’s reputation (91%) and its corporate values (81%) are almost as important as more traditional factors like a company’s performance (96%) and its stock price (93%). As personal beliefs and interests become more important, many investors (84%) are also interested in having a more personalized investment portfolio.”

 

When you think about money and investing, what is important to you?

 

Weekly Focus – Think About It

“For me, I am driven by two main philosophies: know more today about the world than I knew yesterday and lessen the suffering of others. You'd be surprised how far that gets you.”

—Neil deGrasse Tyson, Astrophysicist

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Weekly Market Commentary February 13, 2023

Weekly Market Commentary

February 13, 2023

 

The Markets

 

This time may be different...or it may not be.

 

There has been a lot of speculation about how the Federal Reserve’s policies will affect the United States economy. Economists have differing opinions about whether the country is headed for:

 

·        A recession, which occurs when the economy stops growing and begins to contract; or

·        A soft landing, which occurs when economic growth slows but does not decline.

 

It’s an important question because recessions often are accompanied by layoffs, rising unemployment rates, dwindling investor confidence, lower consumer spending, and stock market downturns.

 

Recently, a new theory bubbled up.

 

The United States may be experiencing rolling recessions, reported Rich Miller of Bloomberg. “Now there’s a new economic meme making the rounds. It’s called a rolling recession, and it’s a bit of a hybrid. One industry suffers a contraction, then another, but the economy as a whole never swoons, and the job market largely holds up…That framework doesn’t explain everything that’s going on with this puzzling post-pandemic economy, but it’s as good a description as any of what the U.S. has been going through since the Federal Reserve began lifting interest rates from zero in March of last year.”

 

Uncertainty around current economic conditions has a lot to do with the pandemic, according to Schwab’s chief investment strategist Liz Ann Sonders whose talk at the January National Retail Federation (NRF) conference was reported on by Fiona Soltes for the National Retail Federation. When lockdowns ended, demand for goods lifted prices and helped push inflation higher. When services became available again, demand shifted and we saw “pockets of weakness in many categories on the goods side, certainly in housing, that are definitely in recession territory.”  

 

If rolling recessions don’t meld into a national recession, we could see continued economic expansion as inflation moves lower. It’s also possible we could see economic growth heat up and inflation remain at higher levels than we’ve become accustomed to having. It’s just too early to tell.

 

Major U.S. stock indices moved lower last week, reported Teresa Rivas of Barron’s. Treasury yields rose across maturities last week as economic data and Fed officials suggested that further rate hikes may be ahead.

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.

 

ASSET OR LIABILITY? When companies total up assets and liabilities for accounting purposes, employees aren’t counted as assets. It’s a peculiarity that has significant repercussions and the potential to negatively affect both employees and shareholders, suggested Wharton professor Peter Cappelli in the Harvard Business Review.

 

“Many common practices for managing employees are hard to explain,” he wrote. “Why do companies obsess over cost per hire but spend so little time trying to see if they make good hires? Why do they provide so little training when we know it improves performance and many candidates say they’d take a pay cut to get it? Why do firms delay filling vacancies and let work go undone? Why do they spend so much money leasing personnel from vendors rather than hiring their own?”

 

Cappelli contends the problem is rooted in the standards set by the Financial Standards Accounting Board (FSAB) in the United States. While many companies assert that employees are their most significant competitive advantage, that belief is not reflected in generally accepted accounting principles for publicly traded companies. FSAB-established standards don’t count spending on employees – such as wages, salaries, training and development, and benefits – as investments. Instead, those expenditures are treated as expenses and liabilities.

 

“…accounting rules say that items with value are assets—but only if they’re owned by the company. On that basis, employees are not considered assets—even though the tenure of a valuable employee is often far longer than the life of any piece of capital equipment. Even when a company buys other businesses to get access to their skilled employees, the acquisition of talent cannot be treated as an investment.”

 

Under current accounting standards, layoffs are one way for employers to rapidly lower costs and make balance sheets look more attractive. The loss of knowledge, skills, and abilities that accompanies layoffs doesn’t factor into financial accounting, even though it may negatively affect company productivity.

 

While accounting standards have yet to change, companies’ thinking may be. In a Bloomberg opinion titled, ‘U.S. Companies Aren’t Firing People As They Usually Do’, Kathryn A. Edwards wrote, “…the trade-off between short-term cost-cutting and human capital appears to [be] changing as qualified workers become harder to find and hire.”

 

Weekly Focus – Think About It

“Everyone talks about building a relationship with your customer. I think you build one with your employees first.”

—Angela Ahrendts, businessperson

 

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Weekly Market Commentary February 6, 2023

Weekly Market Commentary

February 06, 2023

 

The Markets

 

What do Samuel Clemens (a.k.a. Mark Twain) and the current economic expansion have in common?

 

Author and humorist Twain was prematurely reported to be dead. It first happened in 1897. Twain was on a speaking tour in London when rumors that he had fallen ill and died began to circulate. Then, about a decade later, The New York Times reported that a yacht Twain was on had sunk.  

 

Ben Welter of the StarTribune wrote that Twain responded to the latter story by saying, “I sincerely hope that the report is not true and I suggest that all my friends suspend judgment until such time as I can ascertain the true state of affairs.”

 

There has been a lot of speculation about the death of the current economic expansion in the United States, too. The Federal Reserve has increased the federal funds rate at an unprecedented pace in 2022 to slow economic growth and price increases. Economists, business leaders, and even Fed officials have indicated that a recession – a period of economic contraction – may be ahead.

 

Last week’s economic data suggests that reports about the death of economic growth may have been exaggerated. The Bureau of Labor Statistics reported that more than 500,000 jobs were created in January – about twice as many as economists expected.

 

“Hiring topped all economist estimates, putting to rest any concerns that a manufacturing downturn and layoffs in the technology sector translate into weaker hiring across the country — at least for now. Payroll gains were broad-based, as factories, retailers and restaurants added jobs. Even construction increased employment amid a slump in housing. The robust demand for labor also pulled in traditionally sidelined workers, including Black Americans, whose jobless rate matched a historic low of 5.4% last month,” reported Augusta Saraiva and Katia Dmitrieva of Bloomberg.”

 

In addition, last week the International Monetary Fund raised its growth forecast for 2023. The global economy is expected to expand by 2.9 percent this year, largely due to resilient demand in the United States, falling energy costs in Europe, and the reopening of China’s economy.

 

While the outlook for the economy appears to have improved, the outlook for company earnings remains mixed. About half of the companies in the Standard & Poor’s 500 Index have reported fourth quarter results so far and earnings are down 5.3 percent, year-over-year. “Looking ahead, analysts expect earnings declines for the first half of 2023, but earnings growth for the second half of 2023,” reported John Butters of FactSet.

 

Major U.S. stock indices finished the week mixed. The S&P 500 and Nasdaq Composite Indexes moved higher, while the Dow Jones Industrial Average finished slightly lower, reported Nicholas Jasinski of Barron’s. Treasury yields moved lower for much of last week before bouncing higher after the strong jobs report.

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

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

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

 

A NEW LAW MAY AFFECT YOUR RETIREMENT PLANS. Late last year, Congress passed the SECURE 2.0 Act into law. Many provisions of the new law are expected to help improve retirement readiness in the United States. For example, the law changes the rules that apply to required minimum distributions. Here are a few of the highlights:

 

·        Retirement savers can keep their savings invested longer. Many Americans save for retirement in employer-sponsored retirement plans, Roth and Traditional IRAs, and other tax-advantaged investment vehicles. The government requires participants to begin withdrawing money from these plans at a certain age. The new law raises the age for required minimum distributions (RMDs) from 72 to 73 in 2023 and to age 75 in 2033.

 

That may not seem like a big deal, but it could be. Hypothetically, a person with a million dollars saved for retirement could be required to withdraw about $36,500 in RMDs at age 72. In contrast, a person with a million dollars for retirement who didn’t have to take RMDs until age 75, could see the value of their savings increase by about $191,000 over three years, if they earned 6 percent a year, on average, and the interest compounded annually.

 

·        Roth accounts are exempt from RMDs. Many people choose to contribute to Roth accounts in their employer-sponsored retirement plans even though the contributions are taxable. They prefer Roth accounts because any distributions are tax-free. The new law says that, starting in 2024, Roth account owners will not have to take RMDs.

 

·        RMD penalty taxes have been reduced. When retirement plan accountholders fail to take full RMDs, they owe a tax penalty. In the past, the penalty was 50 percent on insufficient or late withdrawals. Now, the penalty will be 25 percent if the issue is not corrected quickly, and 10 percent if it is.

 

The new law includes dozens of provisions. If you would like to talk about how the changes may affect your retirement or estate plans, give us a call.

 

Weekly Focus – Think About It

“Live as if you were to die tomorrow. Learn as if you were to live forever.”

—Mahatma Gandhi, political and spiritual leader

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Weekly Market Commentary January 30, 2023

Weekly Market Commentary

January 30, 2023

 

The Markets

 

The vicious cycle of inflation.

 

Last week, we learned that pay increases at central banks in many parts of the world won’t keep pace with inflation. As a result, their employees may not be able to maintain the standards of living they had before inflation began rising. For example, at the United States Federal Reserve (Fed) the maximum pay increase was 5.1 percent for 2022. That’s significantly below inflation which averaged 8 percent last year, reported Jana Randow and Enda Curran of Bloomberg.

 

It’s a similar story elsewhere in the world. Inflation in the Eurozone averaged 10.6 percent in 2022, yet the average salary increase at the European Central Bank (ECB) and Bank of France was 4.0 percent. Germany’s Bundesbank offered a 1.8 percent raise. In the United Kingdom, where inflation was 9.1 percent on average last year the Bank of England offered a 4.5 percent annual pay increase.

 

Central banks have a reason for not raising pay enough to cover price increases. It’s called the wage-price spiral. The Richmond Federal Reserve explained it like this:

 

“In a wage-price spiral, inflation is fed by a vicious cycle where, as the cost of living rises, workers demand higher wages to pay their bills, leading firms to increase prices even further to cover labor costs.”

 

Since central banks are trying to reduce inflation, they want to avoid a wage-price spiral. Consequently, giving employees raises that don’t keep pace with inflation means that central banks are practicing what they preach.

 

Understandably, central bank employees are not happy about it. In January, a spokesperson for the ECB’s trade union told Bloomberg’s Alexander Weber, “‘With inflation in Germany and the euro area likely around 8.5% this year, it means a substantial loss in purchasing power.’”

 

Last week, data suggested that central banks’ efforts to push inflation lower are working. The Bureau of Economic Analysis reported the Personal Consumption Expenditures Index, which is one of the Fed’s preferred measures for inflation, dropped from 5.5 percent in November 2022 to 5.0 percent in December. The core PCE index, which excludes food and energy prices, fell from 4.7 percent year-over-year to 4.4 percent over the same period.

 

Investors were enthusiastic about the progress on inflation and major U.S. stock indices finished the week higher. The yield on the one-year U.S. Treasury ended the week at 4.68 percent.

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.

 

OH, TO BE 18 FOREVER. You’re likely to live a lot longer than your great grandparents did. In 1900, average life expectancy at birth in the U.S. was about 47 years. It rose to 68 by 1950 and, in 2021, average life expectancy was about 76 years, reported Harvard Health.

 

Science is working to extend life expectancy further by looking for ways to reduce biological aging. Dr. Morgan Levine develops tools to measure biological aging, reported Zoë Corbyn of The Guardian.

 

“Most people’s biological age will be within plus or minus five years of their chronological age, but you can have outliers of up to 10 or more years. The wonderful thing, compared with chronological age, is that biological age is modifiable. We don’t yet know exactly how to modify it to the greatest extent, but the clock can be made to tick slower, or even possibly go backwards, in response to our behaviors (though it can also speed up),” reported Levine.

 

Bryan Johnson, a 45-year-old software entrepreneur, has his sights set on achieving a biological age of 18, reported Ashlee Vance of Bloomberg Businessweek. To that end, Johnson has enlisted a team of 30 doctors who are “committed to help reverse the aging process in every one of Johnson’s organs…” The endeavor is expected to cost Johnson about $2 million this year.

 

Regaining lost youth is a full-time job, according to the doctor who leads the team. In addition to following a specific diet, exercise, and sleep plan, Johnson, “endures dozens of medical procedures, some quite extreme and painful, then measures their results with additional blood tests, MRIs, ultrasounds and colonoscopies.” His medical team reports that, so far, he has reduced his biological age by at least five years.

 

We all have goals for the future. No matter what you want to accomplish, it’s important to have a financial plan that will support your progress. If you would like to talk about your plans for the future, get in touch.

 

Weekly Focus – Think About It

“There is no cure for birth and death save to enjoy the interval”

—George Santayana, philosopher

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