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

Weekly Market Commentary

August 22, 2022

The Markets

Is this a bear market rally or a new bull market?

Investment professionals are in the middle of a heated debate. Since mid-June, United States stock markets have moved higher, regaining about $7 trillion as many investors who had sold shares during the first half of the year began buying again, reported Lu Wang of Bloomberg. The debate is about whether the stock market is in the midst of a bear market rally or a new bull market.

A bull market occurs when share prices rise steadily over time. In a recent Morning Briefing on LinkedIn, Edward Yardeni of Yardeni Research, explained the debate:

“From a fundamental perspective, the bears expect that inflation will remain elevated, forcing the Fed to raise interest rates much higher, causing a severe recession. The bulls, like us, believe that inflation might have peaked in June and that the Fed is likely to pause for a while following one more rate hike of [0.50 to 0.75 percent] in late September. The bears see lots more downside for earnings and valuation multiples. We see flattening corporate earnings through the end of this year and believe that forward valuation multiples bottomed on June 16. In our bullish narrative, the market could move sideways for a while before moving to new record highs next year.” 

Will Daniel of Fortune reported, “Morgan Stanley has repeatedly argued that the recent stock market rally is nothing but a bear market trap, while Bank of America has warned that stocks have more room to fall based on historical trends.”

In an effort to determine whether it is possible to distinguish bull markets from bear market rallies, one Minnesota research group examined data going back 65 years, reported Bloomberg. “The answer is that it remains next to impossible to say in real time which ones will last. Methods people claim work often fall apart when looked at rigorously.” 

Last week, a pause in the rally added fuel to the debate. The Standard & Poor’s 500 Index declined after four weeks of gains, reported Ben Levisohn of Barron’s. U.S. Treasury yields moved higher as investors parsed Federal Reserve commentary, reported Samantha Subin and Natasha Turak of CNBC.

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.

TAX BREAKS AND REBATES…The Inflation Reduction Act of 2022, which was recently signed into law, offers some financial incentives for households and businesses that are ready to begin transitioning to cleaner energy. Here are a few of the key tax breaks and rebates for individuals.

·        $7,500 tax credit for a new electric vehicle (EV). Anyone who purchases an electric, plug-in hybrid, or hydrogen fuel cell vehicle between now and 2032 may qualify for up to $7,500 in tax credits. Americans who purchase used EVs may qualify to receive up to $4,000 in tax credits or 30 percent of the sale price, whichever is less, reported Greg Iacurci of CNBC. Next year, car buyers will be able to choose whether to take the tax credit as a discount at the point of purchase, reported Kelley R. Taylor of Kiplinger. 

These credits could give the EV market a boost if consumers who were deterred by the higher cost of electric vehicles, reconsider the option. Consumer Reports recently found that “the latest generation of mainstream EVs typically cost less to own than similar gas-powered vehicles, a new development in the automotive marketplace with serious potential consumer benefits.”

·        Tax credit for solar panels and other renewable energy sources. There is also a tax credit available for consumers who install solar panels or other equipment designed to capture and store renewable energy from wind, geothermal, and biomass fuel, reported CNBC. The credit extends and enhances an existing program. Under the current rules, homeowners who complete clean energy projects may qualify for a tax credit of up to 30 percent of the cost if the project is done before 2032. The credit falls to 26 percent in 2033, and 22 percent in 2034.

·        $2,000 annual tax credit for improving home energy efficiency. From 2022 through 2032, homeowners may receive a tax credit for installing energy-efficient windows, skylights, water heaters, and doors, as well as electric or natural gas heat pumps, and biomass stoves or boilers.

The legislation also includes rebate programs, which will be administered by state governments, for consumers who cut home energy use by at least 20 percent.

Weekly Focus – Think About It

“I always want to say to people who want to be rich and famous: try being rich first. See if that doesn't cover most of it. There's not much downside to being rich, other than paying taxes and having your relatives ask you for money. But when you become famous, you end up with a 24-hour job.

—Bill Murray, actor