Market Update
(all values as of 08.31.2022)

Stock Indices:

Dow Jones 31,510
S&P 500 3,955
Nasdaq 11,816

Bond Sector Yields:

2 Yr Treasury 3.45%
10 Yr Treasury 3.15%
10 Yr Municipal 2.61%
High Yield 8.34%

YTD Market Returns:

Dow Jones -13.29%
S&P 500 -17.02%
Nasdaq -24.47%
MSCI-EAFE -21.21%
MSCI-Europe -23.79%
MSCI-Pacific -16.35%
MSCI-Emg Mkt -19.31%
 
US Agg Bond -10.75%
US Corp Bond -14.21%
US Gov’t Bond -11.49%

Commodity Prices:

Gold 1,721
Silver 17.82
Oil (WTI) 88.90

Currencies:

Dollar / Euro 1.00
Dollar / Pound 1.16
Yen / Dollar 139.07
Canadian /Dollar 0.76
 

Macro Overview

Attention has shifted from inflation to recession as housing, wages, interest rates, commodities, and consumer expenditures have all receded from their highs, an indication to economists that an economic slowdown or recession may be evolving. Numerous countries worldwide are restricting the export of food, adding to global supply constraints already causing shortages and hunger in various third-world countries. Such restrictions, which have been exacerbated by the invasion of Ukraine, are considered a form of food protectionism. The EU imposed a partial ban on crude oil imports from Russia in response to the invasion of Ukraine. With energy prices already soaring in Europe, the ban is expected to cause even further inflationary pressures throughout the European region. Consumers may not notice the price difference between gasoline and diesel at the pump, yet they will be indirectly affected by higher prices as transportation costs are passed along to consumers. Diesel is the primary fuel for railroads and trucking, which transport the bulk of consumer goods nationwide. Equity indices had their worst first six months in decades, with the Dow Jones, S&P 500, and Nasdaq averages all posting negative returns. Elevated labor and material costs, recessionary concerns, and an increasingly faltering sentiment have fostered downward momentum. Russia missed payment on its government bonds in late June, which is considered a default by the international bond market. The last time Russia defaulted on its debt was in 1917, during the Russian Revolution. As a reminder, the Russian Revolution saw the abolition of the Russian monarchy and the beginning of Russia’s communist regime, a huge turn for the nation. The Federal Reserve Bank of Atlanta estimates Gross Domestic Product (GDP) with a model it has been utilizing for years, with a very low average tracking error of just -0.3. The model, known as GDPNow, estimates GDP for the second quarter of the year at negative 2.1%, following another negative 1st quarter GDP of 1.6%. Many economists consider two consecutive quarters of negative GDP as indicators of a recessionary environment. Fed Chairman Jerome Powell said that the risk of a recession is heightened as rates continue to move higher, stating that a recession is not the Fed’s “intended outcome”, but that it is “certainly a possibility.” Some companies over the past few weeks have also announced hiring freezes and layoffs in response to slowing economic activity. Fortunately, the cutbacks have so far been limited to a few industries including technology, mortgage lending, and popular pandemic-era companies. Various companies are believed to have over-hired during the past two years when growth was more prominent and costs were still contained. Other signs of stabilizing inflationary pressures are present in the commodities market, where copper, oil, wheat, rice, and lumber continued to fall from their highs this past month. Lower commodity prices tend to help alleviate some expenses and inflation for consumers. Gasoline prices eased a bit this past month with the national average for a gallon of regular gasoline falling to $4.87 at the end of June, down from $5.00 earlier in the month. As pricey as gasoline may seem, gasoline prices can be much higher in other countries, such as in Hong Kong where consumers are paying upwards of $11 per gallon. Sources: The Federal Reserve Bank of Atlanta, EuroStat, EIA, S&P, World Food Program

 

Equity Indices Have a Rough First Half – Domestic Equity Overview

Equity indices have had an absolutely dreadful first half, their worst in decades. The S&P 500 Index had its worst first half in over five decades, the Dow Jones Index suffered its worst six months since 1962, and the Nasdaq had its worst first six months ever. Energy was the only positive sector in the S&P 500 for the first six months, while the other ten sectors- including health care, financials, communications, real estate, and more- were negative. Consumer discretionary and technology sector stocks were among the worst-performing sectors, with consumer staple stocks among the better performers. Second-quarter earnings, due for release in July, are expected to reveal how company profits fared with exceptionally elevated material and labor costs earlier in the year. Analysts are also sensitive to a growing consensus expecting a recessionary environment before the end of the year. Sources: Bloomberg, S&P, Reuters, Dow Jones Macro Overview

 

Yields Hold Steady Until Fed Decides – Fixed Income Update

The yield on the 2-year Treasury bond fell to 2.84% on July 1st, the biggest drop since March 2020. Yields on the 5, 10, and 30-year Treasury bonds also fell, indicative of deflationary trends. Many analysts expect the Fed to raise short-term rates at least once more by 75bps in July, with a possible pause thereafter. Some are even projecting the Fed to reverse course and start easing rates in 2023 should the economy fall into a recession. Sources: Treasury Dept., Federal Reserve

 

Inflation Can Be Different For Those Over 62 – Retirement Planning

Data compiled by the government via the Bureau of Labor Statistics (BLS) maintains a separate tally of inflation for people over 62. The rarely heard index, known as the CPI-E, is a variation of the traditionally recognized CPI (Consumer Price Index), but with an emphasis on goods and services mostly used by those over 62 years of age. This past month, the recent release of the CPI-E and the CPI revealed an inflation rate of 7.6% for the CPI-E versus an 8.6% rate for the traditional CPI over the past year.   The CPI-E assigns a larger weight to senior-related expenses such as medical services and housing, and a lesser proportion to education and transportation. The index was first created in 1987 when Congress directed the BLS to assist in identifying inflationary pressures among senior citizens. The index currently represents roughly 25% of all U.S. consumers.   Source: Bureau of Labor Statistics; https://www.bls.gov/cpi/research-series/r-cpi-e