Robert Krueger

Alexander Randolph Advisory Inc.

8200 Greensboro Drive, Suite 1125

McLean, VA 22102

703.734.1507

www.alexanderrandolph.com

October 2021
Market Update
(all values as of 08.30.2024)

Stock Indices:

Dow Jones 41,563
S&P 500 5,648
Nasdaq 17,713

Bond Sector Yields:

2 Yr Treasury 3.91%
10 Yr Treasury 3.91%
10 Yr Municipal 2.70%
High Yield 6.92%

YTD Market Returns:

Dow Jones 10.28%
S&P 500 18.42%
Nasdaq 18.00%
MSCI-EAFE 9.72%
MSCI-Europe 9.81%
MSCI-Pacific 9.34%
MSCI-Emg Mkt 7.44%
 
US Agg Bond 3.07%
US Corp Bond 3.49%
US Gov’t Bond 2.95%

Commodity Prices:

Gold 2,535
Silver 29.24
Oil (WTI) 73.65

Currencies:

Dollar / Euro 1.10
Dollar / Pound 1.31
Yen / Dollar 144.79
Canadian /Dollar 0.74

Macro Overview

A Congressional standoff surrounding raising the debt limit led to increased market volatility as a political debate lingered. Impasses regarding the debt ceiling have occurred numerous times since the limit was established in 1917.

Some economists believe that dissipating stimulus payments along with growing inflationary pressures may hinder economic expansion heading into 2022.

Also adding to consumer tensions are tax reform measures proposed by Congress that are creating uncertainty surrounding tax and estate planning. Among the proposals are heightened capital gains taxes, reduction in estate tax exemptions, and limits on transferring assets to heirs with favorable tax treatments.

The number of known deaths from Covid-19 in the U.S. has now surpassed the number of fatalities from the 1918 flu pandemic. The CDC reported that over 675,000 people have died thus far, equaling those who died in the 1918 pandemic. Notably different is that the population of the U.S. has nearly tripled since 1918, thus having a smaller toll on the overall population of 333 million.

Economists are noting that wage gains have been trailing price gains throughout the economy, meaning that consumers are able to buy less. Rental costs, the largest expenditure for many consumers, are expected to increase as forecast by the Federal Reserve Bank of Dallas.

Interest rates rose in September driven by inflationary influences and the Federal Reserve’s signal that it will start alleviating stimulus support by the end of the year.

Heightened energy prices along with ongoing supply constraints are stoking inflationary concerns as consumers resume spending on products and services. Gasoline, oil, and natural gas prices rose in September as supply constraints and increased global demand added to price pressures.

Cryptocurrency has become highly disputable among various world governments. September saw two significant opposing positions for digital currency as El Salvador became the first country to adopt a cryptocurrency as its legal tender and China’s Central Bank declared all crypto-related transactions illegal, citing concerns about gambling, fraud and money laundering.

Sources: CDC, U.S. Treasury, Federal Reserve

 

Rates Head Higher – Fixed Income Overview

Rates moved slightly higher in September as markets look to the Fed for indications of a taper. Yields on government, corporate and municipal bonds rose, sending bond prices lower.

The Federal Reserve announced that it will probably start tapering its bond buying strategy as soon as this November, as well as an inclination to start raising rates in 2022. Bond buying by the Fed has been a stimulus process that has helped maintain low interest rates.

FreddieMac reported that the average rate on a 30-year fixed mortgage rose to 3.01% as of September 30th, the highest weekly increase since February.

Sources: U.S. Treasury, Federal Reserve, FreddieMac

Volatility Returns As Uncertainty Prevails – Equity Overview

Volatility returned in September to U.S. and international equities as central bank stimulus efforts are expected to start unwinding by year end.  Third quarter results for major equity indices revealed that the financial and utilities sectors led the broad markets, with the energy sector leading all sectors year to date.

Equity analysts believe that ongoing supply disruptions have worsened globally as Covid related issues continue to impact factories and ports worldwide. Freight and energy constraints continue to add costs to companies posing a material risk to profit expectations.

Sources: Bloomberg, Reuters, S&P

Median Household Income Drops – Demographics

The median household income fell in 2020 for the first time since 2014, according to the most recent Census Bureau data released in September. Widespread stimulus payments as well as enhanced unemployment benefits were not enough to match prior year incomes in 2019. As of the end of 2020, the median household income was $67,521, a drop of 3% from 2019. Even though it doesn’t appear to be much of a consequential drop, inflation pressures are becoming more of a concern. Census Bureau data is adjusted for inflation, albeit at only 1.25%, which is the U.S. Bureau of Labor Statistics’ calculation.

Analysts suspect that the inflation rate may actually be much higher, perhaps approaching the 50-year average of 4.1%. Because of this, some economists believe that median incomes are not keeping up with inflation and stripping many households of their purchasing power.

Source: U.S. Bureau of Labor Statistics 

 

Consumers Drive Economic Growth, Not Government – Consumer Expenditures

Each month the Department of Commerce releases its Gross Domestic Product (GDP) report. This report is the single most recognized indicator of how the economy is performing.

The single largest contributor of these components is consumer consumption, making nearly 70% of GDP.

Historical data provided by the Bureau of Labor Statistics shows that U.S. economic growth has steadily become more reliant on consumer expenditures. Consumer expenditures as a percentage of GDP have risen to their highest levels over the past three years since the end of World War II. The importance of how much we consume as consumers each and every day has become that much more significant.

Additional data from the Fed shows that consumers have also adjusted their spending behaviors, relying less on credit and more on government stimulus payments to spend, vastly different from the peak of easy credit seen in 2004-2006.

Sources: Commerce Department, BLS, Federal Reserve

How To Check On Your Social Security Benefits Before Retiring – Retirement Planning

As retirement approaches, estimating income for the retirement years is critical in planning for living and leisure expenses. It is suggested to request an updated Social Security Statement which estimates the projected benefit payments at different ages. As more people have been working longer than expected before retiring, the additional income can increase Social Security benefits.

The earliest one can take Social Security is age 62, which pays a lower benefit than waiting until full retirement age of 66 for those born between 1943 and 1954. Full retirement age increases gradually for those born between 1955 and 1960 until reaching age 67. For anyone born 1960 or thereafter, full retirement age is 67.

In order to request your estimated benefit payments, the Social Security website provides friendly calculations and estimates based on your most current tax year filing. Simply visit https://www.ssa.gov/myaccount/retire-calc.html

Source: www.ssa.go

 

 

 

Demand Drives Natural Gas Prices Higher – Energy Update

Natural gas prices soared to levels not seen since 2008 as increased demand and limited supply have pushed prices to nearly triple from where they were in May 2020. Expanding global demand due to an economic rebound from the pandemic has created an energy gap for countries and consumers worldwide.

New drilling technology, in addition to the amount of accessible natural gas, has accelerated over the past few years. Numerous companies and agencies, including the Department of Energy, now estimate the nation’s natural gas resource base is so vast that its development is potentially an enormous benefit to the economy and a competitive advantage for many U.S. companies.

Manufacturers in the United States may be among the biggest beneficiaries of abundant and affordable natural gas, since inexpensive power generation is critical for U.S. manufacturers to compete internationally. We are already seeing a revival of some manufacturing in the U.S., partly because of the reduced cost of powering a plant.

In relation to job creation, shale gas production supported more than 600,000 jobs in 2010, a number projected to increase by more than 1.6 million by 2035. The Department of Energy estimates that the Unites States has not only a significant supply of natural gas, but quite possibly one of the largest worldwide. With such vast amounts of inexpensive natural gas, the U.S. is slowly developing efficient means of not only drilling it, but also exporting it. As the U.S. continues to discover and extract natural gas nationwide, the price drops as supply grows. This elevates the U.S. to becoming an exporter globally, where prices are higher due to increasing demand.

Source: U.S. Energy Administration (EIA)

How The Debt Ceiling Came About – Fiscal Policy

Formally known as the statutory debt limit, the United States debt ceiling or debt limit is a legislative restriction on the amount of national debt that can be issued by the Treasury. The United States has maintained legislative restriction on debt since 1917. In order to control the amount of total debt outstanding, Congress has placed restrictions on Federal debt issuance since the passing of the Second Liberty Bond Act of 1917, which eventually evolved into a general debt limit in 1939. The Second Liberty Bond Act of 1917 helped finance the United States’ entry into World War I, which allowed the Treasury to issue long-term Liberty Bonds.

Periodically, a political dispute arises over legislation to raise the debt ceiling. Until the debt ceiling is raised, the Treasury undertakes what is termed as “extraordinary measures”, which essentially buys more time for the ceiling to be raised.

The United States has never reached the point of default, where the Treasury is unable to pay its obligations. In 2011 the United States reached a point of near default, which in turn triggered the first downgrade of U.S. debt by credit rating agencies. Congress raised the debt limit with the Budget Control Act of 2011, which led to the fiscal cliff and set a new debt ceiling that was reached on December 31, 2012. The current debt ceiling debate in Congress is expected to lead to a debt ceiling increase sometime in the first quarter of the government’s fiscal year, which begins October 1 of each year.

Source: Congressional Research Service, U.S. Treasury

 

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.