Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

April 2023
Market Update
(all values as of 03.29.2024)

Stock Indices:

Dow Jones 39,807
S&P 500 5,254
Nasdaq 16,379

Bond Sector Yields:

2 Yr Treasury 4.59%
10 Yr Treasury 4.20%
10 Yr Municipal 2.52%
High Yield 7.44%

YTD Market Returns:

Dow Jones 5.62%
S&P 500 10.16%
Nasdaq 9.11%
MSCI-EAFE 5.06%
MSCI-Europe 4.60%
MSCI-Pacific 5.82%
MSCI-Emg Mkt 1.90%
 
US Agg Bond -0.78%
US Corp Bond -0.40%
US Gov’t Bond -0.72%

Commodity Prices:

Gold 2,254
Silver 25.10
Oil (WTI) 83.12

Currencies:

Dollar / Euro 1.08
Dollar / Pound 1.26
Yen / Dollar 151.35
Canadian /Dollar 0.73

Macro Overview

The failure of two regional banks unsettled equity and fixed-income markets in March. Financial contagion risks were at the front of mind, as the closure of Silicon Valley Bank and Signature Bank generated turmoil throughout the banking sector. The recent banking crisis may affect the Federal Reserve’s interest rate increase trajectory, as rapid rate increases were a contributing factor in triggering the banking mayhem.

Many bank analysts assess that the recent bank failures are more contained than the widespread financial crisis of 2008, when numerous institutions were affected. Some economists are forecasting the likelihood of heightened recessionary risk should additional banks fail as interest rates continue to rise.

For context, the banking sector issues that occurred in 2008/2009 was systemic, with a broad impact across many institutions that shared risk exposure to products that included mortgage-backed securities (MBS).

The volatile events in March precipitated a migration to bonds, creating a drop in interest rates which partially offset inflationary pressures. Falling rates are often indicative of a slowing economic environment, with a possible recession should economic activity significantly curtail. The Fed will determine whether to continue its aggressive fight against excessive inflation with higher interest rates, depending on updated economic data and how the bank crisis unfolds. There is a growing consensus that the Fed may be ready to halt raising rates because new data is showing that inflation has started to cool off.

The Fed’s latest survey on the economy, the Beige Book, reported that overall loan demand is falling, bank credit standards are tightening and delinquency rates are edging higher. The survey identified rising rates as a significant factor in inhibiting consumer borrower sentiment.

Millions of taxpayers are expected to file for an extension this year. The deadline for 2022 tax filings is April 18th, and those requesting an extension will have until October 16, 2023. As always, the IRS reminds taxpayers that an extension is for filing and is not an extension to pay taxes owed. (Sources: Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, Federal Reserve Bank of New York, U.S. Treasury)

 
lumber & natural gas prices are off 70% from their highs

Demand For Treasuries Drives Rates Lower – Fixed Income Update

As a result of the bank failures, there has been an increased demand for Treasury bonds as a safe haven. The surge in bond buying has in turn brought down interest rates and has driven bond prices higher. The flight to U.S. Treasury bonds drove bond yields down across fixed-income markets, easing rates on mortgages and consumer loans. The average rate for a 30-year conforming mortgage loan fell to 6.32% on March 30th, a welcome drop for homebuyers nationwide. (Sources: U.S. Treasury, FreddieMac)

Bank Concerns Send Stock Volatility Higher – Domestic Equity Overview

Despite the banking sector issues in March, all three major equity indices posted positive returns for the first quarter of the year. The Dow Jones Industrial Average, S&P 500 Index, and Nasdaq all saw upward trends towards the end of March. Volatility rose in mid-March , and financial and bank stocks saw the most volatility as concerns about contagion became an increasing focus. Companies that provide essential goods and services are a bright spot for investors, as smaller technology and speculative stocks demanded higher risk premiums given the bank failures. (Sources: Dow Jones, S&P, Nasdaq, Bloomberg)

Lumber & Natural Gas Show Signs Of Deflation – Commodity Overview

The past year has been one of turmoil for natural resources, due in part to global instability amidst the war in Ukraine and supply constraints. Two vital commodities affected, lumber and natural gas, saw heightened price volatility. As of this past month, both commodities are off 70% from their highs that were reached in 2022. Economists view lumber and natural gas as leading indicators in their respective industries, signaling that dropping prices are expected to present a deflationary trend that may evolve over the coming months. In spring 2021, lumber surpassed $1600 per thousand board feet, with this essential housing material serving as a catalyst for inflation throughout 2022. Now, lumber’s falling prices are expected to once again reflect the future state of the housing market. The market for lumber is seeing demand fall, with its price falling accordingly. Since the primary use of lumber in the U.S. is housing, a continuation of falling prices may indicate weakening demand in the housing market. Another resource exhibiting similar trends is natural gas, exhibiting increasing supplies and falling demand. As European nations cut off Russian gas as a result of the war in Ukraine, the export of U.S. natural gas rose significantly and raised prices for natural gas domestically. In the U.S., natural gas consumption fell throughout March, with diminishing demand for natural gas expected to continue to drive a return to normal prices, following a price trend similar to that of lumber. (Sources: U.S. Energy Information Administration, NASDAQ, S&P Global Commodity Insights)

 
In Belgium, income tax rates reach as high as 79.5%

U.S. Taxes Lower Than Other Developed Countries – Taxation Overview

Relative to other developed countries, the U.S. now maintains some of the lowest tax rates globally. U.S. tax rates were much higher in the 1940s, reaching a top marginal tax rate of 94% in 1944, and fell substantially over subsequent decades.

Since the Tax Cuts and Jobs Act of 2017, the top marginal federal tax rate in the U.S. is 37%, applying to incomes of over $578,125 for individuals and $693,750 for married couples filing jointly in 2023. In France, for purposes of comparison, the top income tax rate currently reaches 45% for any individual earning €250,000 and 49% for individuals earning €500,000. In the UK, marginal income taxes can reach 63.25% for certain individuals earning over £100,000. In Belgium, income taxes are as high as 79.5%, more than double the highest marginal rates in the United States.

U.S. top marginal tax rates kick in at higher incomes, with most European taxpayers paying the top marginal rate with incomes between €100,000 to €200,000. Across the board, the U.S. tends to have lower income tax rates than many of its European counterparts. (Sources: OECD, Internal Revenue Service, Belgian General Administration of Taxation, HM Revenue & Customs, French Ministry of Finance)

Recent Unemployment Data May Be Misleading – Labor Market Update

In January, unemployment reached a 54-year low of just 3.4%, which presented a positive signal for economic health. However, many analysts agree that this low unemployment rate may be misleading and artificially low for the true state of the economy.

January’s labor market was notably strong in December, adding 504,000 jobs as compared to 239,000 the prior month. The job market cooled slightly in February, with 311,000 jobs added. The labor force participation rate has risen steadily since its 47-year low in April 2020, but is significantly lower than average participation rates throughout the 1990s and 2000s. Ultimately, this makes the Federal Reserve’s battle against inflation much more complicated, as their efforts of reducing hiring to lower inflation have not yet proven to be significantly effective. Historically, low unemployment rates tend to drive inflation higher, and with the recent cooling of inflation data, these historically low employment rates are not expected to last. (Sources: U.S. Bureau of Labor Statistics, Federal Reserve Bank)

 
homeowners can get a tax credit of 30% up to $1,200 For weatherization

Inflation Reduction Act Provides Tax Breaks For Environmentally Friendly Energy Projects – Taxpayer Focus

With Congress passing the Inflation Reduction Act (IRA) in 2022, consumers are expected to see new tax savings centered around environmentally-friendly energy. Throughout the ten-year plan, home renovations and upgrades are projected to generate savings for households. The most significant of these credits is a 30% tax credit against federal income taxes for the cost of installing solar energy equipment. This credit has no limit, and 30% will apply regardless of the amount spent on installation. The credit will remain until the end of 2032, then decrease to 26% in 2033, 22% in 2034, and eventually phase out in 2035. Heat pumps also receive sizable incentives through the act. Low-income households will receive a rebate of 100% for the cost of a heat pump, while moderate-income households will receive 50% of the heat pump expense. Homeowners can qualify for a 30% tax credit up to $2,000 for home energy efficiency projects, which covers heat pumps. For weatherization, homeowners can receive a tax credit of 30% for up to $1,200 per year. For households installing residential batteries, a tax credit of 30% is available for the equipment and installation cost. (Sources: U.S. Congress, Internal Revenue Service, U.S. Department of Energy)

Travel Industry Rebounding From Pandemic Slump – Travel & Tourism Industry

With March passing, it has officially been three years since the initial surge of the COVID-19 pandemic that prompted school shutdowns, virtual meetings, and disruptions across the economy. While some industries benefited from the new landscape, the tourism industry entered into a major slump due to widespread travel restrictions. The world’s leader in tourism, France, saw 211 and 217 million tourists in 2018 and 2019 respectively. That number fell to just 117 million in 2020, a 46% drop that was reflected in countries across the world. The United States saw continuous declines in tourism since 2018, dropping over 72% from 169 million people in 2018 to 46 million in 2021. Other notable decreases include Spain, which saw a 71% fall in tourism between 2019 and 2020, Great Britain with an 85% drop between 2019 and 2021, and Japan with a 99% decrease between 2019 and 2021. Despite international tourism still suffering the effects of the pandemic, both 2021 and 2022 saw improvements. As for domestic travel within the United States, the TSA reported the most domestic travelers in July 2022 since December 2019, a dramatic rise from the abysmal lows of mid-2020.

Sources: Transportation Security Administration, OECD, Federal Reserve Bank of St. Louis, World Tourism Organization