Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

February 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

Macroeconomic Overview

Inflation concerns eased in January, as the most recent data revealed six consecutive months of falling prices. Annualized inflation, as measured by the Consumer Price Index (CPI), fell to 6.5% after reaching 9.1% in June.

Bank surveys conducted by the Federal Reserve showed that lending slowed down markedly, with banks tightening credit scoring and steadily bolstering their cash reserves. Major banks are building protection against potential upcoming economic woes by means of asset and cash consolidation.

Recent legislation will enable millions of taxpayers the ability to reap tax benefits on electric vehicles and 529 college savings plans. Provisions from the Inflation Act and the SECURE Act will primarily benefit middle-income earners across the country.

Equity markets rebounded with the new year, as major equity indices were positive year-to-date at the end of January. The S&P 500 index was up 6.18% as technology-related companies led the gains, and the Dow Jones Industrial Index gained 2.83% for the month.

Recent comments by Fed Chair Jerome Powell signaled that the Fed intends to continue rate hikes due to a strong labor market. Some economists and analysts differ in their views regarding the strength of the labor market, noting a decreasing hiring trend by companies.

 

With recent concerns about the debt ceiling and funding for governmental agencies, the Office of Management & Budget identifies where the federal government allocates funds. The biggest expense in 2022 was Social Security, which was the only spending category over $1 trillion. $770 billion was appropriated for national defense, with other notable categories including health, income security, and Medicare. In total, the federal government spent $6.27 trillion throughout 2022, nearly double what it spent a half-decade ago. (Sources: Bureau of Labor Statistics, Board of Governors of the Federal Reserve, IRS, U.S. Congress, U.S. Office of the President, Office of Management & Budget)

 
The baltic index reached levels as low as $393 in 2020

Demand For Bonds Rose in January – Fixed Income Review

Demand for bonds increased as investors have a large appetite for debt, amid signs that inflation is cooling and central banks worldwide are slowing their pace of tightening. Yields fell across the yield curve in January, with lower yields on both shorter- and longer-term bonds, elevating bond prices which move higher as yields decrease. Housing was buoyed as the average rate on a 30-year conforming mortgage fell to 6.09% on February 2nd, the lowest since September 2022. (Sources: U.S. Treasury, Bloomberg, Freddie Mac)

Major Equity Indices Post Gains – Domestic Equity Overview

Major equity indices were positive year-to-date at the end of January, with the S&P 500 index up 6.18% as technology-related companies led the gains. The Dow Jones Industrial Index gained 2.83% for the month and the technology-heavy Nasdaq advanced 10.68%. Expanding earnings and mitigating expenses are major objectives for companies across sectors and industries. (Sources: S&P, Bloomberg, Nasdaq, Dow Jones)

Shipping Costs Fall From Historic Highs – International Trade

In late 2021, shipping costs skyrocketed, forcing the prices of containers to become unaffordable for many businesses that rely on importing or exporting products. However, costs have since fallen dramatically and recently reached pre-pandemic levels after 2.5 years of abnormally elevated prices.

The Baltic Dry Index indicates global shipping costs as measured by the average prices paid to transport dry bulk material across the globe. The index reflects changes in global supply and demand for materials used in manufacturing, and finished products such as televisions and clothing. In the early months of the COVID-19 pandemic, global lockdowns and financial instability greatly reduced demand for shipping as consumers took a conservative approach to spending and corporations postponed many projects. The index reached levels as low as $393 in 2020, and hovered around $500 until late 2020.

The index skyrocketed quickly into late 2021, however, reaching historic highs of $5,650 in October of 2021. High prices spelled turmoil and uncertainty for businesses that rely on shipping products, especially smaller businesses that lacked the capital to absorb higher costs. Since the peak, shipping costs have declined significantly, down nearly 90% in the past 15 months. As of February 6th, the Baltic Dry Index stands at a 32-month low of $608, which may reflect a long-term price normalization and pose an optimistic sign for corporations who rely on shipping products internationally. (Sources: Baltic Dry Index, Baltic Exchange)

 
U.S. Inflation has decreased to 6.5%

SECURE Act 2.0 Benefits Roth IRAs & 529 Savings Plans – Financial Planning

The SECURE Act 2.0, passed by Congress on December 29, 2022 as part of a new 1.7 trillion spending bill, instituted a wide array of changes in retirement planning. While much focus has been placed on changes to Required Minimum Distributions (RMDs) and company-sponsored retirement plans, a key highlight of the act is changes to Roth IRA plans, which will go into effect in January 2024.

The most major of these changes is the new ability for individuals to roll over funds from a 529 college savings plan into a Roth IRA. Households will be able to transfer a lifetime maximum of $35,000 as penalty-free and tax-free rollovers into their Roth IRA plans.

The annual limit of these rollovers will be equal to the IRA contribution limit, which is currently $6,500 per year for those under the age of 50 and $7,500 for those 50 and older. Further restrictions include that the 529 accounts must have been open for at least 15 years and that contributions made within the last five years are barred from being rolled over. It should be noted that this is an entirely new rule created by the act, and further guidance from the IRS should be expected in the coming months on specific guidelines for these rollovers.

Additionally, the SECURE ACT 2.0 delayed Required Minimum Distributions for 401(k) plans and eliminated RMDs for original account owners of Roth 401(k) plans. These new changes are expected to assist the wave of primarily Baby Boomer Americans who will approach the age of retirement in the upcoming decade. (Sources: U.S. Congress, Internal Revenue Service)

U.S. Inflation Cools While Global Inflation Persists – Global Inflation Trends

Following 40-year highs in inflation, the Fed’s aggressive rate hikes and a slowing economy have begun cooling price increases. For the sixth consecutive month, U.S. Inflation has decreased, reaching 6.5% in December 2022. For the United States, this stands as an optimistic sign of easing inflationary pressures on consumers, corporations, and small businesses. While 6.5% inflation is historically high, and about 4% greater than the Fed’s target rate, it is also the lowest inflation has been since October of 2021.

At the same time American inflation cools, countries worldwide continue to struggle with high inflation. Argentina is facing 94.8% inflation as of December 2022, and is expected to reach 98% inflation by the end of 2023. This is the highest inflation Argentina has observed in three decades and comes amidst political turmoil. Other nations with notably high inflation include Turkey at 84%, Russia at 12%, the UK at nearly 11%, and Poland at 17.5%. (Sources: Bureau of Labor Statistics, IMF, WorldBank)

 
DOE will need to allot around $15.5 billion to replenish reserves

Refilling Depleted Oil Reserves From Four-Decade Lows – Oil Industry Update

As a result of surging fuel costs due in part to OPEC constraints and the war in Ukraine, the U.S. government withdrew more than 220 million barrels of oil over the course of 2022. The withdrawal brought American crude oil reserves down to their lowest level in four decades. Entering 2023, plans are being put in place by the Department of Energy (DOE) to replenish oil reserves.

With oil prices eclipsing $120 per barrel in 2022, oil reserves were sold at an average price of $96 per barrel by the government to provide relief for the American people. However, this resulted in U.S. oil reserves reaching lows last seen in 1983, when the U.S. was just starting to fill its reserves. By withdrawing over 280 million barrels in the past two years, the U.S. government depleted what took nearly seven years to fill during the 1980s, the period of the most rapid reserve filling. With the U.S. producing around 11 million barrels of crude oil per day, it would take about 20 days of total U.S. oil production to replenish reserves from their 2022 depletion.

The Department of Energy announced plans to refill reserves by purchasing barrels of oil priced around $70. In January of 2023, the DOE finalized contracts to purchase 3 million barrels of crude oil. At its target price of $70 per barrel, the DOE will need to allot around $15.5 billion toward replenishing the emergency reserves to their pre-2022 levels. (Sources: Energy Information Administration; U.S. Department of Energy)

Tax Breaks for EVs with the Inflation Reduction Act – Tax Planning

The Inflation Reduction Act (IRA) passed by Congress in 2022 may have opened a unique opportunity to lessen the burden of home renovations and upgrades. The ten-year plan to counteract inflation and emphasize a switch toward environmentally-friendly energy could lead to potential savings and tax breaks.

The most publicized savings from the IRA are within the field of electric vehicles (EVs). New EVs priced under $80,000 for trucks, vans, and SUVs, and $55,000 and under for sedans qualify for a $7,500 tax credit. Restrictions on this credit include that the vehicle is manufactured and assembled in North America, and that household income is under $150,000 for individuals or $300,000 for joint filers. Used EVs provide a tax credit of $4,000 for vehicles priced under $25,000, with income limits of $75,000 for individuals or $150,000 for joint filers. Beginning in 2024, this credit will change into a point-of-sale discount on the price of the EV provided by dealers. (Sources: U.S. Congress, Internal Revenue Service, U.S. Department of Energy)