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)

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)