Fortis Wealth Management

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January 2024
Market Update
(all values as of 02.29.2024)

Stock Indices:

Dow Jones 38,996
S&P 500 5,096
Nasdaq 16,091

Bond Sector Yields:

2 Yr Treasury 4.64%
10 Yr Treasury 4.25%
10 Yr Municipal 2.53%
High Yield 7.63%

YTD Market Returns:

Dow Jones 3.47%
S&P 500 6.84%
Nasdaq 7.20%
MSCI-EAFE 2.23%
MSCI-Europe 1.23%
MSCI-Pacific 3.98%
MSCI-Emg Mkt -0.27%
 
US Agg Bond -1.68%
US Corp Bond -1.67%
US Gov’t Bond -1.59%

Commodity Prices:

Gold 2,051
Silver 22.87
Oil (WTI) 78.25

Currencies:

Dollar / Euro 1.08
Dollar / Pound 1.26
Yen / Dollar 150.63
Canadian /Dollar 0.73
 

Macro Overview

Last year witnessed one of the most ambitious executions of interest rate hikes by the Federal Reserve in history, with rates increased four times in 2023. Optimism dominated markets as equities and bonds rose in a rare positive correlation. Stocks and bonds historically tend to drift in opposite directions.

Inflation-focused concerns in 2023 led to deflationary concerns heading into 2024. The Federal Open Market Committee’s vigilance in combating inflationary pressures translated into hard-landing concerns as recession fears evolved due to rising rates. A robust labor market continues to challenge the FOMC’s potential easing policy in 2024, as wage pressures continue to abound.

Geopolitical tensions continued from 2023, as the invasion of Ukraine and the Middle East conflict weigh on financial markets. The hostilities hinder supply routes in various regions and fuel economic uncertainty. Russia’s invasion of Ukraine directly affects Europe, while the Middle East conflict impacts oil shipping throughout the region.

Bank failures at the beginning of 2023 made for one of the worst years for bank collapses in history. Three of the top five bank failures ever occurred in 2023, as the demise of Silicon Valley Bank, Signature Bank, and First Republic Bank totaled over $350 billion in assets.

Analysts note that the performance of the S&P 500 Index in 2023 may not be truly representative of comprehensive market characteristics, due to a concentration in just seven stocks known as the magnificent seven. Roughly half of the performance for the S&P 500 Index in 2023 was attributable to these seven stocks, with the remaining 493 stocks in the index representing the balance of the return for 2023.

The U.S. exported approximately 75% of total domestic oil production in 2023, supplying both developed and emerging countries worldwide. Supply constraints for oil may pose a challenge as a result of worsening shipping disruptions in the Middle East, affecting prices globally.

Total Federal Debt for the U.S. reached $34 trillion at the end of 2023, up from $27.6 trillion at the beginning of 2021. Rising rates added debt costs for the U.S. government, as interest expense on outstanding U.S. debt increased substantially. (Sources: Fed, BEA, Treasury Dept., EIA)

 
7 stocks accounted for roughly half of the return for the S&P 500 Index in 2023

The Fed Hiked Rates Four Times In 2023 – Bond Market Overview

The Federal Reserve raised rates eleven times between 2022 and 2023, increasing the Fed Funds rate from around 0% at the beginning of 2022 to 5.5% at the end of 2023. The market expects that the FOMC will begin easing rates in 2024, reversing its policy of monetary tightening. Lower consumer and mortgage rates are expected to materialize as the Fed eases. The European Central Bank (ECB), along with the central banks of Canada and England, signaled a continued easing of rate policy in 2024.

A unique dynamic occurred in the 4th quarter of 2023, with Treasury yields and commodity prices falling in tandem. Some economists perceive this dynamic as deflationary in nature, contributing to an eventual lower rate environment. Mitigated inflation concerns also led the FOMC to project possible lower rates as the year progresses. The yield on the 10-year Treasury bond ended 2023 at 3.88%, down from 4.95% earlier in October.

Sources: Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS

Stocks Finish 2023 On A Positive Note – Global Equity Review

Major global equity indices experienced a positive reversal in performance toward the end of 2023 relative to earlier in the year. Domestic indices. including the Dow Jones Industrial Index and the S&P 500 Index, finished the year positively, along with international indices including the Japanese Nikkei 225 and the German DAX.

Seven stocks accounted for roughly half of the return for the S&P 500 Index in 2023. Such a disparity can distort the actual representation of the index, with only seven stocks representing such a large portion of returns relative to the other 493 stocks within the index. Information technology stocks contributed much of the performance of the S&P 500 Index, accounting for approximately half of the indices’s return in 2023. Seventy-one percent of the S&P 500 Index rose less than the index itself in 2023, a notable disconnect from the top seven. It was the first time since 2012 that the S&P 500 Index failed to close at a record high at least once during the year. The index closed at its current record high in January 2022.

Sources: S&P, Bloomberg, Reuters, https://fred.stlouisfed.org/series/SP500

 

 
58% of U.S. households own stocks up from 53% in 2019

More U.S. Households Own Stocks – Consumer Finances

A recent survey conducted by the Federal Reserve, called the Survey of Consumer Finances, has identified that 58% of U.S. households own stocks, up from 53% in 2019. The findings released in the fall of 2023 reflect the most recent data available from 2022, and indicate a gradual increase in stock ownership over the past few years.

Equity ownership varies among households, varying by age and income across the country. The bulk of equity holdings remains concentrated with older and higher income households, and the survey includes consumer household accounts holding individual stocks, mutual funds, and Exchange Traded Funds (ETFs).

Source: federalreserve.gov

Market Performance During Presidential Election Years – Political Dynamics

Election year markets tend to be dynamic and reactive, as candidates propose economic and fiscal plans. Interestingly, political party affiliation of the winning candidate has had essentially zero impact on market performance during election years as far back as 1928.

The FOMC has increased interest rates in 60% of election years since 1928, and the average return for the S&P 500 Index since 1928 during an election year has been approximately 11.25%.

A multitude of economic factors may impact presidential elections, including fiscal and tax policies, foreign policy initiatives, social programs, and economic stimulus objectives. Markets typically adjust to the perceived most likely election outcome as expectations evolve throughout the year. (Source: Federal Reserve Bank of St. Louis)

 

 
The u.s. produces over 13 million barrels of oil daily

U.S. Oil Production Reaches Another Record – Commodity Sector Overview

Despite efforts to curtail oil consumption and production of domestic oil, the U.S. achieved another record producing year in 2023. With over 13 million barrels of oil produced per day, the U.S. continues to be the worlds largest producer, eclipsing Russia and Saudi Arabia as a distant second and third. The United States has ranked as the world’s top oil producer since 2018.

The U.S. shale industry, known for its fracking technology to extract oil from shale rock formations, has continued to surprise world oil markets with its resilience in the face of varying prices. U.S. drillers have thus far been able to beat Saudi Arabia’s “pump and dump” strategy over the past few years to lower oil prices in order to maintain market share.

Global demand for oil has been steadily increasing for the past two decades, with a slight pullback during the pandemic in 2020. The broadening demand has come from both developed and emerging economies, as the reliance on crude oil and gasoline remains intact worldwide. The United States has become one of the top five exporting oil countries, with over 10 million barrels exported each month. (Source: U.S. Energy Information Administration; U.S. Field Production of Crude Oil)

Global Tax Rates On The Rise – Global Tax Policy

Governments rely on tax revenue in order to fund infrastructure, education, entitlement programs, and national defense. Tax policies and initiatives vary from country to country depending on the economic prosperity and health of the country’s economy. Developed countries tend have more comprehensive and structured tax policies in place, relative to emerging market countries.

The recent rise in interest rates worldwide has led to a higher cost of governments issuing debt, prompting many governments to raise taxes. France, Japan and South Korea are among countries increasing tax revenue in lieu of issuing additional government debt. Certain developed economies are also seeing an increase in labor force participation rates, including France, Germany, Italy, and Japan. Increasing participation rates tend to raise tax revenues as more workers add to the tax revenue base. (Sources: OECD; Tax On Personal Income Publication)

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.