Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

June 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

Congress passed legislation during last-minute negotiations to avert a default on the nation’s debt. The suspension on the U.S. government’s $31.4 trillion debt ceiling is temporary until lawmakers finalize legislation to fund ongoing federal obligations.

The impasse on the debt ceiling added strain to bond and equity markets in May. Treasury bond yields rose as national debt concerns put downward pressure on bond prices, which move inversely to yields. Debt ceiling concerns, in addition to the uncertainty surrounding regional banks’ exposure to commercial real estate, contributed to a volatile environment throughout the month.

The Treasury Department plans to issue additional short-term debt to fund immediate federal expenses, with $61 billion in 6-month bills and $68 billion in three-month bills already issued as of June 1st. Treasury issuances, also known as auctions, are part of the government’s ongoing cash management process.

The 49th summit of the G7 was held in Hiroshima, Japan in late May. The G7, which includes leaders from seven developed countries, gathered to discuss the Russian invasion of Ukraine, the climate crisis, and global geopolitical tensions. The G7 summit participants also noted concern regarding China’s economic coercion and its stance on Taiwan.

The Fed’s most recent Beige Book survey found that demand for domestic transportation services including trucking and rail has been decreasing. The survey also found that commercial construction and real estate activity has been decreasing overall. (Sources: U.S. Congress, Treasury Dept., G7, Federal Reserve)

 
Americans sent out 11.2 billion checks in 2021

Equities Endure Volatility – Domestic & International Stock Markets

Debt ceiling negotiations created volatility in domestic equities, while the S&P 500 Index and the Nasdaq maintained positive year-to-date (YTD) returns. The Dow Jones Industrial Average was -0.72% YTD heading into June. Major international regional indices including the MSCI EAFE, the MSCI Europe, the MSCI Pacific, and the MSCI Emerging Markets maintained positive YTD results through the end of May. (Sources: Dow Jones, S&P, Nasdaq, MSCI, Bloomberg)

Debt Ceiling Issues Push Yields Higher – Fixed Income Overview

Government bond yields saw an increase in May as debt ceiling discussions haltingly moved forward. Despite the turmoil in May, all bond sectors posted positive year-to-date results as of the end of May. The yield on the 10-year U.S. Treasury bond settled at 3.64%, rising slightly to reflect the possibility that the government’s cost of borrowing will increase due to default concerns. (Sources: Treasury, Bloomberg)

Paper Check Fraud On The Rise – Consumer Awareness

Notwithstanding technological developments like electronic wire transfers, paper checks remain a very common way to pay expenses such as rent, utilities, donations, and taxes. Unfortunately, fraudsters are increasingly targeting paper checks, increasing the risks of writing a check.

Such fraud can occur in a wide variety of ways, including targeting mailboxes where checks are susceptible. Most of these tactics are low-tech and primarily target an elderly population that heavily relies on paper checks. Americans mailed 11.2 billion checks in 2021 alone. Banks report that check fraud has been rising significantly, with credit card fraud the second most frequent form of fraud.

Certain methods can mitigate the risk of check fraud. Individuals and businesses should minimize their use of paper checks, and experts recommend using gel ink pens rather than ballpoint pens to increase the difficulty of removing the ink with chemicals. Additionally, always watch for any unusual transactions and report them as soon as possible to your bank. (Sources: Financial Crimes Enforcement Network, Federal Reserve Bank of the U.S., U.S. Treasury Department)

 
In January, the debt ceiling of $31.4 trillion was surpassed

Recent History of the Debt Ceiling – Fiscal Policy

In the decades following World War II, the U.S. saw its debt level steadily increase as the government faced growing financial commitments. More recently, government debt has been expanding at an escalated pace since the early 2000s. Over the past two decades, there have been numerous political disputes regarding the debt ceiling, which is the limit of debt the government can issue. In January, the nation reached the debt ceiling of $31.4 trillion, which prompted the U.S. Treasury to implement “extraordinary measures” to delay a potential default until early summer 2023.

 

 

There have been several debt ceiling hurdles since the turn of the 20th century. Fortunately, the U.S. never defaulted on its debt, and the Treasury was always able to pay its obligations. However, 2011 saw a point of near default, leading to credit rating agencies’ first downgrade of U.S. debt. In 2013, debates regarding the debt ceiling arose again, with the government experiencing a partial shutdown that led to the furloughing of hundreds of thousands of federal employees until the debt ceiling was suspended.

More recently, another government shutdown occurred in 2018 when Congress and the White House again failed to raise the debt ceiling. Now, in 2023, the debt ceiling saw a near default due to political gridlock and differing interests by the main political parties. The resolution to this will postpone negotiations until 2025 by suspending the debt ceiling and holding spending mostly at its current level.

The risks of default include severe domestic and global economic repercussions, market volatility, and damage to confidence in the U.S. government’s ability to manage its finances. As political gridlock drove another debt ceiling crisis, it is worth noting that similar circumstances have occurred in the past and will likely continue to occur.

Sources: Congressional Research Service, U.S. Department of the Treasury

 
GDP grew by 1.1% in the first quarter of 2023

More Women in the Workforce – Labor Market Update

An increasing share of women are participating in the workforce, representing a strong recovery from a pandemic-era slump. With more job openings and focused recruitment of women, more women than ever are either employed or searching for work.

This recovery came swiftly following the sudden drop seen in the pandemic, as millions of women either lost their jobs or left the workforce. In the early months of the pandemic, the labor participation rate dropped by over 3.5%, reaching the lowest rate since 2015. The number of women in the workforce was in a general decline since its peak in 2000, but showed a sense of resurgence in the late 2010s leading up to the pandemic. Now, the labor participation rate for women between the ages of 25 and 54 is 77.5%, higher than ever recorded. As primarily younger women enter the workforce with plans to work long-term, economists expect this rate to continue rising. (Sources: Organization for Economic Co-operation and Development. Federal Reserve Bank of St. Louis)

Economic Growth & Inflation Starting To Cool – Economic Environment

Following two consecutive quarters of negative Gross Domestic Production (GDP) growth starting in 2022, the year ended with two consecutive quarters of positive growth. While 2023’s first quarter delivered positive growth, marginal growth shows a cooling GDP. GDP grew by 1.1% in the first quarter of 2023, down from 2.6% in the fourth quarter of 2022.

Inflation is trending downward, increasing 4.9 percent from April 2022 to April 2023, the smallest 12-month increase since April 2021. A large driver of the trend is the mellowing of volatile factors including electricity, gasoline, vehicles, and food. Leading this decline is the price of gasoline, which fell 17.4% in March, and 12.2% in April, relative to a year prior.

However, core inflation remains resilient. Core inflation excludes the more volatile factors that significantly contributed to inflation’s historic rise in 2022. While lower than its September 2022 high of 6.6%, core inflation has remained relatively constant in the past 5 months, measuring in April at 5.5%, just 0.1% lower than in March and the same as in February. (Sources: Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, Bureau of Economic Analysis)