Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

March 2023
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-EAFE 1.98%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
 
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13

Currencies:

Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79
 

Macro Overview

Inflation persisted in February as government data revealed stubbornly elevated prices for food and energy. As a result, the Federal Reserve’s stance on additional interest rate increases continues to pressure equity and bond markets. The Fed’s primary concern right now is to combat the spiraling effect of severe inflation, so it is expected to continue on its trajectory of rate increases until economic data proves otherwise.

Economic terms often mentioned in the media recently include soft landing and hard landing. A soft landing indicates a non-recessionary outcome with successfully reduced inflation after the Fed stops raising rates, while a hard landing denotes a recessionary environment due to the excessive slowing of economic activity. Economists note that it is too soon to determine which will occur in this case.

Stronger-than-expected employment data and surprisingly resilient consumer demand drove the Federal Reserve to again raise short-term rates over the past month. Mortgage and consumer loan rates rose in February, adversely affecting prices for housing and consumer durables, which are frequently financed with debt and therefore significantly impacted by interest rates.

Recently released data from the Bureau of Labor Statistics reveals that consumers pulled back on cyclical goods such as clothes and electronics, while focusing on food and essential products like toilet paper and toothpaste. Larger ticket items, which are more expensive products such as appliances and autos, saw a drop in sales as consumers redirected funds.

Internationally, the European Union inflation is at 10% alongside a 6.1% unemployment rate, translating into economic stagnation per the most recent data releases. Similar to the U.S., stubbornly high food and energy prices continue to divert consumers from buying discretionary items to buying necessities. The Russian invasion of Ukraine continues to pose a challenge to global supply chains and inflationary pressures. Reduced trade with Russia has led numerous countries to replace inexpensive Russian imports with other pricier sources.

A Federal Reserve Bank of New York survey showed that households expect income growth to drop, creating pressure on consumer confidence, which is a major driver of economic activity. However, U.S. unemployment currently sits at a 53-year low of 3.4%, providing a counterpoint of strong consumer spending power. (Sources: Eurostat, U.S. Treasury, Federal Reserve, BLS, Labor Department)

 
average price for a dozen eggs is $4.25, up from $1.32 in 2020

U.S. Equities Remain Cautious in February – Equity Overview

Domestic equities reacted to higher input costs and lower earnings growth heading into the rest of 2023. Nearly all sectors of the S&P 500 Index posted negative returns for  the month of February, reflecting a pullback across all industries of the market. The technology-heavy Nasdaq index saw stronger performance relative to the Dow Jones Industrial Index and the S&P 500 Index. A strong dollar continues to weigh on U.S. multinational firms, whose earnings are heavily reliant on international sales.

Sources: Standard & Poor’s, Bloomberg, Reuters, Nasdaq, Dow Jones

Rates Rise In February – Fixed Income Overview

Rates rose across all bond maturities, known as the yield curve, which has remained inverted in recent months due to the Fed’s monetary policy. The 4-month, 6-month, and 1-year Treasuries surpassed 5% yields in late February and early March. The 10-year and 30-year Treasury bonds currently have the lowest yields as short-term Treasuries provide higher yields than long-term Treasuries, representing the inverted nature of the yield curve.

Interest rates moved up abruptly in February as markets projected the Fed’s future rate increase moves to be more aggressive than previously anticipated. The bond sell-off over the past month has translated into average mortgage rates that approached the 7% level, the highest since November 10th, 2022. Mortgage rates were at 4% at this time last year.

Sources: U.S. Department of the Treasury, Freddie Mac

Eggs Continue To Get More Expensive – Food Sector Review

Amidst high food inflation throughout 2022, eggs have emerged as particularly costly goods at the grocery store in recent months. Egg consumption rose in recent years relative to other protein sources, but production recently fell due to an ongoing bird flu epidemic.

 

This bird, or “avian” flu, has infected 58 million birds, making it the largest outbreak of the flu in U.S. history. The chickens must immediately be slaughtered once infected to avoid further spreading, which has caused the price of eggs to spike 60% in the past year alone. As of December 2022, the average price for a dozen eggs was $4.25, up from just $1.32 in late 2020. Higher prices may remain for an extended period, until the number of hens returns to pre-flu norms.

Sources: USDA, Bureau of Labor Statistics, Federal Reserve Bank of St. Louis

 
average monthly loan payments on new cars rose past $700

Rising Car Payments Become Less Affordable For Many – Automotive Industry

Since the pandemic ushered in a widespread global shortage of semiconductor chips that are vital to vehicle manufacturing, car prices rose to historic highs. Three years later, the supply issue has dissipated somewhat, but prices for new vehicles remain abnormally high.

The average monthly loan payment on new cars rose past $700 in 2022, while used vehicles surpassed $500 on average. Despite past years of fairly constant prices, the costs of new vehicles skyrocketed following chip shortages and a reinvigorated demand for personal automobiles following the pandemic. For most of the past decade, new car prices never rose more than 2% year-over-year. In 2022, prices increased over 10%.

Used vehicles saw much more dramatic price changes, with prices increasing as high as 45% in late 2021 and throughout 2022. Used car prices have historically fluctuated more than new car prices, and 2022 saw historic price jumps. In trend with used vehicles’ volatility, their prices fell rapidly in recent months, dropping nearly 12% in January of 2023 alone. So, while used car prices are still higher than pre-pandemic levels, their prices have finally begun reverting to the mean.

Sources: Bureau of Labor Statistics, St. Louis Federal Reserve

REAL ID Deadline Postponed Until 2025 – Travel & Regulations

The Department of Homeland Security announced that it will extend the REAL ID full enforcement date two years, from the original date of May 3, 2023, to May 7, 2025.

This extension grants states the ability to work through the backlogs created by the COVID-19 pandemic. The additional time should allow states to complete the transition to offering driver’s licenses and identification cards that meet the security standards passed by the REAL ID Act.

The REAL ID Act, passed by Congress in 2005, established air travel security standards for state-issued identification cards, including driver’s licenses. These standards include anti-counterfeiting technology, fraud prevention, and record-checking to verify identification. Following the enforcement date in 2025, every traveler over the age of 18 will be required to have a REAL ID-compliant identification card to pass through TSA security checkpoints for air travel.

Source: U.S. Department of Homeland Security

 
credit card delinquency rates are at 5.87% of outstanding balances

Loan Delinquencies On The Rise – Consumer Credit

During the 2008 financial crisis, consumers defaulted on loans of all kinds at historically high rates. Since then, loan delinquencies have fallen steadily, with some dropping lower than half of their crisis peaks. However, recent data show that this trend has been reversing, with loan delinquencies on the rise throughout 2022. Economists closely follow delinquency rates as an indicator of possible faltering consumer finances.

The two most significant increases in delinquencies have in credit cards and auto loans. Auto loan delinquencies ended 2021 with nine consecutive quarterly decreases, reaching as low as just 4.9%. However, they have since increased steadily up to 6.64% as of the fourth quarter of 2022. The current delinquency rate is nearly at a 3-year high. Credit card loan payment delinquencies reached a 2.5-year high following two years of decreases, with current credit card delinquency rates at 5.87% of outstanding balances. (Sources: Bureau of Labor Statistics)

Why Some Taxpayers Might See Smaller Tax Refunds This Year – Tax Planning

Some taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Changes include amounts for the Child Tax Credit (CTC), the Earned Income Tax Credit (EITC), and the Child and Dependent Care Credit, which will revert to pre-COVID levels.   For 2022, the CTC is worth $2,000 for each qualifying child. A child must be under the age of 17 at the end of 2022 to be a qualifying child. For the EITC, eligible taxpayers with no children may get $560 for the 2022 tax year. Tax credits allow certain taxpayers to subtract the amount of the credit they have accrued from total taxes owed. A tax deduction is distinct from a tax credit in that it lowers taxable income and thus reduces tax liability. (Source: Internal Revenue Service)

Higher Mortgage Rates Keep Homebuyers From Buying – Housing Market

With interest rates breaching higher levels, mortgages are becoming less affordable for millions of Americans. As a result, demand for new mortgages is reaching decades-long lows, influencing many homebuyers to either wait for rates to fall or for home prices to drop significantly. The average 30-year fixed mortgage rate reached 6.65% in early March, its highest point since November of last year. Mortgage loan rates reached as high as 7.08% in October and November of 2022, a 20-year high that the housing market last saw in 2002. (Sources: Federal Reserve of St. Louis, Freddie Mac)

 

 

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.