Rates Remain Hesitant in February – Fixed Income Overview

Interest rates rose slightly across all maturities in February, resulting in what is known as a shift up in the yield curve. The Fed’s resistance to lower its key rate, the Fed Funds rate, resulted in markets expecting elevated rates for a longer period. Communications from Fed officials indicate that rates may not be reduced until the summer or perhaps even the fall.

The benchmark 10 year treasury bond yield ended February at 4.25%, up from 3.95% at the beginning of the year. The shorter term 2 year treasury bond, yielded 4.64% at the end of February, up from 4.33% at the beginning of January. The slight increase in both maturities led to an increase in rates on some consumer loans during the month. (Sources: Treasury Dept., Federal Reserve)

Stocks Advance In February – Domestic Equity Overview

All eleven sectors of the S&P 500 Index posted positive results in February, with technology, financial, and healthcare making up the largest sectors of the index. The Dow Jones Industrial Index and the Nasdaq also posted positive gains in February.

The technology sector now accounts for roughly 30% of the S&P 500 Index, a level not seen since the early 2000s. This means that recent gains in the tech sector have elevated valuations thus making up a larger proportion of the index. Some analysts view this dynamic as a disparity and imbalance in the equity markets.

The average price of an individual stock in the S&P 500 is now $204.28, with some 73% of them (or 281 stocks) selling for more than $100 and 9 trading for more than $1,000 as of the end of February. Compared with 40 years ago, when the average price was $39.06 and approximately 4%, or 9 stocks, traded for more than $100, and with no stocks were over $1,000. (Sources: S&P, Reuters, Bloomberg)

Over 100 Million Are Not In The Workforce – Labor Market Dynamics

Department of Labor data released this past month reveal that over 100 million people are not in the workforce, either by desire or available for work. Data vary across all age groups and gender, yet do show that a large proportion of the U.S. population is not working by choice.

As of January 2024, over 100 million people were not in the workforce, of which 61.85 million were age 55 or older, composing the largest non working age group. There were 17.7 million age 16 to 24 that were also not in the labor force. Reasons behind not being in the labor force vary, however, factors during the pandemic are believed to have altered workforce availability and desire to work. Government subsidies and work from home requirements during the pandemic shifted work patterns and habits, leading to millions either dropping out of the workforce, or retiring early. An increase in wealth among older workers over the past three years influenced some to retire early, even though they could still find employment if desired. The lack of qualified workers has been a growing concern among companies looking to hire, as the pool of talented employees has shrunk over the past few years. (Source: U.S. Bureau of Labor Statistics)

Wealth Among Seniors Grew During The Pandemic – Demographics

A recently released study by the Federal Reserve Bank of St. Louis found that the median increase in net worth for those age 65 or older grew by $91,000 from 2019 to 2022. The time period which was predominantly during the pandemic, saw home values and financial assets increase in value the most among seniors. More than half of the wealth increase came from home values, while 48% came from retirement accounts and other financial assets.

Younger age groups also saw an increase in wealth during the same period, but nearly not as much as seniors who have already accumulated real estate and financial assets during their earlier years. Those age 18 to 39 saw a median increase in wealth of $31,600 from 2019 to 2022, both from real estate and financial assets. The intermediate age group of 40-64, also experienced an increase in wealth, which encompasses growing families in the prime of their wealth accumulation years driven by income and asset gathering.

Sources: Federal Reserve Bank of St. Louis

Consumer Loans Are Falling – Consumer Finance Behavior

Outstanding loans among consumers have been falling since October 2022, reflecting a drop from auto loans to credit card balances. Such data can be viewed differently, either as a positive or negative result of economic circumstances and consumer sentiment.

A number of variables determine loan activity among consumers, including loan approval, income, sentiment, and need for a loan. Historically, an increase in loan activity has been optimistic as increased income and sentiment among consumers leads to heightened loan requests. Also affecting loans recently are loan approvals, where banks and finance companies have increased lending requirements among consumers and businesses, making it more difficult to obtain a loan. A drop in wages or an increase in living expenses may also deter consumers from taking out loans, as financial constraints make it challenging to qualify and repay loans. The Federal Reserve tracks and analyses loan activity and data for signs of consumer hesitation and sentiment, which eventually affects the economy, since over two-thirds of GDP is contingent on consumer expenditures.

Sources: Federal Reserve