Geopolitical Tensions Challenge Stocks In April – Domestic Equity Overview

Domestic equity indices in April experienced the most volatility since September 2023, as the Dow Jones Industrial Average, the S&P 500, and the Nasdaq all saw pullbacks in April. Ten of the eleven sectors of the S&P 500 Index posted negative returns in April, with the utilities sector posting the only gain for the month. Emerging market indices posted some gains relative to developed economy indices, yet still struggled through the month.

Sources: S&P, Dow Jones, Nasdaq, Bloomberg

Yields Remain Stubborn As Fed Waits – Fixed Income Overview

Bond yields and interest rates stalled in April, as the Fed announced that it wasn’t yet ready to begin reducing rates. Geopolitical tensions in the Middle East also affected Treasury bond yields, as demand increased for Treasuries driving prices higher and yields lower. The Fed’s resistance to reduce rates still affected yields in April, with the 10-year Treasury yield ending April at 4.69%, up from 4.20% at the end of March.

Shorter term maturity and longer term maturity bonds are starting to see more similar yields, meaning that the yield curve is flattening. Analysts view this as a signal that rates may start to settle from their recent increases, and with a possible shift in economic activity.

Sources: Treasury Dept., Federal Reserve

It’s The Wealth Effect That Keeps Everyone Spending – Consumer Economics

Even as inflation and higher rates have been an ongoing hinderance, consumers remain resilient and continue to spend. The reasoning behind the confidence and tenacity of consumers is believed to be what is known as wealth effect, which is the change in spending that accompanies a change in perceived wealth. 

An increase in the wealth effect has been a result of the increase in real estate and equity values, which has created a sense of wealth thus prompting consumers to spend more. Real estate and equities have pushed the level of household net worth up an astonishing $11.6 trillion over the past year, encouraging consumers to spend more out of current income. Some analysts and economist relate this scenario to what occurred in the late 1990s.

Economists view wealth effect as more of a psychological phenomenon where an increase in home and stock values are perceived as a justification to spend more as though it was an increase in income. In actuality, the increase in asset values may not be sustainable and may even result in a devaluation, erasing confidence and spending motivation for consumers.

Source: Federal Reserve Bank of St. Louis

Why Homeowners Insurance Costs Have Risen – Property Insurance Update

Homeowners nationwide are grappling with surging insurance costs and worse, coverage cancellations. Insurance companies are becoming much more defensive as claims for property damage have soared over the past few years. Damage resulting from hurricanes, tornadoes, flooding, fires, and other natural disasters have led to dramatic increases in policy premiums nationwide. 

Hurricane and severe storm damage in Florida has led to expensive homeowners insurance premiums, while wild fire damage in California has prompted several insurance companies to cancel existing policy owners and deny coverage to new applicants. Premiums can vary dramatically among different geographic areas, and can also change quickly following numerous claims and increased risk factors. According to the Insurance Information Institute, the average homeowners insurance premium nationwide is over $2000 annually as of the end of 2023. Insurance underwriters are paying closer attention to changing weather patterns and extreme conditions caused by natural phenomena. (Source: Insurance Information Institute)

Why Small Businesses Are So Important To The Economy – Domestic Economy

The country is composed of millions of small businesses from home-based one person consultants to hair salons and manufacturing companies. As defined by the SBA’s Office of Advocacy, a small business has less than 500 employees and operates independently, not under the control of another entity.

As of 2023, the SBA acknowledged that there were 33.3 million small businesses in the U.S., 22 million of which were individually operated with no employees other than the owner. At 49.2%, nearly half of the nation’s workforce is employed by a small business, representing roughly 120 million employees.

Small business employment suffered a massive set back during the pandemic, losing 8.6 million jobs in the second quarter of 2020 according to the U.S. Labor Department. Remarkably, small businesses recouped 4.9 million jobs between March 2021 and March 2022, accounting for roughly 70% of all new jobs nationwide.

Department of Labor data revealed that women made up over 43% of small business owners in 2023, representing a significant portion of business owners across the country in various industries. Home health and personal care are projected to see the largest employment gains for small businesses over the next few years. An aging U.S. population along with a growing demand for health care workers continues to create a dire need for qualified employees. (Sources: Labor Department, BLS, SBA)

Why Gasoline Prices Continue to Rise

This summer, may produce higher prices than usual, as continued supply constraints, shipping issues, and increased international demand for U.S. oil and gasoline is driven by the Russian invasion of Ukraine and the Middle East conflict. U.S. regulations and green policies limit our ability to meet that demand.
Rising gasoline prices can become a burden for both consumers and companies. Not only are consumers spending more of their income on fuel, companies also pass along the higher costs of fuel to consumers. Higher fuel prices tend to filter down to the consumer since t he cost of food, transportation, and travel are all affected by rising fuel expenses. Historically, rising fuel prices eventually hinder economic growth, thus slowing industrial and consumer activity and lessening demand for fuel. Many economists believe that a recession would curtail demand for fuel, thus bringing fuel prices lower. (Sources: U.S. Energy Information Administration (EIA))