W.P. "Bill" Atkinson, III

Certified Financial Planner TM / Attorney

Access Financial Resources, Inc.

3621 NW 63rd Street, Suite A1

Oklahoma City, OK  73116

(405) 848-9826

www.afradvice.com / bill@apaplans.com

October 2022
Market Update
(all values as of 09.30.2022)

Stock Indices:

Dow Jones 28,725
S&P 500 3,585
Nasdaq 10,575

Bond Sector Yields:

2 Yr Treasury 4.22%
10 Yr Treasury 3.83%
10 Yr Municipal 3.26%
High Yield 9.50%

YTD Market Returns:

Dow Jones -20.95%
S&P 500 -24.77%
Nasdaq -32.40%
MSCI-EAFE -28.88%
MSCI-Europe -30.50%
MSCI-Pacific -25.80%
MSCI-Emg Mkt -28.91%
 
US Agg Bond -14.61%
US Corp Bond -18.72%
US Gov’t Bond -15.10%

Commodity Prices:

Gold 1,668
Silver 19.01
Oil (WTI) 79.74

Currencies:

Dollar / Euro 0.97
Dollar / Pound 1.09
Yen / Dollar 144.50
Canadian /Dollar 0.73

Macro Overview

Financial markets were distraught during the third quarter as rising rates, inflation, and slowing economic activity hindered major equity indices. Dramatic tax cuts implemented in the U.K. stirred global financial currency markets with the British pound falling to historic lows. Fiscal policy reform is becoming a focal point as various international economies are poised to fall into recession.

The effects of Hurricane Ian on the insurance and property casualty industry may take months to determine. Preliminary estimates are expected to surpass $57 billion in property losses and damage, yet not as catastrophic as Katrina’s $125 billion in losses during 2005.

Affordability constraints from elevated home prices and rising mortgage rates continue to hinder housing nationwide. Consequently, mortgage volume for both purchased and refinanced loans fell to a 22-year low in late September due to increasing rates which are slowing mortgage activity.

The Fed’s Continuous Increase Of The Fed Funds Rate – Monetary Policy

Concerns surrounding the extent of the Federal Reserve’s strategy on raising rates affected fixed-income and equity markets in September. The Fed’s strategy to combat inflation by increasing the Fed Funds rate has been one of the most ambitious in decades. The Federal Reserve increased short-term rates again in September with the Fed Funds rate reaching a target range of 3% to 3.25%. (Sources: Federal Reserve, FreddieMac, Mortgage Bankers Association, Treasury Dept., Bloomberg)

The Fed Funds Rate, which is controlled by the Federal Reserve Board (also known as the Fed), is the interest rate at which banks charge each other to borrow money. This year, the Fed has continued to aggressively increase the rate. The effects of increasing the Fed Funds Rate are more expensive borrowing costs and reduced demand for borrowing money. By increasing the rate, the Fed hopes to pacify rising inflation, as the U.S. is currently experiencing the highest inflation rate observed since 1981.

In March of this year, the Fed began its increase of interest rates. Before then, the rate was effectively at close to 0% between April 2020 and February 2022. As of September 21st, the rate has a target range of 3% to 3.25%, which means the rate has risen 3% in just 7 months. This is the largest increase made by the Fed in a single year since 1982. Based on this, the Fed Funds Rate would reach 4% to 4.25% by the end of the year. (Sources: Federal Reserve Bank of St. Louis, Federal Reserve Bank of New York)

 
2-year Treasury yield at 4.22%, 10-year Treasury yield at 3.83% On Sept 30th, Strategic Oil Reserves

Stocks Endure Difficult Third Quarter – Domestic Equity Overview

Equities across the board were down in the quarter ending September 30th, as the market continues to react to global turmoil and the Fed’s aggressive interest rate spikes. Sectors that held up the best relative to other sectors included biotechnology, healthcare services, and oil/gas, joined by banks, semiconductors, and healthcare equipment. Various equity analysts believe that the current rallies in equities are bear market rallies with little or no fundamental strength. Optimistically, certain sectors are establishing more attractive valuations as prices have receded.(Sources: S&P, Dow Jones, Bloomberg)

Short-Term Bond Rates Remain Higher Than Long-Term Bond Rates – Fixed Income Review

Rising rates are being compounded by the Fed’s suspension of buying U.S. Treasuries and mortgage bonds on the one market. Along with the Fed’s current increase in short-term rates, the additional pressure on the fixed-income market has exacerbated the rapid rise in interest rates. Short-term Treasury bond yields remained higher than longer-term maturities in September, known as an inverted yield curve. The 2-year Treasury yield finished September at 4.22% while the longer-term 10-year Treasury yield was at 3.83%.(Sources: U.S. Treasury, Bloomberg, Federal Reserve)

U.S. Strategic Oil Reserves Dwindle Down Sharply

To combat rising gas costs, the Biden administration ordered an unprecedented release of barrels from the strategic reserves in March. Throughout the summer, Americans experienced sticker shock as gas prices rose to over $6 per gallon in some places with already high taxes, including California.

 

 

On Wednesday (October 4th), the Biden White House criticized OPEC and its allies for making a “shortsighted decision” to reduce oil production by two million barrels per day. The action may result in significantly higher petrol prices in the US. Biden’s government has been stifling domestic oil production while continuing to release barrels to cover costs, resulting in the US Strategic Oil Reserves being almost half empty already. As a result, Biden’s political emptying of the SPR has left it with a record low of just 22 days of supply.  (Source ThePostMillennial.com; Zerohedge)

 
Understanding Homeowner’s Insurance

Homeowner’s Insurance Basics

What’s Covered

A homeowner’s insurance policy is a package of coverages, including:

Remember, these coverages pertain only to losses caused by a peril covered by your policy. For instance, if your policy doesn’t cover earthquake damage, then losses will not be reimbursed.

Types of Homeowners Policies

The types of covered perils will depend on the type of policy you buy. The Special Form is the most popular policy since it insures against all perils, except those specifically named in the policy. Common exclusions include earthquake and floods. Typically, flood insurance is obtained through the National Flood Insurance Program, while earthquake coverage may be obtained through an endorsement or a separate policy.

Limits of Coverage

Your policy will impose limits on the amount of covered losses. If you have a valuable art collection or jewelry, you may want to secure additional insurance on those items. Be aware of whether your policy insures for replacement cost (pays the cost to rebuild your home or repair damages using materials of similar kind and quality) or actual cash value (home value based on age and wear and tear), which may not cover all your losses.

Coordinating Umbrella Liability Coverage

Individuals with significant assets may want to consider attaching an umbrella policy to their homeowner’s policy, which provides liability coverage in excess of the liability limits of your current policy. I usually recommend somewhere between 1 and 5 million depending on  the value of your assets. In the end, it is a cost/benefit analysis that you need to review with your insurance agent and advisor.

 
Important Details On Student Loan Relief - Polling Updates

Important Details On Student Loan Relief – The White House recently forgave up to $10,000 to student loan borrowers as part of a larger debt forgiveness program. There are still quite a few questions to be answered, but here are some key points to know.

 

Polling Updates….