Michael McCormick

5 West Mendenhall, Ste 202 | Bozeman, MT 59715

406.920.1682  mike@mccormickfinancialadvisors.com

Sustainable Income Planning | Investments | Retirement

Fall 2023 MFA Newsletter
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

Dear Friends,

The US economy has yet to present a problem that capitalism has not solved.  And yet the future looks as spooky as ever!

Most everyone thought we would be in a recession by now as punishment for our excessive pandemic spending.  Instead, wages continue to rise and demand for everything is keeping prices high.  Expansionary economic policies and subsequent indebtedness of the USA of the past decade have yet to cause a problem and the S&P500 has returned 10% in the last 12 months as of this writing.  It seems we are climbing a plateau but cannot see beyond.  The frenzy of asset growth is dissipating, and people are looking more closely at how much risk they want to carry going forward.

Up on the plateau it’s hard to see very far ahead.

Halloween may bring about a selloff in the tech stocks, or maybe we make it to election season before something breaks.  Either way, the hard part about avoiding a selloff is that you have to be correct both before it goes down and then again before it goes back up.  It’s better to be prepared before it happens.

Fortunately, we’ve got good options.  A great one is to take advantage of these fantastic interest rates available on CD’s and Treasuries.  Another may be to discard old mutual funds for more efficient ways to diversify your portfolio.  It’s a great time to re-evaluate your plan and I’m happy to help.

The News

The energy and communication services sector were the only positive sectors for the third quarter. Elevated fuel prices along with improving technology earnings supported the rise in the sectors. Pessimism amid renewed inflation concerns hindered equity momentum during the quarter.

A federal government shutdown was averted on September 30th, when Congress voted to fund government operations until mid-November. Volatility in the financial markets increased during September, as uncertainty surrounding a resolution persisted.  The federal government shutdown dilemma has increased the possibility of a credit downgrade by Moody’s, the last agency with a AAA rating on government debt. Credit agencies S&P and Fitch have already lowered their ratings on U.S. government debt to AA+, down from the top tier rating of AAA. Another downgrade is expected to make it more costly for the government to borrow funds and maintain already excessive debt levels. The last downgrade was on August 1st when Fitch lowered its rating to AA+ from AAA.

Do you know about the MT Endowment Tax Credit?  It’s a way that you can set up a charitable fund for the future and realize some tax advantages now.

 
consumer spending makes up over 65% of the nation's economy

Housing Market Is Among The Least Affordable In U.S. History – Housing Market

Measured by the Housing Affordability Index, the affordability of homes has been steadily eroding since early 2021. Factors affecting affordability include home prices, mortgage rates, and household incomes. With historic inflation outpacing income growth, home buyers in the U.S. have been unable to keep up with rising prices and mortgage rates.  When the Fed increases interest rates to combat inflation, mortgage rates are similarly affected. The average 30-year mortgage rate rose to a high of 7.24%, the highest since 2001. This is a significant difference to the lows reached in 2021 when the average 30-year mortgage fell to 2.65% mortgages, the lowest in U.S. history. This creates a less affordable environment for home buyers and harms potential buyers’ abilities to acquire property.  Sources: National Association of Realtors, Federal Reserve Bank of St. Louis, Freddie Mac

Yields On The Rise – Fixed Income Overview

Looming government shutdown threats hindered the bond markets as concerns surrounding heightened funding costs for the government came into focus. Yields on U.S. Treasury bills, notes, and bonds rose in September as confidence regarding reaching a compromise diminished. Analysts expect the rise in government debt yields to be short-term unless another impasse materializes in mid-November as Congress deliberates the federal budget again. The yield on the 10 year Treasury bond surpassed 4.5% at the end of September, luring investors as equity volatility continued to dampen performance. (Sources: Treasury Dept., Congress.gov)

Consumption Decreases As Environment Changes – Economic Dynamics

Over 65% of the country’s economic growth, as measured by Gross Domestic Production (GDP) is driven by consumers. Sentiment and confidence are critical components to consumer spending behavior, influencing spending patterns and habits. Recently released data from the Bureau of Economic Analysis reveals that consumers are spending less than they have been.

Factors affecting consumer spending include income, sentiment, job status, and confidence. Once consumers realize a change in their status, they’ll modify spending to accommodate what they need.

As retail stores and restaurants began to reopen in 2021, consumers were ready to spend funds that had been sitting idle for nearly a year. Consumer consumption fell dramatically in April 2020, as stay-at-home mandates and retail closures were in effect, only to elevate to new highs in April 2021 as consumers were able to spend freely again. The most recent data trends validate that consumers are spending less and perhaps with greater caution as economic uncertainty takes hold. (Sources: Labor Dept.,BEA)

 

 
savings reached 32% of disposable income during the pandemic

Medicare Coverage Heading Into 2024 – Retirement Planning

With open enrollment upon us, millions of Americans will be deciding on which, if any, changes to make to their Medicare coverage. The Open Enrollment Period for 2024 coverage is from October 15, 2023 to December 7, 2023. Coverage for any changes or new plans begins January 1, 2024.

Since Medicare doesn’t cover all medical expenses, the decision to buy supplemental insurance coverage or to obtain a Medicare Advantage Plan is important for millions of Medicare recipients. Medicare Advantage Plans allow a recipient to get both Medicare Part A and Part B coverage. Medicare Advantage Plans are sometimes called Part C or MA Plans, and are offered by Medicare-approved private companies. Medicare Supplemental Insurance or Medigap helps pay for gaps in coverage not paid for by Medicare. Even though Medicare does pay for many procedures and services, some remaining expenses such as copayments, coinsurance, and deductibles are covered by supplemental plans. Some Medigap policies also cover services that are not covered at all by Medicare, such as coverage while traveling abroad. So it’s worth shopping and determining what expenses are covered by the various supplemental insurance policies. (Source: medicare.gov)

Consumers Are Saving Less – Consumer Behavior

According to the Bureau of Economic Analysis, data has revealed that Americans are saving less than initially thought. From 2017 through 2022, American consumers were thought to have saved an average of 9.4% of their disposable income. However, revised data figures have identified that the actual savings rate was 8.3%. Various possible explanations as to why such a drop may have occurred include higher fuel prices, recently implemented student loan repayments, lower real wages, and exhaustion of pandemic relief funds.

Economists view decreased savings as a signal that consumers may be shifting expenditure patterns thus altering where their funds are being spent. Inflationary pressures over the past two years have already redirected some consumer funds from non-essential goods and services to more essential items such as food and gasoline. Spending habits adjusted during the pandemic, as government stimulus funds padded consumer savings for millions. The National Bureau of Economic Research found that roughly 30% of stimulus checks went to consumer savings, while another 30% went to pay off debt. Personal savings reached a historical high in the midst of the pandemic, as retail stores and restaurants were shuttered and stimulus checks went unspent. The savings rate reached 32% of disposable income in April 2020, yet has fallen to 3.9% as of this past August. (Sources: National Bureau of Economic Research, BEA)

 
117,483 bridges cover the nation’s highways

 

 

 

Medicare Open Enrollment is from October 15th to December 7th, allowing changes for existing Medicare recipients and enrollments for new members. Any changes and new enrollments are effective January 1, 2024. The Centers for Medicare & Medicaid Services (CMS) reports that there are currently over  65.7 million people enrolled in Medicare. (Sources: Social Security Administration, Medicare.gov, Treasury Dept., Federal Reserve)

About Us

Our clients enjoy the feeling of having their financial lives kept in order.  Freedom from worry comes from working with an experienced advisor that understands your entire financial life and is accessible and attentive to your needs.  As a fiduciary, Mike is unable to receive commissions from financial products and free to make recommendations that are unbiased by Wall Street.  With over a decade of experience caring for a small family of clients, our specialties are preserving wealth and generating sustainable income.  Our average client net worth ranges from $5 to $30 Million.  Go outside, we’ve got this.