KCG Investment Advisory Services

Kimberly Good

315 Commercial Drive, Suite C1

Savannah, GA 31416

912.224.3069

www.kcginvestmentadvisory.com

Valued Clients
Market Update
(all values as of 09.29.2023)

Stock Indices:

Dow Jones 33,507
S&P 500 4,288
Nasdaq 13,219

Bond Sector Yields:

2 Yr Treasury 5.03%
10 Yr Treasury 4.59%
10 Yr Municipal 3.44%
High Yield 8.84%

YTD Market Returns:

Dow Jones 1.09%
S&P 500 11.68%
Nasdaq 26.30%
MSCI-EAFE 4.49%
MSCI-Europe 5.39%
MSCI-Pacific 2.89%
MSCI-Emg Mkt -0.38%
 
US Agg Bond -1.21%
US Corp Bond 0.01%
US Gov’t Bond -0.86%

Commodity Prices:

Gold 1,864
Silver 22.39
Oil (WTI) 90.77

Currencies:

Dollar / Euro 1.05
Dollar / Pound 1.21
Yen / Dollar 149.32
Canadian /Dollar 0.74

The easiest way to get rich quick in the market is with concentrated positions.
The best way to keep what you have is through diversification.

It is the beginning of the last quarter in 2023.  To recap, 2022 was all about risk aversion and then many investors spent the first half of 2023 chasing the narrow leadership of the magnificent 7 rather than the broader market.  Both extreme positions…and the market is really not that easy.  Personally, I feel like the magnificent 7 has been reduced to 2 – Alphabet and Nvidia.  And especially now, my preference remains a well-diversified portfolio of low-correlation assets.  While diversification can reduce return, conserving assets means launching from a higher point next time the market rises.

One of KCG’s screening targets when selecting stocks or funds, is to identify holdings which capture more of the upside of market moves than downside.

As discussed last month, the broader market started performing nearer expectations in about the middle of June.  As is historically true, August and September were rough months.  We were hoping to breathe a sigh of relief in October, but now we are faced with an unprecedented Middle-East conflict that started over the weekend.  While most sectors held moderate losses throughout the day, we are keeping an eye on commodities, energy, and the VIX (which measures volatility).  By end-of-day, energy, gold and silver led the diversified S&P 500 up ~25 points and the Dow 30 up 169 points.

To summarize my thoughts…
1.  The law of supply and demand remains reliable.  Shortages in energy will push the prices up, not only on a barrel of oil, but on all items that require fuel to deliver or produce.  (This will also cause further inflation and higher yields – a good news = bad news scenario for the economy.  But the economy is resilient…)
2.  The new market cycle brings new leadership.  The magnificent 7 are far over-priced and the weakness in financials is significant.  Shortages in energy and commodities are worth watching.
3.  If I had been chasing the magnificent 7, I would be considering capturing what gains remain from their rise in 2023.  After they led 2022 down, it would have required about 2x to recover to 0% gains.  As I read in a recent a newsletter by Richard Bernstein Advisors, “It’s never too early to sell a bubble!”

My final recommendation?  Stay the course… steady as we go.

 

 

 

 

 
Valued Clients

 

 

 
savings reached 32% of disposable income during the pandemic

How Deflation & Inflation Affect High Income & Low Income Earners – Inflation Review

As inflation has taken center stage over the past year, consumers among all demographics have been affected in various ways. Consumers know inflation as the overall increase in the cost of goods and services, from shoes to gasoline. However, products that are essential for everyday life can be more costly for some than others, such as food, healthcare, and toilet paper. These products usually make up a larger portion of expenses for lower-income consumers and less for higher-income earners. In essence, inflation can be much more of a challenge for lower-income earners as less disposable income is left for more desirable items.

Fortunately, consumers have the ability to control what they buy when inflation sets in, such as buying hamburgers instead of steak. This is where consumer choice is critical as to where the economy is heading and what companies might benefit more than others.

As the economy slows and lower prices eventually settle in, a deflationary environment evolves pulling certain asset prices down. Historically, lower asset prices affect higher income earners with assets, rather than those with little or no assets. Deflation may affect the prices of assets such as homes, cars, stocks, and commodities.

Sources: U.S. Bureau of Labor Statistics, OneBlueWindow Editorial Staff

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)

 

 

 

 

Consumption Decreases As Economic Dynamics Change

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)

 

 

 

 

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.

First-time buyers are forced to either buy a home knowing they may not be able to afford it or continue renting until affordability rises. For those who already own a home, remaining in their current house instead of buying a new one has been increasing in popularity as well.

 

Sources: National Association of Realtors, Federal Reserve Bank of St. Louis, Freddie Mac