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888.494.4440

www.windsoradvisor.com

September 2022
Market Update
(all values as of 10.31.2022)

Stock Indices:

Dow Jones 32,732
S&P 500 3,871
Nasdaq 10,988

Bond Sector Yields:

2 Yr Treasury 4.51%
10 Yr Treasury 4.10%
10 Yr Municipal 3.40%
High Yield 8.92%

YTD Market Returns:

Dow Jones -9.92%
S&P 500 -18.76%
Nasdaq -29.77%
MSCI-EAFE -25.09%
MSCI-Europe -25.57%
MSCI-Pacific -24.27%
MSCI-Emg Mkt -31.16%
 
US Agg Bond -15.72%
US Corp Bond -19.56%
US Gov’t Bond -16.15%

Commodity Prices:

Gold 1,640
Silver 19.32
Oil (WTI) 86.83

Currencies:

Dollar / Euro 0.99
Dollar / Pound 1.15
Yen / Dollar 1.48
Canadian /Dollar 0.73
 

On the Rise

After the financial crisis in 2008 and early 2009, the Federal Reserve lowered rates to near zero to assist with economic recovery.  Even after the economy progressed, the Fed held its benchmark rate near zero for more the six years.  In addition to near zero interest rates, the Fed went full steam ahead with its quantitative easing (central banks purchasing of bonds or other financial assets in order to inject money into the economy).  Over the last decade the Fed has purchased more than 9 trillion dollars’ worth of assets, which it is now beginning to sell off on a monthly basis.

By keeping rates artificially low, many investors chose to increase their risk tolerance in order to grow their savings.  This risk-taking has paid off for many equity investors.  Since 2009, even including the current market downturn, the S&P 500 has an annual return of just under 16% a year.  Going back fifty plus years, the average return has been around 10% annually.

With the Federal Reserve now raising rates to combat inflation, we are seeing bond yields becoming much more attractive.  There is no risk-free investment that will beat the current inflation rate, but, increasing the return of fixed-income in a diversified portfolio lessens the need for excessive risk-taking.  With bond yields “getting back to historic norms”, this means bonds are doing their job by providing a more meaningful return, while lowering overall volatility.  Equities continue to be the more aggressive part of the portfolio and should be viewed over the long-term for their inflation fighting growth.

An example of how far rates have moved up, consider the 1yr Treasury note was at less than one half of one percent at the beginning of this year.  It’s now yielding about 4%.  Hard to believe, 0.40% to 4.00% in just over 9 months.  The Fed is expected to continue raising rates over the next several months, so we’d expect the bond market (treasuries and corporate bonds) to become even more attractive going forward.  We’ve kept core fixed-income duration very short in order to take advantage of exactly what is happening now.

For those with balanced portfolios (holding both equities and fixed-income), we will continue to take advantage of stock market downturns through target rebalancing.  That, along with positioning fixed-income to benefit from rising rates, will help keep a portfolio on a successful path.

 
the savings rate is the lowest it has been since September of 2008

On the Rise

After the financial crisis in 2008 and early 2009, the Federal Reserve lowered rates to near zero to assist with economic recovery.  Even after the economy progressed, the Fed held its benchmark rate near zero for more the six years.  In addition to near zero interest rates, the Fed went full steam ahead with its quantitative easing (central banks purchasing of bonds or other financial assets in order to inject money into the economy).  Over the last decade the Fed has purchased more than 9 trillion dollars’ worth of assets, which it is now beginning to sell off on a monthly basis.

By keeping rates artificially low, many investors chose to increase their risk tolerance in order to grow their savings.  This risk-taking has paid off for many equity investors.  Since 2009, even including the current market downturn, the S&P 500 has an annual return of just under 16% a year.  Going back fifty plus years, the average return has been around 10% annually.

With the Federal Reserve now raising rates to combat inflation, we are seeing bond yields becoming much more attractive.  There is no risk-free investment that will beat the current inflation rate, but, increasing the return of fixed-income in a diversified portfolio lessens the need for excessive risk-taking.  With bond yields “getting back to historic norms”, this means bonds are doing their job by providing a more meaningful return, while lowering overall volatility.  Equities continue to be the more aggressive part of the portfolio and should be viewed over the long-term for their inflation fighting growth.

An example of how far rates have moved up, consider the 1yr Treasury note was at less than one half of one percent at the beginning of this year.  It’s now yielding about 4%.  Hard to believe, 0.40% to 4.00% in just over 9 months.  The Fed is expected to continue raising rates over the next several months, so we’d expect the bond market (treasuries and corporate bonds) to become even more attractive going forward.  We’ve kept core fixed-income duration very short in order to take advantage of exactly what is happening now.

For those with balanced portfolios (holding both equities and fixed-income), we will continue to take advantage of stock market downturns through target rebalancing.  That, along with positioning fixed-income to benefit from rising rates, will help keep a portfolio on a successful path.

 
wages increased 5% in the past 6 months, real wages decreased over the same time

What is ESG- Why Corporations Follow It – Part 3 of 3 Series

As previously discussed in the other two parts of this series, ESG is a financial philosophy where investors investigate three non-traditional aspects when choosing whether to invest in a company. These aspects are environmental consciousness, social treatment, and governance efficacy. Yet, investors are not the only ones who consider ESG, as many corporations now place a larger focus on these aspects than ever before.

As far as the environmental aspect is concerned, it has become widespread for corporations to shift away from fossil fuels and toward new green energy. A prime example sits in the automotive industry, with many companies committing to transitioning their lineups away from gas engines and toward electric vehicles.  Renewable energy is also becoming increasingly popular, with companies focused on the growth of electric, solar, wind, and other renewable energy forms. 

Companies have also continued to increase their focus on employee standards and customer service, finding these key ways to draw in investors and raise satisfaction with their products. ESG may soon guide the decisions of many more corporations who look to draw in more progressive-minded, generally younger, investors. (Source: Staff Editorial)

Wage Increases Don’t Necessarily Mean More Money In Your Pocket – Labor Market Dynamics

A jump in inflation could mean that even with a pay raise, you could have less money in your pocket. 

To evaluate wages, there are two factors to consider, nominal wage growth and real wage growth. A nominal wage is simply the wage, in U.S. dollars. A real wage is the nominal wage growth in the context of inflation, adjusted for the level of purchasing power held by the U.S. dollar. For example, $5 in 1950 has the same purchasing power as around $60 in 2022. Thus being paid $5 in 1950 is worth much more than being paid $5 in 2022.

Both real and nominal wages ballooned in early 2020, and then both also fell tremendously one year later in early 2021. However, since this fall in both wage measures, nominal wages have continued to increase while the purchasing power of these wages continues to fall because of inflation.

In recent months, inflation has grown at an above-average rate, reaching 9.1% in June 2022. This inflation rate is greater than the rate at which wages grow, which means that real wages are actually decreasing relative to inflation. While wages have increased at over 5% for the past 6 months, real wages have decreased over this same time. So, consumers are left with less purchasing power even if their salary has risen.  (Sources: BLS, EPI analysis of Bureau of Labor Statistics Current Employment Statistics)

 
Senior Citizens League estimates COLA could reach over 10% for 2023

Social Security Cost of Living Adjustment Expected To Increase For 2023 – Retirement Planning

Many rely on Social Security and the annual increases known as the Cost of Living Adjustment (COLA) to keep up with inflation. The Cost of Living Adjustment (COLA) occurs annually and compares the 3rd-quarter Consumer Price Index for Urban Wage Earners (CPI-W) with its value at the same time the year prior. If the CPI increases, which would indicate an increased cost of living, the COLA adjustment rises accordingly. 

With inflation reaching upwards of 9% in June 2022, the cost of living has subsequently grown. Thus, the Senior Citizens League, an advocacy group for elderly citizens, expects this year’s COLA to jump a historic amount for 2023. The group predicted a 10.5% increase in June when inflation was at 9.1% and a jump of 9.6% in July when inflation cooled down ever so slightly to 8.5%. This response to elevated living costs would be the biggest adjustment since 1981.

The Senior Citizens League also noted in its preliminary report that if inflation would continue to be rampant, the COLA could reach over 10%, yet if inflation cools down the adjustment could be closer to 9.3%. The current average Social Security benefit comes in at just over $1,600 and the adjustment could raise it by $159, according to a Senior Citizens League Policy Analyst. However, much of this increase gets eaten up by increases in Medicare costs, which in some cases even results in fewer benefits for seniors despite COLA increases. (Source: Senior Citizens League, Social Security Administration)

The Struggle of Returning to Work – Part 2 of 2 Series

From the historic high of quitting seen in late 2021, confidence in the economy has fallen which has caused the quit rate to fall as well. The quit rate remains high but has fallen by over 270,000 quits per month since the November high. The self-employed workforce has also decreased by over 500,000 people since its high in late 2021. These decreases result from many corporations deciding remote work is not as effective as in-person work and foreshadows increasing uncertainty in the economy and the workforce.

Companies are now also implementing stricter return-to-work policies for their employees, as can be seen with major tech giants set to require employees to work in the office a minimum of 3 days per week starting in September. Numerous companies are making pushes for a full return to in-person work, along with countless companies changing their work-from-home policies to permit hybrid, but not fully remote work. These corporations, however, are being met with refusals to return by employees. Many employees who have become accustomed to remote work refuse to return to in-person work, especially fully in-person without any remote work whatsoever. With new mandates regarding return to work being released across main sectors, employees are still holding onto their power in demanding to remain working remotely. (Sources: Bloomberg; U.S. Bureau of Labor Statistics, Federal Reserve Bank of St. Louis)