Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

September 2022
Market Update
(all values as of 09.30.2024)

Stock Indices:

Dow Jones 42,330
S&P 500 5,762
Nasdaq 18,189

Bond Sector Yields:

2 Yr Treasury 3.66%
10 Yr Treasury 3.81%
10 Yr Municipal 2.63%
High Yield 6.66%

YTD Market Returns:

Dow Jones 12.31%
S&P 500 20.81%
Nasdaq 21.17%
MSCI-EAFE 12.90%
MSCI-Europe 12.10%
MSCI-Pacific 13.80%
MSCI-Emg Mkt 16.80%
 
US Agg Bond 4.44%
US Corp Bond 5.32%
US Gov’t Bond 4.39%

Commodity Prices:

Gold 2,657
Silver 31.48
Oil (WTI) 68.27

Currencies:

Dollar / Euro 1.11
Dollar / Pound 1.33
Yen / Dollar 142.21
Canadian /Dollar 0.73
 

Macro Overview

Recession fears weighed on markets as equities pulled back from a mid-summer rally that some analysts suspect was short-lived. U.S. equities began to rebound in August, but reversed course to end the month in negative territory.

Crude oil and gasoline prices declined in August, offering a reprieve for consumers and easing inflationary pressures slightly. Oil prices posted their largest monthly drop for the year, falling to $88.90 per barrel at the end of August, down over 30% from a high of $130 in March. Many analysts expect gasoline prices to follow historical patterns as decreasing demand in the fall and winter months usually brings lower prices.

Demand for homes continued to ease in August as rising mortgage rates and elevated home prices made affordability a challenge for millions of home buyers. The average 30-year conforming fixed mortgage rate rose to 5.66% on September 1st, albeit still below June’s high of 5.81%.

Concerns about an impending recession mounted in August, as equity markets hesitated with further anticipated Federal Reserve rate hikes. Numerous factors hindered economic growth both in the U.S. and internationally, including the invasion of Ukraine, food supply issues, monetary tightening, inflation, and falling corporate profit margins. 

A drop in real wages and heightened layoffs added pressure to the already-uncertain labor market, which seems to be cooling following a year of rapid growth. Many Americans are returning to work from the heights of self-employment in 2021 as uncertainty in the economy grows. Large sectors including technology and finance are seeing companies return workers to the office, decreasing the prevalence of remote work. 

Analysts expect that a peak in inflation may stimulate equity market volatility, should the Fed reconsider a continued rise in rates. Modifications to Fed policy might include a halt to raising rates in the event that economic conditions worsen.

The unemployment rate rose to 3.7% in August from 3.5% the previous month, making August’s unemployment rate the highest since February of this year. This indicates a slight slowdown in the labor market.

Retail stores continue to hold excess inventories, as consumers curb purchases. Too much inventory can hinder earnings for companies, especially heading into the holiday season.

China reinstated a zero-Covid policy by extending a lockdown in the western city of Chengdu, slowing Chinese exports and economic growth. Such policies lead to closures of factories and manufacturing facilities, which affect supply chains globally.

Russia halted all gas supplies to Europe indefinitely, complicating finances for European consumers and raising fuel prices to new highs. Europeans are already experiencing broad levels of inflation not seen in decades.

Sources: Freddie Mac, BLS, Department of Energy, Federal Reserve Bank of St. Louis

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

Fed Makes It Tough For Equities In August – Equity Review

U.S. equities began August in rebound mode but reversed course to end the month in negative territory. Continued Fed rate hikes and recession fears weighed on equities.

Company earnings are increasingly becoming a focal point as shrinking margins are apparent in various industries. Inflation and erratic wages continue to dampen margins and drive downward earnings revisions. (Sources: Bloomberg, Reuters, S&P)

Rates Tentative As Uncertainty Persists – Fixed Income Update

U.S. Treasury bond yields rose in August, with the 10-year Treasury ending the month with a 3.15% yield. The Treasury bond yield curve flattened, with the 1-year Treasury finishing the month at 3.50%, nearly identical to the 20-year Treasury yield at 3.53%. Such a dynamic tends to attract bond buyers to the shorter end of the curve. Economists view a flattening yield curve as indicative of a possible economic slowdown.

In addition to raising short-term rates, the Fed will continue to sell U.S. Treasury bonds and mortgage-backed securities from its balance sheet, indirectly placing pressure on rates to rise. (Sources: Bloomberg, Reuters, U.S. Department of the Treasury)

Personal Savings At Lowest In 14 Years – Consumer Behavior

During the peak of the pandemic, uncertainty over the job market and elevated unemployment prompted consumers to save at heightened rates. In addition, “going out” became extremely limited as restaurants, stores, and vacations were inaccessible for a majority of the population. With the pandemic tranquilized, consumer spending spiked tremendously and savings began to deplete.

With spending levels falling, many consumers have become wary of depleting their pandemic-era savings but are now saving at very low levels. The personal savings rate, which measures how much disposable (post-tax) income people tend to save, has reached a 14-year low. The rate reached 4.4% in April 2022 according to the Bureau of Economic Analysis, the lowest it has been since September of 2008.

With both savings and spending down, many consumers have resorted to increasingly focusing on buying essential goods rather than spending on discretionary items. Economists view this dynamic as a decline in consumer confidence throughout the economy.

Source: U.S. Bureau of Economic Analysis, Federal Reserve Bank of St. Louis

 
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

ESG is a financial philosophy whereby investors investigate three non-traditional aspects when choosing whether to invest in a company. These aspects are environmental consciousness, social treatment, and governance efficacy. 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 popular for corporations to shift away from fossil fuels and toward renewable energy. A prime example is in the automotive industry, with many companies committing to transition their vehicles away from gasoline and toward electric. Companies have increased their focus on employee standards and customer service, finding these to be key ways to attract 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 and consumers. (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. 

When evaluating wages, there are two factors to consider: nominal wage growth and real wage growth. A nominal wage is simply the wage as quoted 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 had the same purchasing power as around $60 in 2022. Being paid $5 in 1950 was worth much more than being paid $5 in 2022.

Both real and nominal wages ballooned in early 2020, then both decline significantly one year later in early 2021. Since this fall in both wage measures, nominal wages have increased while the purchasing power of these wages continues to fall because of inflation.

In recent months, inflation grew at an above-average rate, reaching 9.1% in June 2022. This inflation rate is greater than the rate at which median wages grow, which means that real wages actually decreased relative to inflation. While wages have increased at over 5% for the past 6 months, real wages have decreased over this same time. As a result, many 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. 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 slightly to 8.5%. This response to elevated living costs would be the biggest adjustment since 1981.

The Senior Citizens League noted in its preliminary report that if inflation continues upward, the COLA could reach over 10%, but 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 consumed by increases in Medicare costs, which in some cases may result in fewer benefits for seniors despite COLA increases. (Source: Senior Citizens League, Social Security Administration)

The Struggle of Returning to Work – Labor Market Dynamics

In late 2021, job-quitting hit a historic high. However, since then confidence in the economy has fallen, which has caused the quit rate to fall because people are concerned about future job availability. The quit rate remains high but has fallen by over 270,000 quits per month since the November high. The self-employed workforce has decreased by over 500,000 individuals since its high in late 2021.

Many companies are now implementing strict return-to-work policies for their employees, including some tech giants scheduled to require employees to work in the office a minimum of three days per week starting in September. Numerous companies are making pushes to change their work-from-home policies to permit hybrid, but not fully remote, work. Many employees who have become accustomed to remote work refuse to return to in-person work, causing uncertainty regarding workforce participation rates and future employer policies. (Sources: Bloomberg; U.S. Bureau of Labor Statistics, Federal Reserve Bank of St. Louis)

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.