Joseph SchwSDWIA Bridgearz, CFA 612.355.4365

Stephen Dygos, CFP® 612.355.4364

Benjamin Wheeler, CFP® 612.355.4363

Paul Wilson 612.355.4366

www.sdwia.com

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

Macro Overview

A change in the Federal Reserve’s stance on the direction of interest rates helped buoy equity and bond prices higher in March, allowing U.S. equity indices to post the strongest first quarter in nearly ten years.

The Federal Reserve scaled back its growth expectations for the U.S. economy and announced that it would hold rates steady with no additional rate increases this year. Economists interpreted the comments as a somber assessment of economic expansion, yet positively received by the equity and fixed income markets. The Fed mentioned trade disputes, slowing growth in China and Europe, and possible spillovers from Britain’s exit from the European Union were factors.

Short-term bond yields rose above longer term bond yields in March creating what is known in the fixed income sector as an inverted yield curve. Normally, short-term yields are lower than longer term yields, resulting in a normal yield curve. A persistent inverted yield curve would become more concerning should it linger for several quarters.

Concerns surrounding economic momentum in Europe became more prevalent as Europe’s central bank, the ECB, signaled that it would maintain interest rates below zero longer than anticipated. Slower growth in both exports and imports have been implying a slowdown throughout the EU, which is comprised of 28 European countries. The pending outcome on how and when Britain finally exits the EU is also adding duress to Britain’s trading and business partners all over Europe.

Chinese government data revealed that exports heading to other countries worldwide fell over 20% in the past year. Data also showed that imports had fallen into China, realizing that Chinese consumers were scaling back demand from prior months.

The most recent jobs report released by the Department of Labor is validating a gradual rise in wages. Concurrently, the unemployment rate fell to 3.8%, pushing wages higher as skilled workers become less available.

Outstanding student loans nationwide now stand at $1.5 trillion, the largest amount of debt ever incurred by students. As the amount of debt has risen, so have delinquencies, surging to over $166 billion, according to calculations by the Federal Reserve Bank of New York.

Congressional leaders this past month are considering legislation that would repeal the current age cap of 70.5 for contributing to IRAs as well as increase the required minimum distribution age for retirement accounts from 70.5 to 72. Such legislation, if passed, would be the most significant changes to retirement plans since 2006.

Falling interest rates since the beginning of the year have spurred an increase in mortgage loan activity which bodes well for both refinancing and housing sales activity.

Sources: Federal Reserve, Dept. of Labor, IRS, Treasury Dept., ECB

 

Lower Rate Outlook Help Buoy Stocks – Equity Overview

Optimism over progress on U.S. trade discussions with China seemed to overshadow concerns about a slowing economic expansion helping to propel equity indices towards the end of the third quarter.

Gains were broad for the S&P 500 Index with all 11 sectors ending higher for the first quarter, which has not occurred since 2014. Technology, capital goods, transportation, and energy were among the best performing sectors for the quarter, encompassing a broad scope of industries and companies. Commodity prices also rose in the first quarter, validating a demand for economically sensitive materials.

A counterintuitive environment has driven stocks higher while the bond market is signaling slower growth. Some equity analysts are expecting a slowdown in corporate earnings growth as global demand projections have been trimmed.

Sources: S&P, Bloomberg, Reuter

Inverted Yield Curve Puts Rates On Hold – Fixed Income Overview

The yield on the 10-year treasury fell to 2.41% at the end of March, down from its peak yield of 3.25% in October 2018. The Fed’s shift from a tightening mode to a hold mode is interpreted by some economists and analysts as a lack of confidence in economic growth.

Treasury yields inverted further as the 6-month treasury note yielded more than the 7-year treasury bond in March. Inverted yields mean that shorter term rates are higher than longer term rates, translated by markets as minimal economic expansion and inflation expectations.

A sustained inversion becomes more concerning should it linger for several quarters. Some are even expecting a rate cut later in the year, if not in 2020, should economic data shed dismal projections.

Negative yields on some European government bonds reflect minimal growth expectations with subdued inflation throughout the EU. An inverted yield curve in the U.S. may partially be the result of slowing economic expectations in Europe and internationally.

The yield curve has been fairly flat over the past few months, meaning that the yield on shorter term bonds have been similar to the yield on longer term bonds. This dynamic created some uncertainty for the Fed, making it difficult to determine whether to raise rates or keep them the same.

Many believe that a divergence between stock prices and bond yields has evolved, where bond prices have risen concurrently with stock prices. Stocks historically head lower when bonds prices head higher, in anticipation of slowing economic activity or lingering uncertainty.

Sources: Eurostat, Treasury Dept., Federal Reserve

 

What To Keep & What To Toss – Tax & Finance

As we make our way through the piles and files of receipts and statements left over from tax time, disposing of some of these obstacles is a thought. It is always suggested to carefully shred documents containing any critically sensitive information. The idea is to toss out what you don’t need anymore, yet keep what you might need for taxes and accounting purposes. Here are some items that accumulate the most with a note as to how long to keep them:

Monthly Utility Statements – can be disposed of after three months unless the expenses are being written off for tax purposes, then you may want to maintain those until after tax time.

Pay Stubs – having the most recent pay stub handy is suggested, with no need to keep older stubs since the most recent stub should contain all YTD details. Should you be applying for a loan or mortgage, then having as much as one year’s stubs available is helpful.

Credit Card Receipts & Statements – can be tossed when the credit card statement is received and reviewed. If using a credit card for business purposes, then keeping receipts for seven years is the recommended time period. Statements on the other hand should be kept for three months should there be a dispute or chargeback of an expense.

Canceled Checks – can be shredded once the bank statement arrives. Credit card receipts and business related expenses should be kept for seven years.

Bank Statements – are possibly the most important items to keep for an extended period. Like pay stubs, if a loan or mortgage application is in process, six to twelve months of statements is what most lenders are asking for nowadays.

Insurance – always replace outdated policies and coverage verifications with the most recent and keep in an accessible place should a claim need to be filed.

Medical Statements, Bills & Insurance Notices – should be kept for at least five years especially if these items are used as tax deductions and even lingering insurance payment claims. With the onslaught of recent health care initiatives, it is wise to track and file all medical related items as detailed as possible.

Tax Returns & Supporting Items – should be kept at least seven years. Supporting documents include receipts, mileage logs, spreadsheets, paid invoices and canceled checks.

Workforce Getting Older – Labor Demographics

Demographics drive the domestic labor force, propelled by both young and unskilled workers to older more seasoned individuals. For decades, the baby boom generation commanded the nation’s workforce, representing the single largest age group to hold jobs across all industries and sectors. As those same workers have aged, a younger generation has assumed some of the gaps left by retiring boomers.

Over the years, Labor Department data found that those aged 16-24 have been making up a smaller portion of the workforce. The Department projects that by 2026, only 11.7% of the labor force will be comprised of 16-24 year olds, compared to 15.8% in 1996.

Workers aged 25-54 are expected to make up the bulk of workers, representing over 63% of the nation’s labor force, down from 72.3% in 1996.

Department of Labor data revealed that over a thirty year period, those aged 55 and older will encompass 24.8% of the labor force in 2026, a stark increase from 11.9% in 1996. As American workers have aged over the decades, longer life expectancy and healthy lifestyles have afforded many the ability to continue employment well into their 60s and 70s.

Sources: Department of Labor

 

 

 

What Britain Leaving The EU Means – Brexit Overview

Turbulent and politically charged challenges between the British government and Parliament have resulted in numerous failures to finally execute Britain’s departure from the EU, known as  Brexit.

The significance of Britain exiting the EU may eventually be substantial as other countries may decide to cast similar votes whether or not to leave the EU. Several of the existing members are anxiously awaiting the outcome of Brexit to determine how challenging both politically and economically it may be. As of the end of 2018, Britain represented roughly 13% of the EU’s total GDP, ranking second in terms of GDP after Germany.

The EU (European Union) was established following the end of WW II in order to offer financial and structural stability for European countries. Since its establishment, the EU has grown to a membership of 28 countries, abiding by various rules and policies set forth by the EU Council.

One of the responsibilities of member EU countries is to accept and honor immigrants and citizens from other EU countries as part of the human rights initiatives recognized by the EU. Immigration has been a topic of contention among various EU countries for some time. This was a decisive factor for Britain leaving the EU since its economy and cities have been inundated by foreign-born immigrants seeking jobs and a better quality of life.

The markets have reacted negatively to the announcement, pushing down stocks, the British pound, and bond yields as investors seek the perceived stability of bonds while markets worldwide acclimate.

Since Britain has been part of the EU since 1973, it is expected that the unraveling of British ties from the EU could take years. Contracts, employees, and laws will all have to be revised, reshuffled, and rewritten in order to accommodate the divorce between the two.

Now that the British have decided on leaving the EU, many believe that another referendum could possibly be presented in France and other EU countries. The concern of a domino affect is very realistic, as several other EU members are experiencing similar frustrations as Britain.

Expected effects in the U.S. include:

Prolonged low interest rates

More assets flowing into the U.S. from abroad

U.S. companies altering European contracts

Stronger U.S. dollar versus the British pound and euro

Sources: EuroStat, EU Council, Europa.eu