Stocks Rebound In June – Equity Overview

Stocks registered their best first half to a calendar year since 1997 with the Dow Jones Industrial Index, S&P 500 Index, and the Nasdaq all at or near all-time highs. The gains were led by the technology and consumer discretionary sectors, while health care and energy were the biggest laggards.

After the S&P 500 fell approximately 6.5% in May, equities rebounded in June due to a respite in U.S.-Chinese trade tensions coupled with surging expectations that the Fed will eventually cut interest rates as soon as July 31. Historically, a low-rate environment is very favorable for equities, as interest bearing alternatives become less attractive.

In addition to interest rate expectations, the Federal Reserve also gave many U.S. banks the approval to repurchase their own shares and lift dividends, part of the Comprehensive Capital Analysis and Review (CCAR) process set in place by the Fed. Large money center banks as well as smaller regional banks were restricted from buying back their own shares as well as increasing dividends in order to fortify bank balance sheets following the financial crisis. (Sources: Federal Reserve, Dow Jones, S&P, Bloomberg, Reuters)

What Expenses Seniors Have After Retirement – Consumer Demographics

Demographics play a significant role in how much we spend and where.  Spending is significantly dictated by age because different needs and life essentials evolve as consumers grow older. The challenge for many retirees now is the fact that we are all living longer, with U.S. life expectancy of 78.7 years as of 2018. As more Americans reach their 80s and 90s, medical and assisted living expenses become a much larger component of overall consumer spending. Housing, transportation and food are the three largest expenses incurred by all age groups. As consumers move from their late 20s into their 30s, we earn more money and families start to grow. Expenditures on transportation, health care and entertainment become more prevalent as households grow with children. Education is also another significant expense for many younger families, where the average cost of higher education has steadily increased over the years.

As we earn more, we also tend to save more in our 30s, 40s, and 50s by contributing to 401k plans and other retirement saving vehicles. At 70.5 years of age, Required Minimum Distributions (RMDs) kick in, imposing a tax on retirement savings, which reduces as withdrawals increase and beneficiaries age. The biggest challenge most retirees have is trying to replace lost employment income with retirement savings and Social Security. A widely accepted rule of thumb is that one will need to replace anywhere from 70% to 90% of the income earned while employed, in order to maintain the same standard of living after retirement.

The Bureau of Labor Statistics has identified the largest expenses that seniors have once in retirement. The BLS expense data including housing, food, and transportation are based on what a retiree spends on average in various essential categories nationwide. Housing, transportation and health care are the three largest expenses for retirees as well as all other age groups. (Sources: Social Security Admin., U.S. Census)

The Country’s Busiest Airports – Travel & Leisure

It is expected that a record 257 million Americans will travel by plane this summer. The summer months tend to see the heaviest demand from airline passengers across the country and as a result, the season is traditionally the most profitable for airlines as flight capacity utilization rates peak.

As business and leisure travel have been increasing both domestically and internationally, U.S. airports have seen a steady increase in passengers. Most major U.S. airports serve as international hubs with flights originating in foreign countries worldwide and landing there directly from overseas. With some of the most popular travel destinations in the world, American airports cater to a host of tourists. Not only is the Atlanta International Airport the busiest airport in the country, it is also the busiest passenger airport in the world, with Beijing a close second. Atlanta is also geographically attractive, located only a two-hour flight away from 80 percent of the U.S. population.

Various factors affect the accessibility of airports and how much traffic they generate. Denver International Airport is located in an extremely rural area of Denver, allowing vast amounts of rail and road access to the airport. Chicago’s O’Hare and New York’s JKF are both situated directly within the city and accessible by millions of visitors.

As a direct result of the aforementioned increase in passenger volumes, major airports ranging from New York’s Kennedy to Los Angeles’ LAX have been inundated with traffic and have required expansion projects. A shortage of air traffic controllers and aircraft maintenance staff have also been major bottlenecks for airlines and airports this year. (Sources: Dept. of Transportation, FAA)

Yields Drop Further In June – Fixed Income Update

The 10-year U.S. Treasury bond yield dropped below 2% for the first time since November 2016. The 10-year U.S. Treasury continues to trade at a lower yield than the 3-month Treasury bill, signaling a rather unusual phenomenon known as yield inversion, which is when short-term maturity bonds yield more than longer term bonds. The Federal Reserve has consistently communicated its confidence with the labor market and rising wages for lower paid workers as positive for the U.S. economy, but has noted that inflation is still muted and below the Fed’s inflation target. The Fed has increasingly become concerned with slowing global growth dragging down U.S. growth and therefore, the Federal Reserve has begun to consider reducing rates to sustain the economic expansion. (Sources: U.S. Treasury, Federal Reserve)