Robert Krueger

Alexander Randolph Advisory Inc.

8200 Greensboro Drive, Suite 1125

McLean, VA 22102


July 2023
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13


Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79

Macro Overview

Equity markets reacted to uncertainty in June as major indices saw an increase in volatility. Earnings continue to be a critical focal point as companies struggle to maintain elevated prices while consumer confidence has begun to erode.

The Federal Reserve has essentially signaled that it is more concerned about combating inflation than the negative consequences of continued rising rates on the economy.

A growing discussion among economists is whether or not the economy will experience a soft landing, meaning that the recent Fed rate increases will not evolve into a recession. Should a recession result, economists view such an environment as a hard landing, which is when job expansion and economic growth are hindered.

Once each year, the Federal Reserve conducts a test to assess how large banks are likely to perform under hypothetical economic conditions. The results of the most recent tests revealed that all the major banking institutions passed this year’s stress test. The tests assumed a hypothetical 10% unemployment rate and a 40% drop in commercial real estate prices.

Yields on short-term bonds rose in June as the Fed indicated that it intends to raise rates at least two more instances this year. Longer-term bond yields remained below shorter-term bond yields as confidence in future economic growth faltered.

Inflation expectations among consumers continue to dissipate worldwide, as inflation expectations throughout European and Pacific Rim countries head downward. The Federal Reserve Bank of Atlanta projects a decrease in GDP growth in the U.S. as domestic economic growth recedes.

The average age in the U.S. increased to a historic high in 2022, reaching a median age of 38.9 years. The average age has steadily risen over the past decades, primarily due to declining birth rates coupled with longer life spans over the past 20 years.

Sources: Federal Reserve Bank of the United States, Federal Reserve Bank of Atlanta, U.S. Census Bureau


Fed Continues Rate Hikes – Fixed Income Overview

Continuing inflation concerns have led the Fed to raise rates as the bond market grapples with the increases. Short-term bond yields have risen relative to long-term bond yields as expectations are that interest rates will be lower in the future. The yield on the 2-year Treasury ended June at 4.87%, while the 10-year Treasury yield was 3.81% at the end of the month.

Elevated yields continue to hamper housing with higher mortgage rates and consumer loans. Expectations of easing economic growth and lessening inflation have kept longer-term bond yields lower.

Sources: Treasury, Bloomberg, Federal Reserve


Equity Volatility Increases – Domestic Stocks Overview

Many analysts view the recent rise in equities as a momentum rally, meaning that only a few companies have been leading the overall rise in the market. Earnings are becoming extremely critical as companies struggle to maintain higher prices as consumer demand weakens.

A concentration of companies in select sectors has thus far led the market this year, with technology and consumer discretionary stocks exhibiting the largest contribution. The utilities and energy sectors lagged as rising rates and decreasing commodity prices hindered the sectors.

Sources: S&P, Bloomberg, Dow Jones


Wages Lag Behind Inflation in Nearly All U.S. Cities – Employment Update

Real wages, or workers’ pay adjusted for inflation, have decreased for 26 consecutive months. Even when nominal wage growth has been significant, inflation has surpassed it and diminished workers’ purchasing power for over two years.

Most major American cities saw declines in post-inflation wages as of May 2023, other than minuscule increases in Dallas, San Francisco, and Houston. The worst metropolitan wage decrease is in Miami, whose workers saw a 10% drop in post-inflation pay due to 9% inflation and nominal wage contractions. Workers in Tampa Bay, San Diego, Phoenix, and Chicago are all seeing their inflation-adjusted wages fall by over 3% due to high inflation, despite all of these cities exhibiting nominal wage growth.

Stubborn inflation is weighing on workers, who are now also reportedly exhibiting historically high uncertainty in their year-ahead wages according to the New York Federal Reserve. Workers’ uncertainty in their future wages reflects their faith in the strength of the job market and the economy as a whole. With wages consistently losing purchasing power and prices increasing for many consumers, this uncertainty has a substantial influence on spending habits and personal financial decisions.

Sources: Bureau of Labor Statistics, Bloomberg, Federal Reserve Bank of New York, Federal Reserve Bank of Atlanta, Federal Reserve Bank of St. Louis.



New Home Sales Grow as Existing Home Sales Drop – Housing Market Update

With hiking mortgage rates and historically high home prices, home sales have seen tumultuous recent months as the supply and demand for houses fluctuate. Recent data show that pending home sales are declining, as are existing home sales.

This trend reflects the lack of homeowners who wish to sell their homes, primarily due to not taking on a new mortgage at a higher rate. Many homeowners currently pay mortgages with rates between 2% and 4% due to low mortgage rates between 2019 and 2022. The 30-year fixed mortgage rate did not surpass 4% for 33 months during this period. Mortgage rates surpassed 7% in October 2022 and are currently at 6.8% for a 30-year fixed-conforming loan, scaring away many potential homebuyers who already own a property.

In March alone, pending home sales dropped 5.2%, their largest decrease last September. These trends can be seen in existing home sales, which have dropped by over 2 million monthly sales since January 2022. With fewer existing homes up for sale, many potential homebuyers are instead looking into new homes. This can be seen in new home sales, which increased by 40% since June 2022, reaching a 14-month high. While sales across the board are still down from the heights of the pandemic, existing homes are seeing stagnant sales and new homes are rising in popularity.

Sources: Federal Reserve Bank of St. Louis, U.S. Census Bureau, National Association of Realtors, Bloomberg




Consumers Still Spending Amid Inflation – Consumer Behavior

Consumer sentiment and spending have remained fairly consistent in recent months. Despite a dip in summer 2022, current consumer sentiment is at a similar level to its values before elevated inflation levels evolved. Inflation has steadily decreased for the past 11 months and reached 4% in May 2023, its lowest level since March 2021. Consumers’ inflation expectations have mellowed accordingly, dropping to a year-ahead expectation of 3.3% inflation as of June 2023. Consumers have not seen year-ahead prices rising this slowly since March 2021.

Despite a slowing economy, consumer spending and outlooks have remained resilient. Business investment and pullbacks in inventories have slowed growth, with investor sentiment remaining quite fragile. This has resulted in two consecutive quarterly decreases in GDP following the previous two-quarters of negative GDP growth.

Data such as this is extremely important to the Fed, which monitors spending and how it affects inflation. However, with aggressive monetary policies in place, deflationary pressures may also continue to grow, potentially negatively impacting asset prices.

Sources: University of Michigan, Bureau of Economic Analysis, Federal Reserve Bank of the U.S.


How Inflation in The U.S. Can Differ from Other Countries – Inflation Overview

Inflation is felt differently by consumers, businesses, and governments across the world depending on the driving factors behind inflation. Three nations that excellently reflect this include Japan, Argentina, and the United States.

First is the inflation exhibited in Japan. The Japanese government has a much more hands-on approach to inflation throughout the various fields in the nation, allowing them to better control the country’s inflation. Japan has more controlled labor costs relating to programs its government has recently established. One program helps retrain retired employees for part-time jobs while another program brings foreign workers into the country. In 2021, Japan saw annual deflation of -0.2%, and 2.5% inflation in 2022. This annual inflation rate was the highest seen since 2014, further showing how inflation has been kept under control.

In Argentina, political chaos and financial volatility tend to drive inflation. Argentina has an extremely volatile currency, and exchange rates within the nation can vary significantly. Argentina, unlike Japan, has very little control over its currency, and markets maintain a lack of confidence in the Argentinian government. Instability has manifested into inflation surpassing 109% in April, the greatest inflation since 1991.

The U.S. has unique inflation that is different from both Japan and Argentina. The U.S. has higher labor costs and imposes excise taxes on products such as batteries, cigarettes, gasoline, and tires. Even though the U.S. exhibits higher inflation, there continues to be immense trust in the American government, and the U.S. dollar, which is the currency of choice for nearly all trade globally.

Sources: Bank of Japan, Labor Dept., IMF; Special Data Dissemination Standard