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November 2021
Market Update
(all values as of 04.29.2022)

Stock Indices:

Dow Jones 32,977
S&P 500 4,131
Nasdaq 12,334

Bond Sector Yields:

2 Yr Treasury 2.70%
10 Yr Treasury 2.89%
10 Yr Municipal 2.72%
High Yield 6.64%

YTD Market Returns:

Dow Jones -9.25%
S&P 500 -13.31%
Nasdaq -21.16%
MSCI-EAFE -12.94%
MSCI-Europe -13.65%
MSCI-Pacific -11.56%
MSCI-Emg Mkt -12.65%
 
US Agg Bond -9.50%
US Corp Bond -12.73%
US Gov’t Bond -10.03%

Commodity Prices:

Gold 1,897
Silver 22.75
Oil (WTI) 104.15

Currencies:

Dollar / Euro 1.05
Dollar / Pound 1.24
Yen / Dollar 130.36
Dollar / Canadian 0.77
 

Macro Overview

Severe labor shortages and supply chain disruptions continue to hamper industries throughout the country, elevating inflationary pressures for the U.S. economy.

Higher prices for gasoline and natural gas are expected to raise heating costs for consumers heading into the winter months. A spike in demand for natural gas is common every winter, driving prices higher. Crude oil prices reached levels not seen in seven years as a gradual increase in demand and supply constraints contributed to price pressures.

Rising mortgage rates in October contributed to concerns about housing affordability for millions of Americans. Limited housing supply and elevated home prices have been an issue for home buyers for over a year. The specter of rising interest rates is expected to exacerbate the issue, putting home purchases out of reach for many.

Social Security recipients will see a 5.9% increase in benefit payments starting in January 2022. The increase is the largest since 1982, adding an average of $92 per month to an average monthly benefit of $1,657 per recipient. The Social Security Administration determines benefit adjustments based on the inflation rate, as measured by the Consumer Price Index. The cost-of-living adjustment (COLA) is based on the most recent inflation rate and revised each year. As of September 2021, there were 69.9 million Americans receiving benefit payments from the Social Security Administration.

Equity markets were resilient in October as the Dow Jones Industrial Average, S&P 500, and the Nasdaq indices reached new highs despite supply chain constraints, inflationary pressures, and rising rates.

Employment costs for wages and salaries in the private sector rose 4.6% over the past year compared to 2.4% for state and government positions. Employers are forced to raise compensation and pay incentives in order to attract skilled workers for the 10 million open positions nationwide. Economists view the escalation of pay as wage inflation, affecting company margins and igniting pricing pressures.

Millennials are a dominant force in the U.S. economy, representing nearly 22% of the U.S. population and surpassing Baby Boomers who now account for roughly 21.5% of the population. Federal Reserve data show that millennials now represent over 5.5% of wealth in the U.S., compared to 4.4% prior to the pandemic. Baby Boomers now represent 51.4% of wealth, down from 54.1% prior to the pandemic. (Sources: Federal Reserve, Labor Dept., Social Security Adm.)

 
global inflation has increased to 4.6% from 1.8% pre-pandemic

Major Indices Reach New Highs In October – Domestic Equity Overview

Major equity indices were up in October, with the Dow Jones Industrial, S&P 500 and the Nasdaq Indices all reaching new highs. Equities were resilient to supply chain constraints, inflationary pressures, and rising rates. Earnings were mixed as various companies struggled with lack of materials and components for products, negatively impacting sales and revenue growth estimates. (Sources: Dow Jones, S&P, Nasdaq)

Short Term Rates On The Rise – Fixed Income Update

Rates continued on a gradual assent in October, with the 10-year Treasury bond yield ending the month at 1.55%, up from 0.88% this same time last year.

The Federal Reserve is scheduled to slow its pace of buying Treasury and mortgage-backed bonds in November. It is uncertain as to how exactly this will affect interest rates and the bond markets in the near term.

The yield on the 2-year Treasury bond rose abruptly to 0.48% at the end of October, up from 0.28% on September 30th. The rapid increase in short-term rates is an indicator to bond analysts that the Fed is preparing to increase rates. Short-term rates are largely determined by the Federal Reserve, while long-term rates are dictated by the markets. (Sources: Treasury Dept., Federal Reserve)

OECD Sees An Increase In Global Inflation – Global Economy

Pandemic driven supply issues and a gradual emergence of economic activity globally have led to higher prices worldwide. Energy and food prices have risen in nearly every country worldwide, disproportionately affecting low-income and impoverished countries.

Currently, 38 developed and emerging countries make up the OECD (Organization for Economic Cooperation and Development), which monitors living standards of citizens worldwide and creates policies to facilitate better conditions.

Optimistically, emerging economies tend to endure inflation fairly well, as rising commodity prices benefit many emerging countries. Ideally, rising food prices can be mitigated as more crops and supply is gradually added. (Source: Organization for Economic Cooperation and Development)

 
The 5.9% increase is the largest increase since a 7.4% increase in 1982

Social Security Benefits Going Up in 2022 – Retirement Planning

Social Security recipients are due to receive the largest increase in benefits since 1982, but for many recipients, the increase in payments will go toward higher Medicare costs.

The Social Security Administration announced a 5.9% increase in benefit payments effective in late December 2021 for disability beneficiaries and in January 2022 for retired beneficiaries. The 5.9% increase is the largest increase since a 7.4% increase in 1982.

Many are concerned that the benefit increase may not cover expenses that are rising at a faster rate, including other essential items such as food and housing. The latest increase also affects the premiums for Medicare Part B, which covers doctor visits and outpatient care. Medicare premiums are expected to increase at the beginning of the year, minimizing net increases in Social Security payments.

Social Security was established on August 14, 1935, when President Roosevelt signed the Social Security Act into law. Since then, Social Security has provided hundreds of millions of Americans with benefit payments. The payments are subject to automatic increases based on inflation, also known as cost-of-living adjustments or COLAs, which have been in effect since 1975. Over the years, recipients have received varying increases depending on the inflation rate. With low recent inflation levels, increases in benefit payments have been subdued relative to years with higher inflation. The COLA adjustment for 2022 is a steep increase from the adjustment of only 1.3% last year. (Source: Social Security Administration)

Some Americans Retired Early Due To The Pandemic – Demographics

A recent research report by the Federal Reserve Bank of St. Louis found that over 3 million Americans decided to retire earlier than previously planned due to the pandemic.

There have been various reasons that people have been leaving the workforce during the pandemic, such as staying home to care for both elderly family members and children who were not able to attend school in person. The level of workers retiring during the pandemic rose from relatively stable levels. The percentage of retirees in the U.S. population rose from 15.5% in 2008 to 19.3% in August 2021.

The additional retirees are deemed as “excess retirees” by the Federal Reserve. The Fed report also found that the combination of Covid-19 vulnerability along with rising asset values, including stocks and housing, contributed to workers opting out of the workforce sooner rather than later. (Source: Federal Reserve Bank of St. Louis)

 
quits rate rose to 2.9, reaching the highest level ever

More Workers Are Quitting Than Ever – Labor Market Overview

A shortage of qualified workers across the country is encouraging companies to raise wages in order to attract employees that they desperately need. The competition for employees is enticing workers to quit their current jobs for higher-paying opportunities.

Each month the U.S. Department of Labor releases employment data that includes how many workers are actually quitting their jobs. The data is considered a critical barometer of the labor market’s health and an indicator of economic growth.

The “quits rate” essentially measures how many workers quit their jobs voluntarily as opposed to being fired or laid off. Many economists and analysts follow the quits rate closely because it reveals how confident workers are. These same workers are also the consumers that the Fed monitors to determine if their confidence is allowing them to spend more, lifting economic growth. The most current data shows that the quits rate rose to 2.9, reaching the highest level ever recorded. Following the financial crisis in 2008, the quits rate dropped as workers were less confident in leaving a job they had to look for a better job opportunity. Meanwhile, threats of layoffs and firings lingered following the 2008 crisis.

Wages benefit when more workers quit, as employers tend to raise compensation in order to retain and attract qualified employees. Rising wages can bode well for worker and consumer confidence, a key ingredient for improving economic conditions. (Source: U.S. Labor Department)

The Dollar’s Supremacy – Currency Update

Even as the popularity of cryptocurrency has taken center stage as a potential replacement to traditional country currencies, many economists predict that the dollar’s supremacy will continue as investors seek stability in the world’s healthiest economy. U.S. capital markets remain the largest and most liquid of all financial markets globally, attracting international investors.

A challenge at home when the dollar rises is the fact that U.S. exports become more relatively expensive worldwide. As the dollar increases in value versus other currencies, U.S. exported goods become less affordable in the international markets. Conversely, the strengthening dollar makes imported goods more affordable. In the $5.1 trillion daily foreign exchange market, the U.S. dollar accounts for about 88% of all transactions, according to the Bank for International Settlements. The dollar is also the dominant reserve currency, accounting for 62.5% of the $10.4 trillion in allocated reserves, as tracked by the International Monetary Fund (IMF). (Sources: U.S. Commerce Dept., Eurostat, IMF: World Currency Composition)