Volatility Returns As Uncertainty Prevails – Equity Overview

Volatility returned in September to U.S. and international equities as central bank stimulus efforts are expected to start unwinding by year end. Third-quarter results for major equity indices showed that the financial and utilities sectors led the broad markets, with the energy sector leading all sectors year-to-date.

Equity analysts assess that ongoing supply disruptions have worsened globally as COVID-related issues impact factories and ports worldwide. Freight and energy constraints continue to add costs for companies, posing a material risk to profit expectations.

Sources: Bloomberg, Reuters, Standard & Poor’s

Rates Head Higher – Fixed Income Overview

Rates moved slightly higher in September as markets looked to the Federal Reserve for indications of a taper. Yields on government, corporate and municipal bonds rose, sending bond prices lower.

The Federal Reserve announced that it will likely begin tapering its bond-buying strategy as soon as November, and start raising the target interest rate in 2022. Bond buying by the Fed is a stimulus effort that has contributed to low interest rates.

Freddie Mac reported that the average rate on a 30-year fixed mortgage rose to 3.01% as of September 30th, the highest weekly increase since February.

Sources: U.S. Treasury, Federal Reserve, Freddie Mac

Median Household Income Drops – Demographics

The median household income fell in 2020 for the first time since 2014, according to the most recent Census Bureau data released in September. Widespread stimulus payments and enhanced unemployment benefits were not enough to match prior-year incomes in 2019. As of the end of 2020, the median household income was $67,521, a drop of 3% from 2019. Although the drop doesn’t appear to be significantly consequential, inflation pressures are a concern. Census Bureau data is adjusted for inflation, albeit at only 1.25%, which is directed by the U.S. Bureau of Labor Statistics.

Analysts suspect that the inflation rate may actually be much higher, perhaps approaching the 50-year average of 4.1%. Because of this, some economists express concern that median incomes are not keeping up with inflation and many households may lose purchasing power. (Source: U.S. Bureau of Labor)

The Debt Ceiling – Fiscal Policy

Formally known as the statutory debt limit, the United States debt ceiling is a legislative restriction on the amount of national debt that can be issued by the Treasury. The debt limit has been raised 79 times since its creation last century, with 17 of these increases occurring over the past 20 years.

The United States has maintained legislative restriction on debt since 1917. In order to control the amount of total debt outstanding, Congress placed restrictions on Federal debt issuance with the Second Liberty Bond Act of 1917, which eventually evolved into a general debt limit in 1939. The Second Liberty Bond Act of 1917 helped finance the United States’ entry into World War I, allowing the Treasury to issue long-term Liberty Bonds.

Periodically, a political dispute arises over legislation to raise the debt ceiling. Until the debt ceiling is raised, the Treasury undertakes what is termed as “extraordinary measures”, which essentially buys more time for the ceiling to be raised.

The United States has never reached the point of default, at which the Treasury is unable to pay its obligations. In 2011 the United States reached a point of near default, which in turn triggered the first downgrade of U.S. debt by credit rating agencies. Congress raised the debt limit with the Budget Control Act of 2011, which led to a new debt ceiling that was reached on December 31, 2012. (Source: Congressional Research Service, U.S. Treasury)

Hybrid Auto Sales Grow – Auto Industry Overview

The adoption of hybrid and electric cars worldwide has been a trend for years, with relatively limited options from manufacturers. A recent surge of new entrants into the market, along with rapidly advancing electric motor and battery technology, has provided a flurry of additional options for consumers.

Government subsidies and environmental sensitivity have also helped increase the popularity of hybrid vehicles, thus propelling sales upward. Currently, there is a $7,500 federal tax credit for the purchase of a new electric vehicle. Some Congressional leaders are proposing even larger tax credits and an extension of those credits through 2031.

There are currently over 253 million cars and trucks on U.S. highways, and roughly 550,000 of them are electric. Electric vehicles have grown in popularity in other countries as new models and manufacturers evolved. China, Japan, the Netherlands, and Norway are among the countries with the largest quantity of electric vehicles. Hybrid auto sales outpaced electric auto sales as numerous manufacturers and brands introduced new models, prompting competition in the industry. Hybrid auto sales grew to over 454,000 vehicles in 2020, an upward trend from only 9,350 vehicles in 2000, as tracked by the Department of Transportation. (Sources: InsideEVs, Dept. of Transportation)