Robert Krueger
Alexander Randolph Advisory Inc.
8200 Greensboro Drive, Suite 1125
McLean, VA 22102
703.734.1507
Dow Jones | 41,563 |
S&P 500 | 5,648 |
Nasdaq | 17,713 |
2 Yr Treasury | 3.91% |
10 Yr Treasury | 3.91% |
10 Yr Municipal | 2.70% |
High Yield | 6.92% |
Dow Jones | 10.28% |
S&P 500 | 18.42% |
Nasdaq | 18.00% |
MSCI-EAFE | 9.72% |
MSCI-Europe | 9.81% |
MSCI-Pacific | 9.34% |
MSCI-Emg Mkt | 7.44% |
US Agg Bond | 3.07% |
US Corp Bond | 3.49% |
US Gov’t Bond | 2.95% |
Gold | 2,535 |
Silver | 29.24 |
Oil (WTI) | 73.65 |
Dollar / Euro | 1.10 |
Dollar / Pound | 1.31 |
Yen / Dollar | 144.79 |
Canadian /Dollar | 0.74 |
Macro Overview
A federal government shutdown was averted on September 30th, when Congress voted to fund government operations until mid-November. Volatility in the financial markets increased during September, as uncertainty surrounding a resolution persisted. The possibility of a shutdown will evolve again in November, as Congress once again deliberates on the passage of the federal budget. Should a shutdown occur, the impact on the economy would initially be milder than previous shutdowns, and possibly expanding as millions of government workers go without salary. Private sector contractors would also be impacted with delayed payments, while consumer uncertainty hinders spending.
The federal government shutdown dilemma has increased the possibility of a credit downgrade by Moody’s, the last agency with a AAA rating on government debt. Credit agencies S&P and Fitch have already lowered their ratings on U.S. government debt to AA+, down from the top tier rating of AAA. Another downgrade is expected to make it more costly for the government to borrow funds and maintain already excessive debt levels. The last downgrade was on August 1st when Fitch lowered its rating to AA+ from AAA.
A shutdown of the federal government is expected to affect only government operations and payments that are not funded by permanent appropriations. Those funded by permanent appropriations such as the Postal Service, entitlement programs such as Social Security and Medicare, will not be affected. Other essential and critical departments and agencies of the government would also continue operations, such as the Defense Department and the Treasury Department. Scheduled debt payments such as on Treasury bills, notes and bonds would also continue to be made.
Relentless rising oil prices are hindering portions of the economy, inflicting rising costs on transportation, manufacturing, and food distribution. Equity analysts believe that some companies may see compressed earnings as lofty fuel costs continue to wear on operating expenses. Higher costs can eventually be passed on to consumers in the form of higher prices.
Wages have grown less than the inflation rate over the past two years, dampening consumer expenditures and spending confidence. Recent labor strikes involve wage negotiations to enhance pay that hasn’t kept up with rising prices and inflationary pressures.
Medicare open enrollment is from October 15th to December 7th, allowing changes for existing medicare recipients and enrollments for new members. Any changes and new enrollments are effective January 1, 2024. The Centers for Medicare & Medicaid Services (CMS) reports that there are currently over 65.7 million people enrolled in Medicare.
Sources: Social Security Administration, Medicare.gov, Treasury Dept., Federal Reserve
Yields On The Rise – Fixed Income Overview
Looming government shutdown threats hindered the bond markets as concern surrounding heightened funding costs for the government came into focus. Yields on U.S. Treasury bills, notes and bonds rose in September as confidence regarding reaching a compromise diminished. Analysts expect the rise in government debt yields to be short term unless another impasse materializes in mid-November as Congress deliberates the federal budget again. The yield on the 10 year Treasury bond surpassed 4.5% at the end of September, luring investors as equity volatility continued to dampen performance.
Sources: Treasury Dept., Congress.gov
Equities React to Congressional Uncertainty – Global Equity Overview
Domestic equities were off in September and in the third quarter, as stocks retracted further with shutdown concerns increasing towards the end of the quarter. Rising interest rates and the labor union strike also contributed to market anxiety, as uncertainty drove volatility higher throughout the month.
The energy and communication services sector were the only positive sectors for the third quarter. Elevated fuel prices along with improving technology earnings supported the rise in the sectors. Pessimism amid renewed inflation concerns hindered equity momentum during the quarter.
Developed and emerging market equities also pulled back in September and the quarter as uncertainty surrounding the U.S. dollar and elevated fuel prices drove valuations lower.
Sources: S&P, Dow Jones, Nasdaq, MSCI, Bloomberg
How Deflation & Inflation Affect High Income & Low Income Earners – Inflation Review
As inflation has taken center stage over the past year, consumers among all demographics have been affected in various ways. Consumers know inflation as the overall increase in the cost of goods and services, from shoes to gasoline. However, products that are essential for everyday life can be more costly for some than others, such as food, healthcare, and toilet paper. These products usually make up a larger portion of expenses for lower-income consumers and less for higher-income earners. In essence, inflation can be much more of a challenge for lower-income earners as less disposable income is left for more desirable items.
Fortunately, consumers have the ability to control what they buy when inflation sets in, such as buying hamburgers instead of steak. This is where consumer choice is critical as to where the economy is heading and what companies might benefit more than others.
As the economy slows and lower prices eventually settle in, a deflationary environment evolves pulling certain asset prices down. Historically, lower asset prices affect higher income earners with assets, rather than those with little or no assets. Deflation may affect the prices of assets such as homes, cars, stocks, and commodities.
Sources: U.S. Bureau of Labor Statistics, OneBlueWindow Editorial Staff
Consumers Are Saving Less – Consumer Behavior
According to the Bureau of Economic Analysis, data has revealed that Americans are saving less than initially thought. From 2017 through 2022, American consumers were thought to have saved an average of 9.4% of their disposable income. However, revised data figures have identified that the actual savings rate was 8.3%. Various possible explanations as to why such a drop may have occurred include higher fuel prices, recently implemented student loan repayments, lower real wages, and exhaustion of pandemic relief funds.
Inflationary pressures over the past two years have already redirected some consumer funds from non-essential goods and services to more essential items such as food and gasoline.
Spending habits adjusted during the pandemic, as government stimulus funds padded consumer savings for millions. The National Bureau of Economic Research found that roughly 30% of stimulus checks went to consumer savings, while another 30% went to pay off debt. Personal savings reached a historical high in the midst of the pandemic, as retail stores and restaurants were shuttered, and stimulus checks went unspent. The savings rate reached 32% of disposable income in April 2020, yet has fallen to 3.9% as of this past August.
Sources: National Bureau of Economic Research, BEA
Consumption Decreases as Environment Changes – Economic Dynamics
Over 65% of the country’s economic growth is driven by consumers. Sentiment and confidence are critical components to consumer spending behavior, influencing spending patterns and habits. Recently released data from the Bureau of Economic Analysis reveals that consumers are spending less than they have been. Factors affecting consumer spending include income, sentiment, job status, and confidence.
As retail stores and restaurants began to reopen in 2021, consumers were ready to spend funds that had been sitting idle for nearly a year. Consumer consumption fell dramatically in April 2020, as stay-at-home mandates and retail closures were in effect, only to elevate to new highs in April 2021 as consumers were able to spend freely again. The most recent data trends validate that consumers are spending less and perhaps with greater caution as economic uncertainty takes hold.
Sources: Labor Dept. Bureau of Economic Analysis
Medicare Coverage Heading Into 2024 – Retirement Planning
With open enrollment upon us, millions of Americans will be deciding on which, if any, changes to make to their Medicare coverage. The Open Enrollment Period for 2024 coverage is from October 15, 2023 to December 7, 2023. Coverage for any changes or new plans begins January 1, 2024.
Since Medicare doesn’t cover all medical expenses, the decision to buy supplemental insurance coverage or to obtain a Medicare Advantage Plan is important for millions of Medicare recipients. Medicare Advantage Plans allow a recipient to get both Medicare Part A and Part B coverage. Medicare Advantage Plans are sometimes called Part C or MA plans, and are offered by Medicare-approved private companies.
Medicare Supplemental Insurance or Medigap helps pay for gaps in coverage not paid for by Medicare. Even though Medicare does pay for many procedures and services, some remaining expenses such as copayments, coinsurance, and deductibles are covered by supplemental plans. Some Medigap policies also cover services that are not covered at all by Medicare, such as coverage while traveling abroad.
Source: medicare.gov
Housing Market Is Among the Least Affordable in U.S. History – Housing Market
Measured by the Housing Affordability Index, the affordability of homes has been steadily eroding since early 2021. Factors affecting affordability include home prices, mortgage rates, and household incomes. With historic inflation outpacing income growth, home buyers in the U.S. have been unable to keep up with rising prices and mortgage rates.
When the Fed increases interest rates to combat inflation, mortgage rates are similarly affected. The average 30-year mortgage rate rose to a high of 7.24%, the highest since 2001. This is a significant difference to the lows reached in 2021 when the average 30-year mortgage fell to 2.65% mortgages, the lowest in U.S. history.
First-time buyers are forced to either buy a home knowing they may not be able to afford it or continue renting until affordability rises. For those who already own a home, remaining in their current house instead of buying a new one has been increasing in popularity as well.
Sources: National Association of Realtors, Federal Reserve Bank of St. Louis, Freddie Mac