Fortis Wealth Management

(888) 336-7847 (3FORTIS)

www.investfortis.com

September 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-EAFE 1.98%
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

Currencies:

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

Macro Overview

Congress is deliberating over the Federal Budget for fiscal year 2024 as a looming deadline approaches on September 30th. If an agreement is not reached, then a government shutdown may occur. The $6.9 trillion proposed budget encompasses 438 agencies and 15 executive branches of the Federal Government.

The most recent Federal Government shutdown lasted 35 days, from December 22, 2018, until January 25, 2019, making it the longest Federal Government shutdown in history. Partial government shutdowns have also occurred in the past, temporarily shuttering selected federal agencies and programs.

Recently released Federal Reserve data reveals an erosion in consumer credit quality, with a particular increase in retail store credit card delinquencies. Credit card usage accounted for roughly 20% of consumer spending growth over the past year.

The rate on a 30-year fixed conforming mortgage fell to 7.18% in August, after reaching a 23-year high of 7.23%. Many economists increasingly question the resilience of the housing market, as elevated home prices make purchases unaffordable for millions of Americans. The cost of apartment and residential rentals are decreasing in various areas of the country, as an additional inventory of rentals comes into the market.

Equities retracted in August as cautious earnings estimates and lingering inflation risks held stocks back from advancing. Supply constraints that existed a year ago have essentially vanished, but led many companies to explore new sourcing locations and facilities. China, the world’s largest exporting country, is showing signs of a possible economic contraction, seen by analysts as a potential hindrance to global economic expansion.

Petroleum production cuts by OPEC and other oil-producing countries propelled oil and gasoline prices higher in August. Other factors affecting oil prices include seasonality, demand, and supply constraints. Oil ended August at $83.60 per barrel, lower than recent highs of over $120 per barrel in June 2022. (Sources: U.S. Congress, Federal Reserve Bank of St. Louis, ​​IMF, Bureau of Labor Statistics, FreddieMac)

 

 
30-year mortgage rates reached 7.23% in august

Consumer Rates Remain Elevated – Fixed Income Overview

Interest rates experienced volatility in August due to uncertainty regarding inflationary pressures and future Fed policy. Elevated rates on consumer loans, including credit cards and mortgages, continued to place pressure on shoppers and home buyers.

The yield on the 10-year Treasury bond closed the month at 4.09% after reaching 4.34% in August. The average rate on a fixed 30-year mortgage fell to 7.18% in late August, down from 7.23% earlier in the month. Rates one year ago averaged 5.66% on a 30-year fixed mortgage. Some analysts note that rates may be starting to change course and recede, as the Fed weighs holding back from further rate increases. (Sources: U.S. Treasury. Federal Reserve)

Pullback in August Affects Equity Indices – Domestic & International Equity Update

Domestic stocks experienced a retraction in August as future earnings came into focus along with lingering inflationary pressures on company expenses. The S&P 500 fell -1.6%, culminating in the second monthly decline thus far in 2023. The Dow Jones Industrial Index and Nasdaq declined with similar pullbacks. September has historically been a volatile month for the indices, as uncertainty leading up to year-end and government fiscal uncertainty often hinder equity performance.

Energy was the only sector of eleven sectors in the S&P 500 Index that was positive for August. Analysts watch such broad pullbacks in multiple sectors as an indication of a possible broadening of market weakness.

International and emerging market equities saw a more substantial pullback in August, with the developed market MSCI EAFE Index dropping -4.1% and the emerging market MSCI EMG MKT Index declining -6.36%. Currency volatility and global expansion concerns exacerbated the overseas market movements. (Sources: Dow Jones, S&P, Nasdaq, Bloomberg, MSCI)

Producer Prices Heading Lower, What it Means – Producer Inflation

The Producer Price Index (PPI) measures the selling prices that domestic companies pay when purchasing anything from raw materials to finished products. Similar to how the Consumer Price Index (CPI) tracks prices consumers pay for goods, the PPI tracks prices for corporations.

With the PPI steadily decreasing to its lowest growth rate since 2020, corporations now generally see less pricing pressure than previously. This affects companies across a wide variety of industries and is a leading indicator of what may soon trickle down to CPI. With companies paying lower prices, consumer prices have historically followed.

Sources: U.S. Bureau of Labor Statistics, Federal Reserve Bank of St. Louis

 

 
30-year mortgage rates fell to 2.65% in 2021, the lowest in history

Housing Market is Among the Least Affordable in U.S. History – Housing Market

Measured by the Housing Affordability Index, the affordability of homes steadily eroded 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 increased interest rates to combat inflation, mortgage rates were affected. The average 30-year mortgage rate rose to a high of 7.24%, the highest since 2001. This is a significant change from the lows reached in 2021 when the average 30-year mortgage fell to 2.65% mortgages, the lowest in U.S. history. The change created a less affordable environment for potential home buyers to acquire property.

First-time buyers might either buy a home knowing they may not be able to afford it unless rate decrease, or continue renting until affordability rises. For those who already own a home, remaining in their current house instead of buying a new one in increasing in popularity. (Sources: National Association of Realtors, Federal Reserve Bank of St. Louis, Freddie Mac)

How Inflation & Deflation Affect High Income & Low Income Earners – Inflation Review

As inflation took center stage over the past year, consumers among all demographics were affected in various ways. Inflation reflects the overall increase in the cost of goods and services, from shoes to gasoline. Products that are essential for everyday life can be more costly for some than others, such as food, healthcare, and toilet paper. These products often make up a larger portion of expenses for lower-income consumers and less for higher-income earners. As a result, inflation can present a larger challenge for lower-income earners since little or no disposable income is discretionary items.

As the economy slows and lower prices eventually settle in, a deflationary environment potentially evolves and pulls down certain asset prices. Historically, lower asset prices affect higher income earners with significant assets. Deflation may affect the prices of assets such as homes, cars, stocks, and commodities.(Sources: U.S. Bureau of Labor Statistics)

 

 
credit card delinquency rates reached their highest level in over a decade

Delinquency Rates on the Rise – Consumer Finance

A survey released by the Federal Reserve Bank of Dallas found that overall credit and lending activity is deteriorating nationwide. The survey encompasses loan activity among larger banks, regional banks, finance companies, and various lenders.

The primary concern of this report centers around rising delinquency rates on credit cards, which indicates ongoing trends pertaining to consumer behavior. Consumers have recently become more accustomed to taking on debt, which declined during the pandemic. Consumers are now financing an increasingly high level of purchases, which has driven up rates of delinquency.

This is of particular interest to economists, who view this dynamic as a worrying sign for consumer spending. In 2023, credit card delinquency rates reached their highest level in over a decade, surpassing levels last seen in late 2012. When consumers increasingly take on debt that they are unable to repay, it creates a delinquency cycle that poses financial duress for consumers. Delinquency rates fell substantially in 2021 as pandemic assistance funds helped alleviate the debt burden of millions of credit card holders, but catapulted back up once those funds were exhausted.(Sources: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis, Federal Reserve Bank of Dallas)

New Mortgage Rules to Accommodate Lower Credit Scores – Lending Overview

New mortgage rules attempt to make homes more accessible to home buyers with low credit scores by lowering the fees for low-credit buyers while, in some cases, raising the fees for high-credit buyers. This new fee restructuring revolves around what Fannie Mae calls “loan level price adjustment costs” and what Freddie Mac refers to as “credit fees.” Effective on May 1, 2023, these two agencies increased their risk-based fees, which are intended to protect the agencies from borrowers deemed as more likely to default on their payments. In an attempt to make homes more affordable for individuals without large savings, their adjustments lowered fees for purchasers with smaller down payments. On a conventional mortgage, borrowers who put down payments between 5% and 25%, which are considered larger down payments, will pay more in fees than those who put down less than 5% of the home’s value. Thus, the higher fees are impacting those who are considered less risky. While purchasers with high credit scores will still be charged lower fees than purchasers with low credit scores, the disparity between fees will be reduced. This is intended to offset the risks of supporting purchasers with lower credit scores, whom Fannie Mae notes may not have large savings or help from family or friends like their peers with higher credit scores.(Sources: Freddie Mac, Fannie Mae)

 

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.