MOVING PARTS
It continues to be a challenging time with the downturn of the market and economic inflation causing interest rate hikes. History proves that corrections in markets are always followed by a positive market. We are in one of those periods, together, where patience and commitment to your plan will have the positive resolution that we are looking for. Here’s some of what’s been happening most recently, as we navigate this together…
STOCKS AND BONDS ARE DOWN
The third quarter marked a change in attitude. So far, 2022 has been a tough year for investing. We’ve experienced an unusual phenomenon – the simultaneous decline of stock and bond markets.
Throughout the third quarter, investors’ concerns focused on global instability, rising prices, and the possibility that central bank efforts to tame inflation would cause economic growth to falter. The result has been tremendous volatility in stock and bond markets.
The S&P 500 has declined -24% as of the 3rd quarter of 2022, the bond market often is expected to be a haven from stocks falling off. and the U.S. aggregate index declined by -15%.
WHAT ELSE IS DOWN?
Despite the late-night commercials with actors often promoting gold, it also dropped about -8.7%. We have had three quarters in a row of negative returns with political policy often having an impact on large sections of the market, such as energy.
Ten central banks delivered a combined total of six percentage points of rate rises year-to-date. Several rises, including the latest from the U.S., were of some 0.75 percentage points, three times the usual scale of rate moves.
Aggressive central bank increases caused investors to reassess their expectations. The result was market selling and a sense of capitulation. This occurs when fear takes hold, investors abandon hope for positive returns, and they sell. Capitulation often is a sign the market might be near the bottom.
THE COST OF HURRICANE IAN
It’s been a tumultuous time. In the United States, Hurricane Ian pummeled Florida and South Carolina. Analysts estimate the destruction in Florida will cost U.S. insurance companies about $63 billion, although the cost of recovery will be much higher.
“The total economic damage will be well over $100 billion, including uninsured properties, damage to infrastructure, and other cleanup and recovery costs,” according to a source cited by Max Reyes of Bloomberg.
ECONOMIC UNREST IN THE U.K.
In the United Kingdom, fiscal and monetary policies collided last week. Britain’s new government plans to encourage economic growth with a stimulus package to offset energy costs and big unfunded tax cuts. Their fiscal stimulus plan could spark at the same time Britain’s central bank is trying to tamp inflation down.
Investors showed their disapproval by selling U.K. government bonds. As yields surged, bonds rapidly lost value, imperiling the nation’s pension funds. The Bank of England staged an emergency intervention, calming bond markets by promising to continue its bond purchases, reported Brian Swint of Barron’s.
GLOBAL INFLATION
Inflation continued to be a concern around the globe. In the U.S., data was recently released showing prices rose 6.2 percent year-over-year in August. In the 19-member Eurozone, inflation was up 10 percent in September, largely because energy prices are up more than 40 percent year-over-year, reported Elliot Smith of CNBC.
In Argentina, the central bank lifted its benchmark rate for the ninth time – to 75 percent – to tame inflation.
THE WAR IN UKRAINE
The war in Ukraine continued to affect food and energy supplies, driving prices higher. The agreement between Russia and Ukraine that allowed some grain exports to Europe, Asia, the Middle East, and Africa in July and August appears to be in jeopardy.
Russia is reconsidering the agreement and has threatened to reject it, which could exacerbate food insecurity in some countries and drive food prices higher.
BREAKING NEWS FROM THE SOCIAL SECURITY ADMINISTRATION
This month reported the latest cost-of-living adjustment (COLA) is 8.7 percent for Social Security benefits and SSI payments. Benefits are scheduled to increase by 8.7 percent beginning with December 2022 benefits, which are payable in January 2023. Federal SSI payment levels will also increase by 8.7 percent effective for payments made for January 2023. This news could tip the scale for those considering retiring soon.
A LIGHT AT THE END OF THE TUNNEL?
At this point, a recession is at least partly priced into current U.S. stock prices. In addition, the strength of the dollar will help the Fed’s effort to bring inflation down.
It’s also interesting to consider the glass half-full rather than half-empty. Sometimes markets drop a lot because of uncertainty caused by economic and political conflict before a midterm election. A recent academic study showed a potential resolution takes place after some midterm elections and has a positive impact on the markets. Perhaps this will be one of those times.
WEEKLY FOCUS
“Earnings don’t move the overall market; it’s the Federal Reserve Board … focus on the central banks and focus on the movement of liquidity … most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.”
—Stanley Druckenmiller, American investor, hedge fund manager, philanthropist, and former chairman and president of Duquesne Capital, which he founded in 1981
As always, I am here to answer any questions or concerns you may have. Let’s remember that success is walking the journey together!
Securities offered through Bill Spalding Wealth Management, Member FINRA/SIPC.
*These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.
*This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.
*Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
*Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
*All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
*The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
*The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
*Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
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SOURCES
https://finance.yahoo.com/quote/%5EGSPC?p=%5EGSPC
https://www.barrons.com/articles/stock-market-peak-inflation-51660350613
https://www.ft.com/content/3b347f19-3735-4a8d-bee3-cbc589b202c5
https://www.barrons.com/articles/are-stocks-near-a-bottom-51658530867
https://www.reuters.com/markets/europe/global-markets-flows-graphic-2022-09-30/
https://www.barrons.com/articles/bond-yields-treasuries-51664525327
https://www.barrons.com/articles/pound-uk-economy-crisis-51664297282?mod=article_inline
https://www.bea.gov/data/personal-consumption-expenditures-price-index
https://carnegieendowment.org/politika/87930
https://www.brainyquote.com/quotes/stanley_druckenmiller_897239