Market Commentary for the week of February 7, 2022

 

So far in 2022 the markets are posting mostly negative returns.  In addition, we are seeing increased volatility which is to be expected after such a strong run up in market prices over the past few calendar years.

As with past advice, these are the times to be disciplined and tune out the financial noise.  Some times we have to hold our nose and ride it out.  Investing includes ups and downs.  

Know that we are here to address any questions or concerns.  It is also wise to annually review your accounts and overall financial situation.

 

Until Next Time,

Darin 

 

ECONOMIC REVIEW[1]

• The ISM Manufacturing Index for January decreased to 57.6, above expectations of 57.5.
• The ISM Services Index for January declined to 59.9 which was above the expectation of a decrease to 59.5.
• Non-farm payrolls for the month of January saw a sharp beat to the upside, increasing by 467,000 where the expectation was an increase of 150,000.

 

INSIGHT: Both ISM indexes decreased for the month; however, this should not come as a surprise as both indexes recently reached all-time highs in November. Although decreases occurred, it is important to note that both indexes are expected to remain well above 50, signaling expansion in the manufacturing and services sectors of the economy. Survey respondents reported that longer lead times as well as labor shortages and retention difficulty have combined to keep activity from meeting demand. Lastly, the first jobs report to start 2022 showed strength in hiring after 2 consecutive months of lower-than-expected job growth. Even more notable was the increase in the Labor Force Participation ratio which increased to 62.2%, well above expectations and may signal a start to a trend where people are finally coming back to work.

    A LOOK FORWARD¹

• Consumer Price Index (CPI) data for the month of January will be released on Thursday, the median forecast is for January prices to rise by 0.4% MoM, translating to 7.2% YoY, another recent record.
• Despite the recent run up in energy costs (the same barrel of oil that goes for over $92 now cost less than $66 in early December) Core and Headline inflation are expected to see the same 0.4% MoM increase.

 

INSIGHT: Elevated prices have arrived in force and are affecting consumers in very tangible ways. Increases in the costs of both food and gas prices are widespread and consumers should take heed of what the Fed has now said for some time: inflation is not as transitory as once thought. Current gas price averages sit at $3.44 per gallon nationally, higher than week-ago, month-ago, and nearly a full dollar higher than one year-ago averages. Food prices have also skyrocketed globally, climbing to their highest level since 2011 according to a global index released by the United Nations Food and Agriculture Organization, largely due to supply chain disruptions, adverse weather conditions, and the rising energy prices. Unfortunately, these increases are affecting those that are the most vulnerable more greatly than others. Food and gas prices for many are relatively inelastic in their demand, meaning the amount of food families need to put on the table or the number of gallons people need to commute to work won’t change as price increases. People still need to eat and get to work, so consumers are forced to accept those higher prices and lack the same ability to change their consumption habits that they would have for other goods or services. Fortunately, some important drivers for these price increases should abate in the coming year. Supply chain disruptions are expected to abate over the course of the year, and the Fed has promised swift action to address inflation more broadly through increasing interest rates. While we believe consumers should expect higher prices to persist in the near team, the economic environment should continue to normalize going forward.

 

MARKET UPDATE

Market Index Returns as of 2/4/221	WTD	QTD	YTD	1 YR	3 YR	5 YR
S&P 500	1.57%	-5.47%	-5.47%	17.90%	20.27%	16.51%
NASDAQ	2.41%	-9.84%	-9.84%	3.00%	25.35%	21.15%
Dow Jones Industrial Average	1.06%	-3.35%	-3.35%	15.10%	14.07%	14.35%
Russell Mid-Cap	2.35%	-7.57%	-7.57%	8.47%	15.64%	12.57%
Russell 2000 (Small Cap)	1.74%	-10.78%	-10.78%	-8.18%	11.06%	9.15%
MSCI EAFE (International)	2.10%	-3.75%	-3.75%	6.14%	9.80%	7.97%
MSCI Emerging Markets	2.53%	-0.84%	-0.84%	-10.16%	7.64%	8.30%
Bloomberg Barclays US Agg Bond	-0.95%	-3.05%	-3.05%	-3.60%	3.47%	2.92%
Bloomberg Barclays High Yield Corp.	-0.30%	-3.10%	-3.10%	1.11%	6.04%	5.24%
Bloomberg Barclays Global Agg	-0.36%	-2.38%	-2.38%	-5.40%	2.44%	2.65%

    OBSERVATIONS

• U.S. equities moved higher this week as indicated by the S&P 500 which was up +1.57% on the week.
• In the U.S., smaller sized companies outperformed their larger-sized counterparts, as the Russell 2000 index increased by +1.74% on the week.
• International stocks as measured by the MSCI EAFE were positive on the week, up +2.10%, outperforming domestic stocks.
• Emerging market stocks were up on the week with the MSCI EM increasing +2.53%.
• U.S. investment grade bonds were negative last week with the Bloomberg Barclays U.S. Aggregate Bond index down -0.95%.

 

 

• BY THE NUMBERS

TEN YEARS - Since 1950, there have been 63 different 10-year periods (i.e., the 10-years from 1950-59, 1951-60, . . ., 2012-2021).  The S&P 500 produced a positive total return in 61 of the 63 decade-long periods.  The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation.  It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research). 

 

LOUSY MONTH - 65% of the stocks in the S&P 500 were down in January 2022, including 35 individual stocks that lost at least 15% (source: BTN Research). 

 

DURING HIS FIRST FOUR-YEAR TERM - Subject to Senate approval, Jerome Powell will serve a 2nd 4-year term as the Federal Reserve Chairman.  In the 1,009 trading days since Powell began as chairman on 2/05/2018, the S&P 500 has gained +15.0% per year (total return) over the 4-years (source: BTN Research). 

 

HOUSING COSTS GO UP - The cost to rent housing nationwide increased by an average of +14.1% in 2021.  The average monthly mortgage payment paid by a new US homeowner who put 5% down at purchase increased by +21.6% in 2021 (source: Redfin).

 

 

 

Reprinted with permission from BTN. Copyright © 2022 Michael A. Higley.

 

 

Economic Definitions

ISM Manufacturing Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc.

 

ISM Services Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc. Target Audience: supply management professionals Sample Size: 300 individuals Date of Survey: through the month The Services Index is a composite index of four indicators with equal weights: Business Activity, New Orders, Employment and Supplier Deliveries. An index reading above 50% indicates an expansion and below 50% indicates a decline in the non-manufacturing economy. Whereas per Supplier Deliveries Index, above 50% indicates slower deliveries and below 50% indicates faster deliveries.

 

Nonfarm Payrolls: This indicator measures the number of employees on business payrolls. It is also sometimes referred to as establishment survey employment to distinguish it from the household survey measure of employment.

 

CPI (headline and core): Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

 

Index Definitions

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.

Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as
of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.

MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.

MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition,
are excluded.

Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

 

Disclosures

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

The statements provided herein are based solely on the opinions of the Ladenburg Thalmann Asset Management (Ladenburg) Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions.

Certain information may be based on information received from sources the Ladenburg Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Ladenburg Research Team only as of the date of this document and are subject to change without notice. Ladenburg has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Ladenburg is not soliciting or recommending any action based on any information in this document.

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