Calm before the storm.....?
Submitted by Oram & Kaylor on May 15th, 2017Trying to accurately predict the movement of the financial markets is akin to predicting the weather. No one really knows, and we have to wait to see what actually happens.
Weekly Market Commentary for the Week of August 29, 2022
Submitted by Oram & Kaylor on August 30th, 2022ECONOMIC REVIEW1
This past Friday concluded the annual Fed meeting held at Jackson Hole Wyoming. While the Fed does not have an official August meeting the Jackson Hole conference is one where Fed speakers are once again put under the microscope in any commentary they give.Last week, markets fell sharply as Chairman Powell suggested the Fed would stay aggressive in its path to rising interest rates and tightening financial conditions to try and combat inflation.The personal consumption index (PCE) was released on Friday, with data coming in softer than expected much like the pervious CPI and PPI readings.Headline PCE which included energy and food costs decreased -0.1% on a month-over-month basis and over the past year headline PCE is up 6.3%Core PCE which excludes energy and food costs increased by 0.1% on a month-over-month basis and are up 4.6% since last year.
How does Jackson Hole and PCE Inflation Impact You?
Most of the week’s data took a backseat to the much anticipated annual Fed meeting at Jackson Hole which gives markets a deeper dive into what the Fed is thinking and their short term plan for implementing their policies.The comments by Chairman Powell were almost a complete reversal of his June presser where he hinted at interest rate hikes possibly ending in the near future. This time around Chairman Powell stated that rates plan to be higher for longer and that the Fed will continue to use their tools forcefully to bring down inflation.Inflationary metrics such as July CPI, PPI, and now PCE have all been quite encouraging. However, Chairman Powell reiterated a notion that most market participants have already accepted, the Fed is looking for a strong sustained down trend over multiple months to ease its pace of tightening.
A LOOK FORWARD1
Next week the jobs number for the month of August will be released. After a tremendous reading last month, the survey among economists is expecting another strong gain for hiring, with the economy adding an estimated 300,000 jobs.
How does Manufacturing & PCE Impact you?
Without a Fed pivot to rate cuts, bottoming will be a process that could take some time to play out, and markets could be rangebound. However, a continued strong labor market provides a silver lining moving forward. Historically, volatility tends to rise in September and October, especially in the years leading up to midterm elections. But equities tend to rebound strongly in the following months, turning positive shortly after, suggesting that patience and investment discipline will likely be key in the months ahead.
MARKET UPDATE
|
Market Index Returns- 8/26/22 |
WTD |
QTD |
YTD |
1 YR |
3 YR |
5 YR |
|
S&P 500 |
-4.02% |
7.45% |
-14.00% |
-7.86% |
13.98% |
12.67% |
|
NASDAQ |
-4.43% |
10.23% |
-21.99% |
-18.17% |
16.56% |
15.19% |
|
Dow Jones Industrial Average |
-4.20% |
5.22% |
-9.97% |
-6.50% |
9.89% |
10.54% |
|
Russell Mid-Cap |
-3.28% |
9.10% |
-14.43% |
-11.77% |
10.86% |
9.95% |
|
Russell 2000 (Small Cap) |
-2.93% |
11.42% |
-14.69% |
-13.13% |
10.14% |
8.02% |
|
MSCI EAFE (International) |
-1.91% |
2.24% |
-17.77% |
-17.39% |
3.66% |
2.12% |
|
MSCI Emerging Markets |
0.54% |
1.41% |
-16.46% |
-18.17% |
4.01% |
0.90% |
|
Bloomberg Barclays US Agg Bond |
-0.36% |
0.36% |
-10.02% |
-10.59% |
-1.62% |
0.73% |
|
Bloomberg Barclays High Yield Corp. |
-1.05% |
5.18% |
-9.74% |
-8.73% |
1.70% |
2.99% |
|
|
|
|
|
|
|
|
|
Bloomberg Barclays Global Agg |
-0.74% |
-1.03% |
-14.80% |
-16.66% |
-4.09% |
-1.27% |
OBSERVATIONS
U.S. equities were negative on the week with the S&P 500 Index down -4.02%.Domestically, smaller sized companies outperformed their larger counterparts as the Russell 2000 index declined -2.93%.
International stocks outperformed domestic stocks with MSCI EAFE down -1.91%.Emerging market stocks were better than developed with the MSCI EM index up +0.54%.
BY THE NUMBERS*
MADE A LOT OF MONEY - Probably my favorite bullet of all-time was the 53/47 split between “up” and “down” trading days in the US stock market over the last 50 years (1972-2021), and the realization that in spite of the near “every-other-day” volatility, the S&P 500 still generated an +11.1% per year return (source: BTN Research).
LUCK PLAYS A PART - The bullet that had me shaking my head every year when I updated it compared the fortunes (or misfortunes) of 2 retiring individuals exactly 9 years apart in age. The first person with $1 million invested 100% in the S&P 500 as of 1/01/1973 who was withdrawing an inflation-adjusted $100,000 per year would be out of money in just 9 years, i.e., as of 12/31/1981. The very next day, a 2nd person also with $1 million invested in the S&P 500 as of 1/01/1982 who is withdrawing an inflation-adjusted $100,000 per year would have $7.72 million remaining after 40 years, i.e., as of 12/31/2021 (source: BTN Research).
THINK DIFFERENTLY - Humans are predisposed to “straight-line” their future expectations. E.g., when the stock market is on a bull run, many investors (and advisors) see their good fortune continuing unabated. Conversely, when the stock market is in a bear market fall, many investors (and advisors) can’t see the rout ever ending. Both assumptions are wrong.
*Reprinted with permission from BTN. Copyright © 2022 Michael A. Higley.
Economic Definitions
Producer Prices - PPI (headline and core): Producer prices (output) are a measure of the change in the price of goods as they leave their place of production (i.e. prices received by domestic producers for their outputs either on the domestic or foreign market).
PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.
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.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
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.
The statements provided herein are based solely on the opinions of the Advisor Group 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 and may differ from those of other departments or divisions of Advisor Group or its affiliates. Certain information may be based on information received from sources the Advisor Group 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 Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward-looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.
Securities and investment advisory services are offered through the firms: FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Triad Advisors, LLC, and Woodbury Financial Services, Inc., broker-dealers, registered investment advisers, and members of FINRA and SIPC. Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Arbor Point Advisors, LLC, Ladenburg Thalmann Asset Management, Inc., Securities America Advisors, Inc., and Triad Hybrid Solutions, LLC, registered investment advisers. Advisory programs offered by FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Securities America Advisors, Inc., Triad Advisors, LLC., and Woodbury Financial Services, Inc., are sponsored by VISION2020 Wealth Management Corp., an affiliated registered investment adviser. Advisor Group, Inc. is an affiliate of these firms. 4923978
1 Data Obtained from Bloomberg as 8/26/2022
