Weekly Market Commentary

April 1, 2024

The Markets

Inflation and geopolitics and earnings. Oh, my!

It was a rough week for stock markets. “The S&P 500 closed 1.5% lower on Friday, while the Nasdaq Composite dipped 1.6%. Every S&P 500 sector closed lower—and just about 40 stocks in the index finished the day with gains,” reported Connor Smith of Barron’s.

A trio of issues caused investors to reassess their expectations for the year. Here’s what many were thinking about:

Prices rising at home. Early last week, the Consumer Price Index showed prices had moved higher in March. Headline inflation was 3.5 percent year-over-year, up from 3.2 percent in February. Higher prices for gasoline and shelter were the primary drivers of the increase. Inflation, in tandem with strong economic data, dashed investors’ hopes that the Federal Reserve will lower rates soon, reported Augusta Saraiva and Matthew Boesler of Bloomberg.

Tensions rising overseas. One of the drivers behind rising prices is geopolitics, reported Rita Nazareth of Bloomberg. Oil markets have been responding to the possibility of escalating tensions in the Middle East, as well as the damage done by drone strikes on Russian oil infrastructure. Equities moved lower and gold moved higher as investors sought so-called safe-haven investments, last week.

Corporate earnings growth. Last week, banks began reporting on their performance during the first quarter of 2024. Some banks reported net interest income (the profit earned from lending money) that was lower than analysts anticipated. The gap in expectations was due, in part, to the fact that bank accountholders were seeking higher returns on their savings, reported Sridhar Natarajan of Bloomberg. Despite disappointment over bank’s interest income, earnings grew by 3.2% for the handful of S&P 500 companies that have already reported, according to John Butters at FactSet.

By the end of the week, major U.S. stock indices were lower. U.S. Treasury yields moved higher over the week.

Financial markets are likely to be volatile as investors adjust to U.S. economic strength and changing expectations for Fed rate cuts and geopolitical events. While market turbulence can be unsettling, price swings can create opportunities to invest in quality assets at attractive levels. 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

TO PLAY OR NOT TO PLAY? Whenever lottery jackpots swell, a wave of interest seems to roll across the United States. It happened this month. After the numbers were drawn, someone in Oregon had won $1.3 billion.

Prizes like that make lotteries tempting – and there are plenty of lotteries selling tickets. In the United States, government-operated lotteries are active in 45 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The profits earned by lotteries:

“…benefit different programs in different jurisdictions. In many cases lottery profits are combined with tax and other revenues in a government's general fund. In other cases, lottery proceeds are dedicated to a wide range of causes, including education, economic development, the environment, programs for senior citizens and veterans, health care, sports facilities, capital construction projects, cultural activities, tax relief, and others,” reported the North American Association of State and Provincial Lotteries.

The odds of winning a lottery, typically, are astronomically low. In April, the odds of winning were 1 in 292 million, according to Khristopher Brooks of CBS News. Despite the poor odds, people spend an enormous amount of money on lottery tickets. In 2023, people in the U.S. spent more than $110 billion on lottery tickets. The Economist reported:

“In the poorest 1% of zip codes that have lottery retailers, the average American adult spends around $600 a year, or nearly 5% of their income, on tickets. That compares with just $150, or 0.15%, for those in the richest 1% of zip codes. In other words, the poorest households spend roughly 30 times more on lotteries than richer ones, as a share of income.”

If people saved and invested instead of spending on lottery tickets, they could have more to show for it. For example, 30-year-olds who save:

·        $150 a year might have about $35,000 at full retirement age, if they earned 8 percent on average each year.

·        $600 a year might have about $142,000, at full retirement age, if they earned 8 percent on average each year.

The bottom line is that saving and investing is more likely to help people reach their financial goals than buying lottery tickets is.

Weekly Focus – Think About It

“It isn't where you came from, its where you're going that counts.”

—Ella Fitzgerald, singer

Weekly Market Commentary

April 8, 2024

The Markets

The bull charged from October 2023 through March 2024. Last week, it took a breather.

Optimistic may be the best word to describe the first quarter of 2024. From the start of the year, investors were confident that an economic soft landing in the United States was possible. The U.S. stock market reflected investors’ conviction that:

• The U.S. economy would continue to demonstrate resilience;
• Inflation would continue toward the Federal Reserve (Fed)’s target; and
• The Fed would eventually lower the federal funds rate, pushing borrowing costs down and boosting economic growth.

Over the first quarter, the Standard & Poor’s 500 Index moved 10.2 percent higher.

“That’s only the fourth time since the start of the millennium [the S&P 500] has gained 8% or more in the first three months of the year…,” reported Teresa Rivas of Barron’s. “Of the 16 times the S&P 500 has managed to rise 8% or more in the first quarter from 1950 through 2023, only once—in 1987, the year of the Black Monday crash—did the index lose ground in the rest of the year.” (While the historic data are interesting, past performance is no guarantee of future results.)

The U.S. stock rally “showed yet again that under the right conditions equities can thrive amid considerable uncertainty,” wrote Economist Mohamed El-Erian. In a Bloomberg opinion piece, he explained that U.S. stocks have moved higher despite:

• Changing interest rate expectations,
• Rising oil prices,
• Wars in Gaza and Ukraine,
• Escalating tensions among major powers, and
• Recessions in Germany, Japan, and the United Kingdom.

These issues carried less weight than other factors, El-Erian explained. “…the first quarter saw much broader investor adoption of the promise of generative artificial intelligence…This was supported by growing recognition of the innovative technology's potential to enhance productivity across many sectors and in a durable manner…From a top-down perspective, the rally's expansion…was fueled by a combination of US economic exceptionalism and the Federal Reserve's relatively dovish stance on monetary policy.”

Early last week, the rally paused. The S&P 500 fell by more than two percent through Thursday. Some attributed the shift to hawkish comments from the President of Federal Reserve Bank of Minneapolis Neel Kashkari. In an interview with Pensions & Investments, Kashkari commented, “If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all," reported Reuters.

Other factors were at play, too. John Authers of Bloomberg pointed out that the market backpedaled after a jump in oil prices (which have the potential to push inflation higher), as well as rising tensions between the U.S. and Israel.

On Friday, the market rebounded after a blowout employment report. Bloomberg Economics forecast a downshift in hiring that would result in fewer than 200,000 new jobs for March, reported Matthew Boesler. That forecast was off the mark. Employers added more than 300,000 new jobs during the month. Strong hiring pushed the unemployment rate lower even though more people were actively looking for work during the month.

Despite Friday’s rebound, major U.S. stock indices finished the week lower, reported Karishma Vanjani of Barron’s. Yields on many longer maturities of U.S. Treasuries moved higher over the week.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

IT’S A JAM-PACKED HOLIDAY WEEK! More than a dozen holidays are celebrated this week, including:

·        Bat Appreciation Week,

·        International Trombone Week,

·        National Library Week,

·        Take Your Poet to School Week, and

·        America Saves Week.

This year, America Saves Week encourages people to build a secure financial future by saving for what matters most. That could mean setting aside money in an emergency fund, a college savings fund, a retirement account, or another opportunity. For some people, saving includes investing, buying stocks, bonds, and other assets with the goal of growing wealth, generating a stream of income, or doing both.

Why is saving important?

The Library of Economics and Liberty cited the Concise Encyclopedia of Economics to provide some insight to economists’ big-picture view of saving. “…consider an economy in which there is a single commodity, say, corn. The amount of corn on hand at any point in time can either be consumed (literally gobbled up) or saved. Any corn that is saved is immediately planted (invested), yielding more corn in the future. Hence, saving adds to the stock of corn in the ground, or in economic jargon, the stock of capital. The greater the stock of capital, the greater the amount of future corn, which can, in turn, either be consumed or saved...”

At a more granular level, saving confers a tax benefit to Americans who qualify, reported Kate Dore of CNBC, but few eligible taxpayers claim it.

“The retirement savings contribution credit, or ‘saver’s credit,’ can help low- to moderate-income filers offset part of the funds added to an individual retirement account, 401(k) plan or other workplace plan…For 2023, your adjusted gross income can’t exceed $21,750 for single filers or $43,500 for married couples for the 50% credit. The percentages drop to 20% and 10%, respectively, as earnings increase, with a complete phase-out above $36,500 for individuals or $73,000 for joint filers.”

If any members of your household qualify, you may want to let them know about the tax credit.

Weekly Focus – Think About It 

"The White House has directed NASA to establish a time standard for the moon…The unified time standard will be known as ‘Coordinated Lunar Time (LTC)’...A standardized time reference is needed because the moon has a weaker gravitational pull than Earth due to its smaller mass, meaning that time moves slightly faster on the moon than on Earth — on average, 58.7 microseconds per day...”

—Adela Suliman, The Washington Post

Weekly Market Commentary

April 1, 2024

The Markets

What do dieters have in common with the Federal Reserve?

If you’ve ever dieted, you may be familiar with the weight-loss plateau. Many people experience steady progress. The bathroom scale moves lower week by week – until it doesn’t – and that can be discouraging.

The Federal Reserve has been trying to reduce inflation, and it has had significant success. Its actions are credited with bringing headline inflation from a peak of 9.1 percent in June 2022 to 3.2 percent in February 2024, as measured by the Consumer Price Index.

Looking back over the last few months, it seems as though inflation hit a plateau (and, perhaps, indulged in a bit of holiday excess).

September 2023:       3.7 percent

October 2023:            3.2 percent

November 2023:        3.1 percent

December 2023:        3.4 percent

January 2024:            3.1 percent

February 2024:          3.2 percent

However, the Fed is not discouraged.

After inflation data was released last week, Chair Jerome Powell to comment, “The report that came out this morning is pretty much in-line with our expectations. Our hand is a steady hand in this. We’ve been saying all through last year and this year, we’re making progress…The economy is strong. We see very strong growth…That means we that don’t need to be in a hurry to cut [rates]. It means we can wait and become more confident that, in fact, inflation is coming down to two percent on a sustainable basis.”

United States stock markets were unfazed by the inflation news and delivered a stellar performance for the first quarter. The Standard & Poor’s 500 Index experienced 22 record closes during the first three months of the year, reported Teresa Rivas of Barron’s.

Major U.S. stock indices finished the week higher, and U.S. Treasury yields were mixed.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

3 REASONS TAXPAYERS GET NOTICES FROM THE IRS. Receiving a notice from the Internal Revenue Service (IRS) can be daunting. While some notices are resolved fairly easily, others require an audit.

So, how does the IRS determine who gets a notice? Michelle Singletary of the Washington Post reported, “The IRS examines returns to ensure that income, expenses, deductions, and credits are reported accurately. When an inconsistency is found, a taxpayer may undergo an audit or be notified that adjustments were made that could result in a refund or a required tax payment.”

Here are three issues that can bring a tax notice to your mailbox:

1.   Math mistakes. Taxes are a great example of the importance of math in real life. In 2022, the IRS issued more than 9 million notices because of math errors. The top triggers were calculations related to the Recovery Rebate Credit and the Child Tax Credit. Most notices simply adjusted taxpayers’ returns and indicated whether additional amounts were owed, or higher refunds were due.

2.   Missing income. Tax returns are supposed to account for all income a tax filer earned over the tax year. Income typically is reported by employers, mortgage companies, banks (or other sources of income) on Forms W-2 and 1099, and other forms. The IRS Automated Underreporter program systematically matches tax returns and informational tax forms. When the information does not match, the tax filer gets a notice.

3.   Unusual tax deductions. The IRS uses statistics to determine normal levels for various deductions. If your deductions are higher-than-average, your return may be flagged. Joy Taylor of Kiplinger Personal Finance reported,

“If the deductions, losses, or credits on your return are disproportionately large compared with your income, the IRS may want to take a second look at your return. Taking a big loss from the sale of rental property or other investments can also spike the IRS's curiosity. Ditto for bad debt deductions or worthless stock.”

That doesn’t mean you shouldn’t take a deduction or tax credit, just make sure you have proper documentation.

If you have any questions about taxes, talk with a tax professional. They can help minimize the chance that your tax return will trigger an audit or a notice from the IRS.

Weekly Focus – Think About It 

“A man who carries a cat by the tail learns something he can learn in no other way.”

-- Mark Twain, Author

Weekly Market Commentary

March 25, 2024

The Markets

The central banks have spoken.

No one expected the United States Federal Reserve to announce a rate change last week – and it didn’t. But Fed Chair Jerome Powell’s comments and the actions of other central banks led to new records being set in stock markets around the world, reported Randall Forsyth of Barron’s.

“…the world’s central banks, led by the U.S. Federal Reserve…have all but green-lighted lower policy interest rates in coming months in the expectation that inflation will continue to make downward progress without triggering recessions. The Fed’s counterparts at the European Central Bank and the Bank of England similarly signaled lower rates ahead, while the Swiss National Bank made a surprise cut this past week…Meanwhile, major Latin American central banks, led by Brazil and Mexico, are well along in their rate cuts, having been much prompter in raising their rates to fight inflation starting in 2021, a year or more ahead of the Group of 10.”

In the United States, a lower federal funds rate could be good news for consumers and businesses. So, how low could rates go?

The Fed’s updated Summary of Economic Projections (SEP) shows that Fed officials expect the federal funds rate to move lower over the next three years, and beyond, based on what they know today. Here’s the SEP year-by-year forecast:

• 2024: 4.63-4.87 percent by year end. (Implying three quarter-point rate cuts over the year.)
• 2025: 3.88-4.12 percent by year end. (Implying three quarter-point rate cuts over the year.)
• 2026: 3.13-3.37 percent by year end. (Implying three quarter-point rate cuts over the year.)
• Longer term: 2.38-2.62 percent. (Implying additional rate cuts.)

When the fed funds rate moves lower, lending rates usually fall as well. So, consumers who buy a home or a car, apply for a home equity or business loan, or use a credit card over the next few years, could see lower interest rates.

U.S. stocks moved higher last week, and U.S. Treasury yields fell as the bond market rallied.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

HOW DO YOU MEASURE HAPPINESS? The 2024 World Happiness Report relies on data obtained through a Gallup World Poll (GWP) that has been conducted since 2005. The GWP asks participants in various countries this question:

“Please imagine a ladder, with steps numbered from 0 at the bottom to 10 at the top. The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?”⁷

The happiness rankings reflect the three-year average (2021-2023) of the answers received. While the number of participants varies from country to country (and there are no responses for some countries in some years), the usual number appears to be around 1,000 participants per country.

Next, the researchers try to figure out why people in one country are happier than those in another country. The researchers reported that six variables – economic prosperity, healthy life expectancy, having someone to count on, freedom to make life choices, generosity, and freedom from corruption – explained more than three-fourths of the variation in scores.

In 2023, Finland was the happiest country in the world for the seventh consecutive year. The happiest countries included:

1.   Finland,

2.   Denmark,

3.   Iceland, and

4.   Sweden.

The least happy countries included:

140. Sierra Leone,

141. Lesotho,

142. Lebanon, and

143. Afghanistan.

The United States was not among the top 20 for the first time since the report was introduced in 2012. The U.S. ranked 23^rd, down from 15^th last year.

“For the United States, Canada, Australia and New Zealand, happiness has decreased in all age groups, but especially for the young, so much so that the young are now, in 2021-2023, the least happy age group. This is a big change from 2006-2010, when the young were happier than those in the midlife groups, and about as happy as those aged 60 and over. For the young, the happiness drop was about three-quarters of a point, and greater for females than males.”

The difference in reported happiness between older and younger Americans was quite large. Americans who are age 60 and older ranked 10^th for happiness, while Americans who are age 30 and younger ranked 62^nd.

Weekly Focus – Think About It 

“Let go of who you think you’re supposed to be; embrace who you are.”

—Brené Brown, author

Weekly Market Commentary

March 18, 2024

The Markets

Here’s the tea on stock markets and presidential elections.

Last week, a slew of headlines mentioned stock market bubbles and frothy valuations. The implication was that markets might be headed lower because they’ve risen so high. Last Wednesday, Lewis Krauskopf of Reuters reported:

“Some market participants believe the relentless U.S. stock rally is poised for a breather, even if it remains unclear whether equities are in a bubble or a strong bull run. The benchmark S&P 500…is up over 25% in the last five months, a phenomenon that has occurred just 10 times since the 1930s, according to BofA Global Research…the S&P has already made 16 record highs this year, the most in any first quarter since 1945, CFRA Research data showed.”

By the end of last week, we’d seen 17 record highs for the Standard & Poor’s (S&P) 500 Index.

If there is a market downturn this year, election sentiment is likely to be one of the reasons for the move. “Market moves during election years do tend to follow a similar pattern—declines leading up to early November, then a surge through year end once the winner is revealed.” While past performance does not guarantee future results, the S&P 500 has typically finished presidential election years higher, reported Nicholas Jasinski of Barron’s.

Despite the historic record, election rhetoric can make it difficult to remember that markets are efficient and adjust to changing risks. While election sentiment may sway stock markets over the shorter term, global economic growth, company fundamentals, central bank policies, and other factors, such as “the implications of the artificial intelligence [AI] boom on corporate earnings” are likely to matter more over the longer term, reported Jasinski.

No matter how emotional the election becomes, remember that your portfolio was built to meet your financial goals. If your longer-term goals and risk tolerance have not changed, making significant portfolio changes because of worries about the election outcome is not a sound idea.

That said, if you’re uneasy about the election and its potential effect on your savings and investments, please get in touch. We want to hear about your concerns and will help you identify potential solutions.

Major U.S. stock indices finished last week with mixed results. The bond market retreated amid inflation pressures, and U.S. Treasury yields moved higher over the week.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

WHAT DO YOU KNOW ABOUT THE ECONOMIC POWER OF WOMEN? For decades, the number of women in the U.S. workforce has increased, yet the gender pay gap persists. White women who work full time earn about 84 cents for every dollar men earn, and earnings are even lower for women of color and women with disabilities. Despite the gap, the economic power of women is growing.

“Women…start more businesses than their male counterparts. They earn as much or more than their husbands in 45 percent of heterosexual marriages. Among solo households, they own more homes. And by the end of this decade, a 2020 study by the business consulting firm McKinsey found, women are poised to control much of the $30 trillion in wealth expected to be possessed by baby boomers,” reported Brittany Shammas of The Washington Post.

See what you know about the economic power of women by taking this brief quiz.

1.   What percentage of the billionaires in the United States are women, according to MillennialMoney?

a.   About 2%

b.   About 12%

c.    About 32%

d.   About 50%

2.   According to Pew Research, people in the 10 highest-paying occupations earn more than $100,000 a year, on average. That’s more than twice the national average of $41,000. Overall, women hold 35% of the jobs in those occupations. They are the minority in every occupation except one. Which one is it?

a.   Lawyers

b.   Dentists

c.    Pharmacists

d.   Actuaries

3.   A stay-at-home parent (SAHP) wears a lot of hats: childcare worker, housekeeper, cook, interior designer, event planner, and many others. A survey reported the median number of hours a SAHP worked was 106 per week. How much did Salary.com estimate a SAHP would earn if they were paid for their work?

a.   $31,000

b.   $56,000

c.    $103,000

d.   $184,000

4.   Women in the United States are responsible for a significant percentage of household assets. The amount is equal to about one-third of 2023 U.S. gross domestic product, which is the value of all goods and services our country produced last year.  About how much money do American women control?

a.   $5 trillion

b.   $10 trillion

c.    $15 trillion

d.   $20 trillion

Weekly Focus – Think About It 

“You may encounter many defeats, but you must not be defeated. In fact, it may be necessary to encounter the defeats, so you can know who you are, what you can rise from, how you can still come out of it.”

—Maya Angelou, poet

Answers: 1) b; 2) c; 3) d; 4) b