Weekly Market Commentary

October 02, 2023

The Markets

Inflation is slowing but consumers aren’t feeling it.

In August, for the first time in two years, inflation (excluding volatile food and energy costs) dropped below four percent. Last week, one of the Federal Reserve (Fed)’s favored inflation measures – the Personal Consumption Expenditures (PCE) Price Index – indicated that prices rose 3.9 percent, year-over-year, in August 2023. That’s an improvement from January, when prices rose by 4.9 percent, year-over-year, but it remains above the Fed’s target of 2 percent.

While slowing inflation is good news, many Americans are not feeling relief. “Even as the Federal Reserve’s favored measure of price gains eases, the cost of food, gasoline, car insurance and other essentials is still elevated after two years of persistent increases…It costs $734 more each month to buy the same goods and services as two years ago for households who earn the median income,” according to a source cited by Mark Niquette, Jarrell Dillard and Michael Sasso of The Washington Post.

Ongoing pain in the pocketbook is due, in part, to higher oil prices, which are not included in core inflation numbers. The price of crude oil rose to the highest level in more than a year last week, before falling slightly. Rising prices resulted from low inventories and reduced production levels among OPEC+ (the Organization of Petroleum Exporting Countries plus 11 other non-OPEC members) that reduced global oil supply, reported Lee Ying Shan of CNBC. In August, the cost of gasoline, lubricants, and other oil-related products rose, reported Jeffry Bartash of MarketWatch.

Regardless of oil prices, investors were hopeful last week that the Fed might not raise rates again in 2023. Revised economic data from the Bureau of Economic Analysis showed the economy grew at a slightly slower pace in the second quarter of 2023 than it did in the first quarter. In addition, consumer spending, which is the primary driver behind economic growth in the United States, cooled. The data suggest the Fed is making progress – reducing price pressures by slowing economic growth and lowering demand for goods.

Stocks moved higher on Thursday before reversing course. The Dow Jones Industrial Average and Standard & Poor’s 500 Index finished the week lower, according to Barron’s. Yields on longer-term 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.

THE DOS AND DON’TS OF CELLPHONE ETIQUETTE. Many people of a certain age were taught a set of rules for making phone calls (between 9 a.m. and 9 p.m.), talking on the phone (never do it while eating or brushing your teeth), and greeting callers (“Hello” or “Good morning/afternoon” and never “What do you want?”).

As cellphones have become ubiquitous, the etiquette of phone calls has changed. Here are a few “dos and don’ts” of evolving cellphone etiquette:

·        Don’t leave voicemail messages. Many people read transcripts of voice messages rather than listening to the message itself. Often transcription is inaccurate. If information needs to be communicated in a timely and accurate way, it is better to send a text message, reported Heather Kelly of The Washington Post.

·        Do text before calling. While baby boomers grew up making and receiving phone calls (often on landlines with long tangled cords), younger generations find phone calls to be inefficient, time-consuming, presumptuous, and disruptive, according to a survey conducted by the BankMyCell blog. They also find phone calls to be stressful, and four-in-five indicated they must ratchet up their courage before making a call.

·        Don’t take calls in a public place (or use your speakerphone in public). Find a private area to take the call or offer to call the person back when you have privacy. It is discourteous to the people around you to chat in public and it may jeopardize the privacy of the person on the phone. For similar reasons, it is never a good idea to use a speakerphone in a public place, advises Lisa Lyons of Events & Etiquette.

Despite a growing preference for texting, calling is not passé. “While hopping on the phone may be less common or involve more planning than it used to, it’s still a wonderful way to communicate. Talking to a person in real time can strengthen relationships, improve mental health, and lessen loneliness,” reported The Washington Post.

Weekly Focus – Think About It

“I do not at all understand the mystery of grace – only that it meets us where we are but does not leave us where it found us.”

—Anne Lamott, author

Weekly Market Commentary

September 25, 2023

The Markets

How high will they go?

Just as the market anticipated, the Federal Reserve Open Market Committee (FOMC) chose not to raise interest rates last week. However, Fed officials made it clear another rate increase might be necessary before the end of 2023 as continued economic strength, higher energy prices, robust consumer spending, and rising wages in a strong labor market have kept upward pressure on inflation.

FOMC economic projections indicate the Fed anticipates the effective federal funds rate will remain higher for longer than many hoped. The median projected rates were:

·        5.6 percent in 2023,

·        5.1 percent in 2024, and

·        3.9 percent in 2025.

Fed Chair Jerome Powell indicated that an economic soft landing – a slowdown in economic growth that results in lower inflation without a recession – remains a possibility, reported Howard Schneider and Michael S. Derby of Reuters.

Former Treasury Secretary Lawrence Summers warned that any expectation for a soft landing might be too optimistic as significant risks remain, including upward pressure on wages, slowing consumer spending, and higher borrowing costs, reported Chris Anstey of Bloomberg. As a result, it’s possible the Fed could be surprised by weaker economic growth or higher inflation.

After the FOMC meeting, yields on bonds moved higher. The yield on a one-year United States Treasury bill finished Wednesday at 5.47 percent, and the yield on the benchmark 10-year Treasury note closed at 4.35 percent.

U.S. stock markets moved lower as investors considered the potential effects of high interest rates for longer. Rising interest rates (and tightening bank lending standards) make borrowing more difficult, lifting the cost of capital and lowering profits. When company profits drop, share price valuations tend to move lower, reported Mary Hall in Investopedia.

As investors mulled the Fed’s outlook, the possibility of a government shutdown, and other factors, major U.S. stock indices finished the week lower, according to Barron’s. Yields on U.S. Treasuries generally 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.

THE RULES WILL CHANGE IN 2026. Since 2001, workers who are age 50 or older have been able to make catch-up contributions to their workplace retirement plans. As the name implies, the idea was to help people who are behind on saving for retirement catch-up by saving more. For example, if older plan participants reach the annual contribution limit of $22,500, then they can choose to contribute an additional $7,500 in catch-up contributions.

However, Secure 2.0 changed the rules for higher-income earners, reported Paul Mullholland in PlanSponsor.

Plan participants who earn $145,000 or more each year will no longer be able to make catch-up contributions to traditional plan accounts. Instead, higher-income earners in 401(k) and similar types of retirement plans must direct any catch-up contributions to Roth plan accounts.

As a reminder, contributions to traditional plan accounts are typically made with pre-tax dollars so they may help reduce the amount of taxes owed today. In addition, any earnings in traditional plan accounts grow tax deferred. Taxes are owed when a distribution is taken.

In contrast, contributions to Roth plan accounts are made with after-tax dollars. While there is no immediate tax benefit, the contributions and any earnings grow tax-free. Distributions are tax-free, too, after the account has been open for five years and the owner has reached age 59½.

The change was originally slated for 2024. However, many workplace retirement plans don’t have designated Roth accounts, which presents a problem for higher-income earners who want to save more. To give plan sponsors and administrators time to adjust to the new rules, the change will now take place in 2026.

Secure 2.0 also included an opportunity for older retirement plan participants to supercharge their savings efforts. In 2025, participants who are between the ages of 60 and 63 can make bigger catch-up contributions – either $10,000 or 50 percent more than the regular catch-up contribution amount for the year.

If you have any questions about retirement plan contributions or how to generate enough income to live comfortably in retirement, please get in touch.

Weekly Focus – Think About It

“[In retirement] we do have something we never had before: we have the added pressure of time. We can no longer wait around for the ideal opportunity. If we have not achieved our early dreams, we must either find new ones or see what we can salvage from the old. If we have accomplished what we set out to do in our youth, then we need not weep like Alexander the Great that we have no more worlds to conquer. There is clearly much left to be done, and whatever else we are going to do, we had better get on with it.”

—Jimmy Carter, former U.S. president

Weekly Market Commentary

September 18, 2023

The Markets

Adding new ingredients to the economic blender.

The performance of United States economy in 2023 has been as unexpected as a lentil-avocado-cinnamon smoothie – a tasty surprise. Last week, economic data suggested the Federal Reserve may need to do more to slow the economy. The consumer price index showed inflation edging higher, wholesale inflation was higher than expected (largely due to higher energy prices), and retail sales were healthy.

Stronger-than-expected economic data inspired market optimism that the Federal Reserve will bring inflation down without a recession. However, new ingredients are being added to the economic mix that could prove less palatable. These include:

·        A government shutdown. It seems unlikely the House of Representatives will pass the 12 appropriations bills required to fund government operations by the September 30 deadline. It’s possible a temporary spending bill will keep federal agencies operating, but that’s not a certainty. In the past, government shutdowns have been short-lived and had little effect on markets and the economy, reported Matt Phillips of Axios Markets.

·        The autoworkers’ strike. Autoworkers went on strike against the Big Three automakers last week. The economic effect is expected to be modest although it affects diverse industries. “The strike will likely cause spillover effects in industries that support domestic vehicle manufacturing, such as petrochemicals, steel and glass, as well as to suppliers that produce component parts, electronics and software,” reported Megan Leonhardt of Barron’s.

·        The resumption of student loan payments. “The end of the moratorium on student loans payments is set to take place this fall…monthly payments are expected to resume in October. This will be a major financial shock and additional burden to younger renters or millennials, especially those in the low- and moderate-income group who are rent burdened,” reported Thomas Lasalvia, Nick Villa, Christopher Rosin, Lu Chen, and Mary Le of Moody's Analytics.

It's possible these events will result in increased market volatility in coming weeks.

Last week, major U.S. stock indices moved lower, according to Barron’s, and yields on longer maturities of Treasuries.

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.

AND THE WINNERS ARE…The 33rd First Annual Ig Nobel Prize ceremony honored 10 winners for conducting research into improbable ideas that make people laugh and, also, make them think. The awards “celebrate the unusual, honor the imaginative – and spur people’s interest in science, medicine, and technology.” The official mascot of the Ig Nobel Prize is “The Stinker,” a graphic of The Thinker toppled onto its back. This year, the winning research included:

·        Augmented Gustation Using Electricity won the Nutrition Prize. In a shocking bit of research, Professor Homei Miyashita and Associate Professor Hiromi Nakamura explored flavor and electrification. They explained, “Electric taste is the sensation elicited upon stimulating the tongue with electric current…Our method involves changing the taste of foods and drinks by using electric taste. First, we propose a system to drink beverages using straws that are connected to an electric circuit. Second, we propose a system to eat foods using a fork or chopsticks connected to an electric circuit.”

·        The The The The Induction Of Jamais Vu In The Laboratory: Word Alienation And Semantic Satiation received the Literature Prize. Fans of Ted Lasso are familiar with semantic sensation – when repetition causes a word to lose meaning. Chris Moulin, Nicole Bell, Merita Turunen, Arina Baharin, and Akira O’Connor, “…sought to document that the subjective experience of jamais vu can be produced in word alienation tasks, hypothesizing that déjà vu and jamais vu are similar experiential memory phenomena.” They had study participants write the same word over and over and over again, and documented the results.

·        Eating Fossils won the Chemistry and Geology Prize. In The Paleontology Association Newsletter No. 96, Professor Jan Zalasiewicz discussed why scientists lick rocks. “Wetting the surface allows fossil and mineral textures to stand out sharply, rather than being lost in the blur of intersecting micro-reflections and micro-refractions that come out of a dry surface…The taste, now, was likely merely registered as generically-slightly-dusty and then instantly forgotten; I had always thought it entirely superfluous to identification. But perhaps not so…”

The winners received Zimbabwean 10-trillion-dollar notes. (Relics from a period of hyperinflation in Zimbabwe.) Ig Nobel recipients’ 24/7 lectures, which include a complete technical description delivered in 24 seconds and a concise summary that anyone can understand in just seven words, are available on the Improbable Research website.

Weekly Focus – Think About It

“If we knew what it was we were doing, it would not be called research, would it?”

—Albert Einstein, scientist

 Weekly Market Commentary

September 11, 2023

The Markets

All the work, work, work.

2023 has been a remarkable year so far. It has, “confounded economists, humbled forecasters, and rewarded investors. Despite a rapid rise in interest rates, the U.S. economy continues to grow. Inflation has fallen – if not quite to desired levels – and stocks have entered a bull market, with the S&P 500 gaining 17% year to date and the Nasdaq Composite up more than 30%,” reported Nicholas Jasinski of Barron’s.

One of the biggest surprises has been the strength of the labor market. Over the 12-month period through August 31, 2023, employers added about 271,000 new jobs each month, on average, according to the U.S. Bureau of Labor Statistics. (In August, 187,000 new jobs were created, suggesting some labor market softening.)

So far this year, we’ve seen:

4-of-5 prime-age workers working. Last summer, the employment-to-population ratio, which compares the number of people employed to the civilian population of a city, state or country, reached a 20-year high for 25- to 54-year-olds. In June, July and August, the ratio was 80.9 percent, according to the St. Louis Federal Reserve (SLFR).

“This ratio is a good barometer of the overall health of the labor market because it excludes younger people who are more likely to be in and out of school as well as older people who may be retired,” reported Stephanie Hughes of Marketplace.

The employment-to-population ratio for women hit a record high. In the second quarter, the employment-to-population ratio for women reached 75 percent – a new record. Three-of-4 women, ages 25 to 54, were employed, according to the SLFR.

“Women are crushing it in the labor market right now – their return to work from the pandemic has been faster than men’s…A big part of this is the rise of remote and flexible work, which has enabled a record number of women with young children to enter or remain in the workforce,” reported Emily Peck of Axios Markets.

The labor force participation rate increase. The labor force participation rate – the number of people who are employed or are seeking employment – remained stubbornly low even after the U.S. economy reopened following pandemic closures. In August, the labor force participation rate increased to the highest level since the pandemic.

“The labor market continues to rebalance in a healthy direction. The U.S. economy is still adding jobs…And, for employers, there are now more workers available per open positions, and wage pressures are abating,” reported Jasinski of Barron’s.

Last week, major U.S. stock indices moved lower when economic data raised concerns the Fed may need to raise rates again, according to Barron’s. In the Treasury market, the yield on the 30-year U.S. Treasury bond finished the week at 4.3 percent.

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.

HEADWINDS FOR HOME BUYERS. If you’ve ever taken a long bike ride on a windy day, you know that cycling into a headwind can be difficult and discouraging. Riders spend more energy, travel more slowly, and may give up before reaching their goal. During much of 2023, prospective homebuyers have encountered strong market headwinds, including low inventory, high prices, lots of competition, and rising mortgage rates.

The United States has been experiencing a sellers’ market – where home sellers have an advantage over home buyers. In times like these, it can be difficult to remember that residential real estate tends to be cyclical. While buyers face headwinds today, the market is likely to shift in the future, giving buyers the advantage.

Determining where we are in the cycle has become more challenging because new factors are affecting the market. These include:

The popularity of remote work. “One thing that has surprised me is the permanence of work-from-home. If you look at how many people are going to the office, it has decreased significantly. Even for people who returned to the office, it’s not every day. So if you only have to be in the office a few days a week, you’re willing to have a longer commute. Demand for more space in certain areas of the country has increased, which has boosted house prices,” said Northwestern University Associate Professor Charles Nathanson in an interview with Kellogg Insight.

Concerns about climate risks. Eighty-three percent of prospective home buyers consider the risk of flood, hurricane, wildfire, extreme temperatures, and drought, according to a new survey. Climate risks are considered by 90 percent prospective homebuyers in the West, 85 percent in the Northeast, 79 percent in the South, and 77 percent in the Midwest.

Housing prices remained flat, year-over-year, in June 2023, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. The 20-city index showed prices moving higher in 10 cities and lower in 10 cities.

Weekly Focus – Think About It

“The one thing all humans share is that we all inhabit the same limited amount of real estate, which is Planet Earth.”

—Bjarke Ingels,architect

Weekly Market Commentary

September 05, 2023

The Markets

Lowering inflation.

If you’ve ever waited in traffic while the center section of a bridge lifts to allow ships and sailboats to pass underneath, you may have noticed the enormous counterweight that lowers as the bridge moves higher. When the boats have passed, the counterweight rises, and the bridge lowers back into place.  

The Federal Reserve (Fed) often acts as a counterweight to the economy; raising and lowering interest rates to achieve its goals. Recently, the Fed has been raising rates to bring inflation down. Higher rates make borrowing more expensive, slowing economic growth and reducing demand for goods.

Over the past 18 months, the Fed has raised the effective federal funds rate from near zero to 5.33 percent. Last week, data suggested its efforts were working. The Personal Consumption Expenditures Price Index showed that headline inflation has dropped from a peak of 6.8 percent in June of 2022 to 3.3 percent in July 2023.

In addition, last week’s employment report showed jobs growth slowed in August. In an interesting twist, despite more jobs being created, the unemployment rate rose from 3.5 percent to 3.8 percent. It rose because the labor force participation rate increased as more people returned to the workforce and looked for jobs.

“This was a more complicated report than recent months’ with lots of cross-currents. Overall, it supports the soft-landing thesis for the economy, as the labor market is easing without major layoffs and wage dips…This seems like an ideal report for the Federal Reserve. Wage gains are coming down and payrolls are rising but at a much slower pace,” reported Katia Dmitrieva of Bloomberg.

Last week’s data left many believing the Fed will leave rates unchanged in September; however, there was disagreement about whether the Fed will remain on pause, resume rate hikes, or lower rates in the months ahead.

Markets embraced the idea of a Fed pause in September, and major U.S. stock indices moved higher last week, according to Barron’s. In addition, the yield on the one-year U.S. Treasury bill finished the week at 5.4 percent.

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.

DON’T TRUST YOUR EARS. There are pros and cons to artificial intelligence (AI). On the pro side, many people have found AI-powered digital assistants helpful. The assistants schedule events and offer reminders. They relay timely information about weather and traffic, help manage lights, thermostats, ovens, and other smart devices in homes.

On the con side, they’ve become a valuable tool for scammers. Recently, criminals have been using AI-generated voices to scam family members, friends and financial institutions.

The potential for vocal deception was demonstrated at a recent Senate hearing, which featured “a faked voice recording that was written by ChatGPT and vocalized by an audio application trained on [a U.S. Senator’s] Senate floor speeches,” reported Matt Berg of Politico. “’If you closed your eyes at the beginning of the hearing, you couldn’t have told that we were playing a voice clone of myself,’” commented the Senator.

Deepfake audio also has been used to mimic the voices of friends and family members. In another hearing, a mother who was targeted shared the story of receiving a phone call from her terrified teenage daughter and her kidnapper, who demanded a ransom. Only, it wasn’t the daughter – it was an AI-generated voice that sounded just like her, “reported Carter Evans and Analisa Novak of CBS News. 

There are ways for families and friends to protect against voice scams. These include:

·        Choosing a code word. Then, if a suspicious call is received, they can ask the caller for the code word.

·        Calling or texting the person who is making the emergency call (or someone with them). In the example above, the mother called her husband who confirmed their daughter was safe.

Since voice cloning often relies on publicly available audio, it can be a wise choice to make social media accounts private, and only accept followers who you know.

Weekly Focus – Think About It

“And nowadays, the idea of AI is not really science fiction anymore – it’s just science fact.”

—Lisa Joy, screenwriter and director