Weekly Market Commentary

July 24, 2023

The Markets

Better than expected.

In January of this year, the Bloomberg’s MLIV Pulse survey collected and shared investors’ expectations for stock markets. Survey participants were generally a gloomy group. Seventy percent believed the United States stock market would move lower in 2023, and most indicated the drop would happen in the latter half of the year, according to Jess Menton and Liz Capo McCormick of Bloomberg. The pair reported:

“Stock bulls are solidly in the minority, with only 18% of survey participants saying they expect to increase their exposure to the S&P 500 in the next month. Over half say they will keep their exposure the same, while some 27% anticipate decreasing it.”

Recently, analysts have revised their estimates.

So far this year, the Standard & Poor’s 500 Index has rocketed past many analysts’ year-end estimates for the Standard & Poor’s (S&P) 500 Index, reported John Authers and Isabelle Lee of Bloomberg. It is so far ahead of projections that even analysts who remain bearish – and think the S&P 500 will drop before year end – recently adjusted their expectations, moving year-end targets for the index higher.

“New information has emerged over the last six months, and events have moved the market. They might well justify a higher year-end index value than seemed likely Jan. 1…To borrow the famous quote from Keynes, if the facts change then you should be prepared to change your opinion…But now the… market takes a role. Markets can create their own reality. As the index rises, and influential investment houses raise their targets for it, so that adds to the momentum upwards in the share price,” wrote Authers and Lee.

As analysts revise performance forecasts, economists are rethinking the likelihood of recession. With inflation falling and the economy showing continued strength, a July survey found that economists raised their estimates for economic growth in the U.S. during second and third quarters of this year. In addition, they see a lower chance of recession, 60 percent, over the next 12 months, according to Rich Miller, Molly Smith and Kyungjin Yoo of Bloomberg.

Last week, The Dow Jones Industrial Average and S&P 500 Index finished higher, according to Barron’s. The Nasdaq Composite lost ground after some technology companies reported disappointing earnings, reported Cecile Gutscher and Isabelle Lee of Bloomberg. Yields on many maturities of U.S. Treasuries finished the week flat or slightly higher.

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’S YOUR FAVORITE PODCAST? Since the early 2000s, podcasts – audio shows – have been growing in popularity. Today, there are about 5 million podcasts and 70 million podcast episodes, reported Daniel Ruby of Demand Sage.

Podcasts can be about almost anything. Some capture audiences by poking fun at terrible movies, inspiring with heart-warming (or heart-breaking) stories, and terrifying with tales of true crime or the paranormal. Others offer practical advice and how-to’s about things like dental practice management, sleeping more soundly, and parenting children of all ages.

In 2022, Pew Research reported the top-ranked podcasts focused on:

·        True crime (24 percent)

·        Diverse topics (20 percent)

·        Politics and government (10 percent)

·        Entertainment, pop culture and arts (9 percent)

·        Self-help and relationships (8 percent)

·        Sports (6 percent)

·        History (4 percent)

·        Money and finance (2 percent)

The shows can be influential. “Six-in-ten podcast listeners say they have watched a movie, read a book or listened to music because of a podcast they listened to...About a third of podcast listeners (36%) say they’ve tried out a change to their lifestyle because of a podcast, such as a workout routine, a diet or journaling. And 28% have bought something promoted or discussed on a podcast,” reported the research team at Pew.

If you have questions about money and finance, please get in touch. It’s a subject we know well!

Weekly Focus – Think About It

“There are years that ask questions and years that answer.”

—Zora Neale Hurston, author

Weekly Market Commentary

July 17, 2023

The Markets

Disinflation was in the air!

To the great relief of the Federal Reserve, the American economy has been experiencing “disinflation,” which is a slowdown in the rate of inflation. For example, last week we learned that:

Inflation fell to a two year low in June. The Consumer Price Index (CPI) showed that prices rose just 3 percent from June 2022 through June 2023. That was lowest inflation has been in two years, reported Augusta Saraiva of Bloomberg.

Core inflation was lower, but not as low. The core CPI, which excludes volatile food and energy prices, also dropped to a two-year low, coming in at 4.8 percent. While inflation is still well above the Federal Reserve’s target rate of two percent, the slower rate of increases was welcome news for everyone who has been concerned about the effects of higher costs on their budgets.

Producer prices flattened. The Producer Price Index followed on the heels of the CPI. It showed that prices were almost flat for producers, rising just 0.1 percent over the 12 months through June 2023. Reade Pickert of Bloomberg reported, “Normalizing global supply chains, stabilizing commodity prices, and a broader shift in consumer demand toward services and away from goods have generally helped alleviate inflationary pressures at the producer level.”

Disinflation should not be confused with deflation, which happens when the inflation rate is negative, and prices fall. While deflation may sound attractive, it is usually associated with undesirable economic conditions, including recessions and stagnant growth, reported the Federal Reserve Bank of Richmond.

Last week, major U.S. stock indices finished higher, according to Barron’s. The Standard & Poor’s 500 and Nasdaq Composite Indexes hit new highs mid-week on positive inflation and earnings news. U.S. Treasuries rallied early and then changed direction with yields moving higher toward the end of the week, reported Rita Nazareth of Bloomberg.

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.

NEW FRONTIERS IN FUNGUS. Anyone who has watched The Last of Us, a series that features a fungus mutation that turns humans into zombies, may be interested to learn that scientists and engineers have been exploring and developing new ways to harness the power of fungi and bacteria. Here are some of the ideas they’re working on:

·        Knitted biostructures. Scientists, engineers and designers have been collaborating to develop bio-fabricated architecture – buildings made from the roots of fungus combined with wool, sawdust and other natural materials. The stumbling block was that fungus roots, a.k.a. mycelium, need a lot of oxygen to grow. The solution was textile knitting that allows a lot of oxygen into the frame, helping mycelium grow more quickly. The research team created a “prototype structure… a nearly six-foot-tall, freestanding three-dimensional dome constructed as a single piece without any joins,” reported Andrew Paul of Popular Science.

·        Mushroom-skin computer chips. Researchers think a biodegradable microchip composed of mushroom skin is a possibility. If they’re right, the development could “reduce electronic waste and cut greenhouse gas emissions from plastic,” reported Alan Truly of Digital Trends. Mushroom skin has also been used to print circuit boards. Fungi could play additional roles in the computers of the future.

·        SCOBY technology platforms. If you make kombucha, you may be familiar with SCOBY (a.k.a. Symbiotic Culture of Bacteria and Yeast). While it’s often called a mushroom, it’s not actually a fungus. It’s a cellulose mat that may be used as a kombucha starter. It is also being used as “a malleable surface on which to print simple circuit boards,” explained Andrew Paul of Popular Science. Augmented kombucha surfaces are nonconductive and may prove to be just right for wearable technology because the surfaces are cheaper, lighter, and more flexible than traditional plastic options.

Mushrooms may help make technology more eco-friendly.

Weekly Focus – Think About It

“Courage is like — it’s a habitus, a habit, a virtue: you get it by courageous acts. It’s like you learn to swim by swimming. You learn courage by couraging.”

—Marie M. Daly, chemist

Weekly Market Commentary

July 10, 2023

The Markets

Markets are playing Federal Reserve (Fed) Clue.

Last week, investors parsed the monthly Employment Situation Summary from the Bureau of Labor Statistics for clues about whether the Fed will raise the federal funds rate at its next meeting or leave the rate unchanged, reported Megan Leonhardt of Barron’s. The Fed has been aggressively raising the rate to slow the pace of inflation. Higher rates typically lead to slower economic growth and fewer jobs, so the employment report offers some signals about the Fed’s progress so far and what may come next.

After perusing the report, investors appeared to agree the Fed was likely to continue raising the federal funds rate. Barron’s reported, “The labor market is still running more warm than cool—June’s jobs data is still well above the baseline standards of a tight labor market—and it builds the case for Fed officials to press the play button and again increase rates in July. On Friday, the likelihood that the Fed would raise rates during the upcoming July [meeting] stood at 94.9%, according to the CME FedWatch tool.”

Here are some of the report highlights:

Overall, the unemployment rate ticked lower (3.6 percent). Generally, low unemployment a sign of economic strength. The unemployment rate varied by race. It was 3.1 percent for the White population, 3.2 percent for the Asian population, 4.3 percent for the Hispanic/Latino population, and 6.0 percent for the Black population.

Fewer jobs were created in June (209,000) than in May (306,000). The slower pace of job creation is one sign the economy may be losing steam. It’s also possible the jobs numbers could prove to be less robust than the first estimate suggests. The preliminary employment numbers for April and May were revised lower in the June report.

Workers took home more pay. Average hourly earnings increased in June and were up 4.4 percent over the last 12 months. That means consumers had more money in their pockets to spend. Since consumer spending is the main driver of economic growth in the United States, this was probably not what the Fed wanted to see.

Last week, major U.S. stock indices finished lower, reported Barron’s Data. Yields on U.S. Treasuries finished the week higher.7

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 OLD FASHIONED. From cuff-and-collar boxes to floppy disks, the accoutrements of “modern” life change over time. Gadgets and gizmos that were once essential become obsolete as fresh, and often more efficient, options gain a following. See what you know about the way life used to be by taking this quiz.

1.   Hand-cranked churns were an important tool in many households from the mid-1800s through the 1940s. What were they used for?

a.   Drying clothes

b.   Canning vegetables

c.    Producing butter

d.   Making wine

2.   At the time of the Civil War, what was the most common form of communication?

a.   Letters

b.   Gossip

c.    Newspapers

d.   Telegraph

3.   Patterns of holes in stiff paper proved to be quite valuable in various industries during the 1800s and 1900s. Some punched cards had the phrase “do not fold, spindle or mutilate” printed on them. What were punched cards used to do?

a.   Automate weaving

b.   Record and replay harmonium (pump organ) performances

c.    Process business and government data

d.   All of the above

4.   Before computers and smart phones became ubiquitous, people used rotating card files to organize contact information. What were these devices called?

a.   Spinfiles

b.   Rotarchives

c.    Rolodexes

d.   Spindexes

Bonus: The correct answer is a mashup of two words. What are they?

Weekly Focus – Think About It

“That men do not learn very much from the lessons of history is the most important of all the lessons of history.”

—Aldous Huxley, author

Answers: 1) c; 2) b; 3) d; 4) c; Bonus: Rolling and Index

Weekly Market Commentary

July 3, 2023

The Markets

Showing remarkable resilience.

Throughout the first half of 2023, the U.S. economy and financial markets proved to be resilient – and so did investors. U.S. stock markets moved higher amid enthusiasm for artificial intelligence and expectations that the Federal Reserve’s tightening cycle might be near an end. The Standard & Poor’s 500 Index entered a bull market and the Nasdaq Composite Index delivered its best first-half performance in 40 years, gaining more than 30 percent over the period, reported Barron’s.

So far this year, many investors have remained optimistic amid significant uncertainty that included:

·        A banking crisis and tighter credit. In March, three U.S. regional banks failed, creating concern about the health of mid-sized banks. While the situation has stabilized, banks have become more cautious about lending, making it more challenging for businesses and individuals to find funding, reported Nicole Goodkind of CNNBusiness.

·        Debt-ceiling turmoil. Before Congress passed legislation raising the debt ceiling, some pundits were predicting a calamitous outcome for financial markets, featuring falling stock prices and rapidly rising bond yields. Fortunately, Congress reached an agreement, and we didn’t need to find out.

·        A rate-cycle-expectations gap. During the first six months of this year, the bond market expected the Federal Reserve (Fed) to pivot and begin lowering rates during the second half of the year, reported John Authers of Bloomberg. However, in late June, Fed Chair Jerome Powell stated the Fed was likely to raise rates two or more times during 2023.

·        Stubbornly high inflation. Prices are rising more slowly; however, inflation is still well above the Fed’s two percent target. Last week, the Personal Consumption Expenditures (PCE) Price Index showed headline inflation was 3.8 percent year-over-year, while core inflation, which excludes food and energy, was 4.6 percent.

·        Mixed economic messages. The post-pandemic economy has been full of surprises. The economy has generally been stronger than many anticipated, although some parts of the economy suffered. “The U.S. is experiencing a ‘rolling recession’ that may be followed by a ‘rolling expansion’ as the parts of the economy that weakened first start to recover,” according to a source cited by Lauren Foster of Barron’s. One example is the single-family housing market, which fell into recession as borrowing costs rose and has begun to improve.

·        A new bull market. In June, the Standard & Poor’s 500 Index reached a bull-market marker. The Index was 20 percent higher than its previous low, which occurred in October 2022. Initially, gains were driven by a relatively small number of stocks; however, a broader swath of stocks gained as the month progressed, reported Jack Pitcher of The Wall Street Journal.

It's likely that uncertainty and volatility will continue. Last week, major U.S. stock indices finished higher, reported Barron’s Data.1¹ Yields on most U.S. Treasuries finished the week higher.

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 HAPPIEST COUNTRIES ARE…The World Happiness Report is published by the United Nations General Assembly. The creators of the report “believe that our success as countries should be judged by the happiness of our people.” The authors measure happiness by interviewing a nationally representative sample of people in the countries that participate.

The ranking considers happiness and misery. “A population will only experience high levels of overall life satisfaction if its people are also pro-social, healthy, and prosperous. In other words, its people must have high levels of what Aristotle called ‘eudaimonia’…When we assess a society, a situation, or a policy, we should not look only at the average happiness it brings (including for future generations). We should look especially at the scale of misery (i.e., low life satisfaction) that results.”

This year, the Index was presented in a slightly different way. It consolidated results from 2020 through 2022. The countries with the highest Happiness Index scores over that period were:

1.   Finland

2.   Denmark

3.   Iceland

4.   Israel

5.   Netherlands

The countries with the lowest scores were:

137. Afghanistan

136. Lebanon

135. Sierra Leone

134. Zimbabwe

133. Democratic Republic of Congo

The United States was the fifteenth happiest country in the world.

Weekly Focus – Think About It

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

—The United States Declaration of Independence (Happy Fourth of July!)

Weekly Market Commentary

June 26, 2023

 The Markets

The Artificial Intelligence (AI) Express is traveling fast.

Investors are enthusiastic about AI. Late last year, an AI research lab introduced a chatbot that could answer questions – and people were enthralled. Within two months of its introduction, more than 100 million people had engaged with the technology, reported David Curry of Business of Apps. It wasn’t long before AI platforms that could generate images and audio, and help with coding were released.

It’s difficult to know whether investor enthusiasm influenced companies, but more firms mentioned artificial intelligence on recent quarterly earnings calls than ever before. AI mentions were up 77 percent during fourth quarter calls (after the chatbot was released) and reached an all-time high on the most recent round of calls, reported Jennifer Ryan of Bloomberg.

Between March 15 and May 25, AI was mentioned on the earnings calls of 110 companies in the Standard & Poor’s (S&P) 500 index, reported John Butters of FactSet. The sectors where AI was mentioned the most were:

·        Information technology (IT), which includes industries like semiconductors, software, and IT services;

·        Industrials, which includes industries like aerospace and defense, air freight and logistics, transportation, and construction and engineering; and

·        Communication services, which includes industries like telecommunications services, entertainment, and interactive media and services.

Recent stock market gains have been attributable, primarily, to seven large stocks, five of which are in the IT and communication services sectors. Last week, as major U.S. stock indices gave back some gains, three of the companies finished the week higher and two outperformed the index, reported Al Root of Barron’s.

U.S. stocks dropped last week largely because investors didn’t like what Federal Reserve Chair Jerome Powell had to say. He suggested there could be more rate hikes this year, and that revived recession concerns, reported Stephen Culp of Reuters. Yields on most U.S. Treasuries finished the week unchanged or higher.

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 AI’s LIMITATIONS? As you read about AI, you are likely to encounter some confusing terminology. The U.S. General Accounting Office (GAO) explained that generative AI is “a technology that can create content, including text, images, audio, or video, when prompted by a user. Generative AI systems create responses using algorithms that are trained often on open-source information, such as text and images from the internet. However, generative AI systems are not cognitive and lack human judgment.”

The last sentence in the GAO’s definition is quite important. See what you know about AI’s limitations by taking this brief quiz.

1. Research scientist Janelle Shane, who writes AI Weirdness, trained a neural network with data from 30,000 cookbooks and asked it to suggest new recipes. Which of the following recipes did it NOT suggest?
2. “Chocolate Baked and Serves” – a brownie recipe featuring a cup of horseradish
3. “Ethan’s Eggs” – made with pancakes, sugar, and Skittles
4. “Small sandwiches” – everything but the cheese spends an hour in a food processor
5. “Good Wine Drained Chili” – a chicken dish made with milk, garlic and chocolate chips

1. An attorney asked a generative AI chatbot to help him draft a legal brief. What did the chatbot do?
2. Referenced fictional past court cases that were fabricated by the chatbot
3. Created a deepfake video showing the client being injured
4. Created a deepfake audio file of flight attendants discussing the client’s alleged injury
5. Wrote the brief in the style of Shakespeare

1. The bellhop robots at a Japanese hotel were “let go” after they:
2. Consistently left skis and snowboards in the elevators
3. Delivered luggage to the wrong rooms
4. Ran into walls and tripped over curbs
5. Kept delivering toothbrushes when guests requested phone chargers

1. A Scottish soccer team opted for AI-operated cameras that would track the ball and provide better television footage than human camera operators. The choice infuriated fans because:
2. The fans didn’t want people to lose their jobs
3. The AI mistook a ref’s bald head for the soccer ball and kept zooming in on him
4. The AI confused the stand entrances with the goals, causing fans to miss the action
5. The AI kept zooming in on the goal whenever it anticipated a player would score

Weekly Focus – Think About It

“It is change, continuing change, inevitable change, that is the dominant factor in society today. No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be.”

—Isaac Asimov, biochemistry professor and author

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