Market In A Snap! May 16th – May 20th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5003,901.90-3.05%-18.14%
Nasdaq Composite1,1354.62-3.82%–27.42%
Russell 2,000 1,773.27-1.08%-21.02%
Crude Oil$112.702.29%49.37%
US Treasury 10yr Yield2.785%-13.3%127.1%

Source: Wall St. Journal

Market Wrap – “It’s Like Déjà vu All Over Again”(1):

Eight weeks and counting. That’s how many consecutive negative return weeks the Dow Jones Industrial Average has posted. That hasn’t happened since 1923 (2). It’s been a constant grind lower for equity markets.  Walmart and Target both reported disappointing earnings this week. Consumer buying patterns changed and both retailers were caught with the wrong inventory. Add on material increases in fuel costs for the year, and the outlook didn’t give investors any comfort, sending their share prices down approximately 20% and 28% respectively. Nothing seems to be going right for many companies. On a positive note, bonds started to behave a little better. The US Aggregate Bond ETF (“AGG”) has been roughly flat for the past month. That’s a far better result than the previous three and a half months, where the bond ETF had lost nearly 10% (3).  

The recession debate keeps raging. First Trust’s Brian Wesbury thinks a recession is unlikely until late 2023 or 2024, but he did bring down his price target for the S&P 500 to around 4,100 given the dramatic rise in yield on the US 10 Year Treasury Note (Late last year, his price target for the S&P 500 was 5,250 for 2022). Economists are pricing in a 30% chance of a recession this year. Who knows? We already had a negative GDP quarter in Q1. We might already be in one. Whenever a recession happens, and they do…. it’s part of the economic cycle, and the market will have already priced it in. Consumer Sentiment is also at decade lows, reaching the lows set back in 2009. It is a 180 degree from just prior to the onset of the pandemic. But the economy was actually decelerating at that point. Consumer Sentiment tends to be higher during economic expansionary periods and low during recessionary periods. 

Domestic equity markets are now officially in a bear market and it has us feeling glum.  Nobody likes to see their nest egg shrink, but markets don’t go up in a straight line.  As markets continue to trend lower, the good news is that equities are getting cheaper. The cheaper they get, the higher the future expected returns. Market corrections offer other opportunities as well. It can be a good time to consider Roth Conversions, or tax loss harvesting.  These are things you should discuss with your advisor.

Remember, investing is a marathon not a sprint.

  1. – Yogi Berra quote
  2. – CNBC
  3. – YCharts

Changes in Spending:

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The New York Fed has some interesting data on its site. One that caught our attention, was the change in household spending on essential and non-essential items over the next twelve months. You can see from the chart below, that changes in spending on essential items has moved up materially. We all know that prices are rising and from the NY Fed’s survey, it looks like we think price increases won’t stop this year.

Market In A Snap! May 9th – May 13th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,023.89-2.41%-15.57%
Nasdaq Composite11,805.00-2.80%-24.54%
Russell 2,000 1,1792.67-2.55%-20.16%
Crude Oil$110.186.20%46.57%
US Treasury 10yr Yield2.82%-19.8%141.8%

Source: Wall St. Journal

Market Wrap:

If it weren’t for Friday’s rally, the major US stock market indices would have been down over 5% for the week. Why did stocks rally Friday? In a radio interview Thursday evening, Fed Governor Jay Powell said they will not simply raise rates without concern for its effects on the economy. They are making decisions based on data that is changing quickly. To me, this is a breath of fresh air. Previous Fed Governors were purely “model-driven.”  Powell seems to be more flexible and, frankly, more up to the task than previous governors. We have had academics at the helm for decades.  Powell is not an academic. He’s pragmatic, not dogmatic. In the same interview, Mr. Powell admitted that they should have raised rates sooner. This admission is a breath of fresh air. No one has all the answers. We view economics as a hard science, but it is not. It is part science and part psychology.  When investors get increasingly confident in their views on the future, markets tend to tilt that way. Warren Buffet is credited with saying, back in 1973, that, in the short term, the stock market is a voting machine. In the long run, it’s a weighing machine.  What does that mean? Basically, in the short term, stocks (& bonds, real estate, etc.) are driven by investor sentiment, but in the long run they are driven by value.  Today’s economic climate is uncertain and investor sentiment is in the gutter. This happens repeatedly. When times are good, we tend to extrapolate those good times well into the future and asset prices get expensive. When times are bad (or uncertain), the opposite happens. We tend not to question things when times are great, but we get extremely focused on what “isn’t working” during bear markets.  Making emotional decisions during times like this can be harmful to retirement goals.

We know that having a diversified portfolio is necessary to building wealth over time. The reason diversification works is that certain asset classes work better at different times. They all have some expected return profile. For example, Small Cap stocks tend to outperform Large Cap stocks over the long-term, but they tend to be more volatile and move a little differently than Large Cap stocks depending on the economic cycle. Small Cap stocks tend to underperform heading into a recession but do much better than Large Caps coming out of a recession. Predicting recessions is just plain hard. We can see the direction the economy is taking but guessing how or when the economy will tip into a recession is difficult. Over the long-term, it’s meaningless anyway.

One last note on diversification. The Walton family is the wealthiest family in the US. Their net worth is about $240 Billion. Most of that is their ownership stake in Walmart. They also have a family office that invests their other money. Their largest holding is an international equity ETF.

Leased Automobile Equity

May 2, 2022

You May Have Equity in your Leased Automobile.

For those of you who leased a car and are coming up on the end of the lease period, you may want to review your contract. As you can see from the chart below (the “Manheim Used Vehicle Index), used car values have soared. Every wonder why the dealership is being so nice to you by offering you the ability to turn your leased vehicle in before the contract has expired, even if you are over on your mileage?

If you have the typical 36-month lease, you likely leased your vehicle in 2019. The monthly lease payment is calculated by the finance department, or finance partner, of the dealership. The length of the lease, miles driven, interest rates, and an estimate of the residual value of the vehicle are all part of that monthly car payment calculation. If you look at your contract, you can find the residual value. You can look online for your model’s value from Kelley blue book, or any number of used car dealerships like AutoNation or CarMax. Your model is likely selling for a higher price than what your residual value is. From there, you have a few options. You can purchase the vehicle outright and sell it privately or to a used car dealer. Dealerships are starved for inventory. Often, they will take over the last few lease payments AND pay you most of that remaining equity which you can use to purchase a car through them. You can also negotiate with the dealership that leased you the vehicle to use that equity towards a new lease, or you can ask them to pay you some percentage of the equity value without having to buy the car out (this is what I did back in 2017). 

Knowing what your car is worth (even if it’s not “technically” yours) might be worth the effort.

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Truly,

Jeff Anderson, CFA

Presidio Capital Management

Market In A Snap! May 2nd – May 6th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,123.34-0.21%-13.49%
Nasdaq Composite12,144.66-1.54%-22.37%
Russell 2,000 1,839.56-1.32%-18.07%
Crude Oil$110.506.20%46.57%
US Treasury 10yr Yield3.14%15.9%107.56%

Source: Wall St. Journal

Market Wrap:

Volatility was the name of game this week as equity markets gyrated wildly after the Federal Reserve hiked the overnight rate by 50 bps on Wednesday. The markets spiked higher after the announcement but quickly reversed course the following day, with the major US equity markets falling roughly 5%. Yet, despite this, the S&P 500 barely moved over the week. The Nasdaq Composite closed down less than 2%, but it sure felt like it was much worse. The yield on the US Government 10 Year Note rose above 3% as the Fed laid out plans for 50 bps rate hikes over each of the next two meetings. By the end of 2022, the overnight rate will likely be closer to 2.5% vs it’s current range of 0.75% to 1.00%. Fed Governor Powell is dead set on bringing down inflation. The Fed also stated that they will begin winding down their balance sheet with purchases of $47.5 billion of treasuries and mortgage-backed bonds in June, July, and August, followed by $95 billion of bond purchases thereafter. That is quite a reversal from late last year when the Fed was “buying” $90 billion worth of bonds. Many economists and strategists believe Mr. Powell and his team are “behind the curve,” meaning they aren’t doing enough now to bring down inflation.  However, when the war in the Ukraine ends (yes, it will end at some point), and lockdowns in Asia expire, inflationary pressures from supply chain challenges should help bring down inflation.  CPI has been near 8.5% but that should come down below 5% by next year. With the US Treasury yield around 3%, real rates will still be negative, but not nearly as negative as they are today. Remember, rates have been negativing in real terms for years. 

The recession debate is twofold. The first debate is when we will see a recession. The other is how severe will it be. Will we have a “soft landing” and experience a mild recession or will it be a severe one. That is impossible to know. There is no crystal ball. And, importantly, for a long-term investor, it is irrelevant. The economic cycle includes recessions. They are inevitable, but they aren’t bringing on the end of the world. Never bet on the end of the world.

Times Like this Can Make you Lose Faith…. If you Let it:

We are emotionally programmed to feel losses more acutely than gains. We need $20 of gains to feel the same as losing $10. We don’t like to lose. It’s that area in the brain called the amygdala that is also responsible for processing fear.  That’s a cruel trick played on the human mind. Fear can be suffocating. Fear of being hit by a bus and fear of losing money are all packaged in the same brain tissue. So, what can investors do? Are we condemned to a pattern of rushing out of investments when the seas get choppy? No, we aren’t. Understanding risk is vitally important. That is why holding a diversified portfolio of equities and bonds will, over the long-term, help investors reach their financial goals. Then why do we start to focus on one stock or fund that is doing worse than others during a market correction? Asset classes all have different risk and return characteristics. When put into a portfolio, their unique attributes tend to balance each other. Yet, in times like this, when stocks and bonds go down at the same time, what are investors to do? Is Modern Portfolio Theory dead? Is this the new normal? It likely is not. Equity markets are upward sloping over the long term. The S&P 500 has averaged around 9% annually over the long-term. But that’s the average. To earn that average, investors will experience periods of higher returns as well as periods of lower, or negative returns. Market corrections are an unavoidable part of your financial journey. Sometimes, the road is wide, smooth and the scenery is breathtaking. Other times, it’s full of potholes, sharp turns, and lousy weather. But, in the end, you’ll get to your destination.

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Source: Google Images (Sculpture by Arturo Di Modica)

Market In A Snap! April 25th – April 29th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,131.93-3.27%-13.31
Nasdaq Composite12,334.64-3.93%-21.16%
Russell 2,000 1,940.66-4.06%–17.07%
Crude Oil$104.232.55%38.37%
US Treasury 10yr Yield2.9%1.4%92.15%

Source: Wall St. Journal

Market Wrap:

It was another down week for the major indices (Nasdaq had its worst month since 2008!) as investors digested weak economic data and a mixed bag of corporate earnings. Google and Amazon disappointed investors while Microsoft, Visa, and Facebook (now “Meta”) exceeded estimates. If you look under the hood at the major indices, plenty of stocks are down well over 40% year-to-date. Stock prices of companies like Teledoc, Zoom Video Communications and Netflix are now below their pre-covid levels. All those gains, which were significant, have disappeared. It goes to show you that only owning one or two stocks in your portfolio can do considerable damage to your financial health. Those companies are all part of at least one index. The indexes themselves (which consist of many companies) are down a fraction of that. 

With continued lockdowns in mainland China, and the ongoing Ukrainian conflict, prices for goods and services are likely to remain elevated for the foreseeable future. That puts pressure on the Federal Reserve to continue raising interest rates and this is weighing heavily on investors (or should we say “traders”) minds. The probability of a recession in 2023 has increased as well. Recessions are part of the economic cycle. They come, and thankfully, they go. It’s never fun when it happens but it does pass. Mr. Powell and his team at the Fed are likely to be aggressive at the next two Fed meetings. Whether that tips the US economy is anyone’s guess. It bears reminding that when coming to investing, taking a long-term view is paramount. Warren Buffet never makes investment decisions based on whether the economy is headed into a recession. He simply buys good companies with great long-term prospects. An important caveat is that many of his most famous investments were made during tough economic times. That is typically when the best bargains can be had. That’s how retirement investing should be viewed. Own good companies let time be your friend.

GDP Growth was Negative in Q1:

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That’s right, the economy went backwards. All this talk about when the economy might tip into a recession later this year or next and we just discovered that the economy was already slowing dramatically. I don’t recall reading anyone predicting this. It takes two consecutive quarters of negative GDP growth. So, technically we’re halfway there. As we’ve said before, the market is a discounting machine. The major indices peaked in late 2021. Maybe we are headed into one. It takes time for the economy to respond to changes, sometimes by as much as 12 months. The end of the government’s stimulative measures and persistent high prices for just about everything are weighing on the economy.  That’s one explanation.  On the other hand, when you look under the hood, the reason for the decline in GDP was due to a widening trade deficit (imports surged and exports didn’t keep pace). The US consumer is still in very good shape.  Americans are sitting on plenty of cash, are employed, and living in homes with considerable equity. Retail sales continue to chug along. Demand for durable goods (like washing machines and cars) are still strong, but many are pushing out purchasing decisions because supply shortages are driving up prices in the short term. Call it pent-up demand. Check out the chart on GDP growth from the Wall Street Journal. Growth in the economy is still expected, even considering the dramatic jump in prices for all kinds of things as seen chart from our friends at First Trust Advisors. 

Source: Wall Street Journal

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Source: First Trust Advisors, L.P.

Market In A Snap! April 18th – April 22nd, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,271.78-2.75%-10.37%
Nasdaq Composite12,839.29-3.83%-17.93%
Russell 2,000 1,940.66-3.21%-13.57%
Crude Oil$101.22-5.0%34.13%
US Treasury 10yr Yield2.90%1.3%91.52%

Source: Wall St. Journal

Market Wrap:

The major indices suffered another week of losses as investors digested Fed Governor Powell’s comments earlier this week. Mr. Powell is committed to fighting inflation and the next meeting on rates in Mid-May looks like a 0.5% increase in interest rates will be the decision. There are even rumblings of a potential 0.75% hike. Investors worry that an aggressive interest rate hike stance will slow economic growth and hurtle the US into a recession. No one knows definitively if a recession will happen, but the market is acting like it is a foregone conclusion. The economy moves in cycles. Recessions are a part of that cycle. That is undeniable. While the market continues to fret over these fears, the US economy is in good shape. Corporate earnings have been, for the majority, strong. The consumer continues to spend and has elevated savings levels. Airlines had a great first quarter. Despite higher air fares, people are taking to the skies. Steel companies are doing well. Tesla cannot keep up with demand. Will this be the case in 6 to 9 months? It is anybody’s guess. Goldman Sachs said this week that there is now a 35% of a recession in the US within the next two years. To me, that is a useless piece of information. That’s just fence-sitting. As markets fall, they do become cheaper. Maybe earnings will fall, or slow at a faster pace than anticipated, but this is cyclical, not necessarily secular. The S&P 500 is trading below 18 times this year’s estimated earnings. That is near its historical average. It is less expensive than it has been for years. Looking out five years from now, will corporate America be earning more than today? Odds are they will. There may be a pullback or two along the way, but it is a reasonable bet. Famed investor Warren Buffet has always maintained that the US economy is much more resilient than many people think and that, over the long-term, investing in corporate America pays off. Being able to ignore the short-term market fluctuations and being able to invest during bear markets gives the investor much better odds at reaching their retirement goals.

“Bonds don’t work anymore”

I’ve heard this a few times recently. The first quarter of this year saw both stocks and bonds lose value. That is rare. Given the inflationary environment we’re in, it’s not terribly surprising. Bonds move in the opposite direction of interest rates. The longer the maturity, the more dramatic the price declines when interest rates increase. Longer maturity bonds are more sensitive to changes in interest rates. At some point, rate hikes will slow, or stop, and bonds that have lower coupons (the “interest rate” part of the bond) will mature and can be reinvested at higher interest rates. Having yields too low isn’t healthy long-term. The reason they were low was because of the pandemic. The fear was deflation, not inflation. As the Fed raises rates, inflation will start to come down. Add in improvements in the global supply chain and an end to the war in the Ukraine and we could see inflation well below 5%, and even closer to 3%.  At that point, rates will stop going up and it will give the Fed the tools necessary to tackle the next recession or, God forbid, another pandemic-like event. Having rates stuck below 2% coming into a recession leaves little room for the Fed to help. Restoring balance after the global pandemic is what’s important.

So, are bonds still a good investment? Yes. They are a vital component of a well-diversified portfolio. They should return to providing a ballast to the equity portion of a portfolio. They should offer more attractive income returns, and they should be less volatile than equities. Judging any asset class over a short period is a poor way to think about your portfolio.  Over the short-term, it’s the uncertainty that worries investors. As we have said many times in the past, there is no such thing as certainty. The world is uncertain. Embracing uncertainty is paramount. Put away the foggy crystal ball. Remember that you have a plan that lays out a path to reaching your financial goals.

Market In A Snap! April 11th – April 15th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,392.59-2.39%-7.84%
Nasdaq Composite13,351.1-3.93%  – 14.66% 
Russell 2,000 2,004.98-0.24%-10.7%
Crude Oil$106.548.83%41.21%
US Treasury 10 yr Yield2.83 %17.1%131.6

Source: Wall St. Journal

Market Wrap:

The major indices continued their slide in this shortened week as US Government bond yields continued to rise. In a recent CNBC interview, Federal Reserve Governor Christopher Waller said getting inflation under control will require raising interest rates at a faster pace than normal, even though the rate of price increases has probably peaked1. The probability that the Fed will raise rates by 0.5% vs the previously assumed increase of 0.25% has risen dramatically. 

Fed Chairman Powell has history to guide him. Prior to Fed Chairman Paul Volcker getting aggressive with rate rises to bring down a multi-year battle with high inflation, his predecessor Arthur Burns was the opposite. Economic historians said Governor Burns “lacked the analytical framework to assess the interplay between the real economy and inflation, and how that relationship was connected to monetary policy.”2 By the time Volcker replaced Burns, inflation had become systemic. President Nixon had closed the gold window in 1971 (known as the Bretton Woods System) to address the country’s inflation problem and to discourage foreign governments from redeeming dollars for gold. His administration also enacted wage and price controls.3 It turned into economic mayhem. Powell is acutely aware of these risks. Better to be aggressive now than to let inflation boil over and create another lost decade.

Mortgage Rates Hit 5%:

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We haven’t seen 5% rates since 2011. The monthly cost of buying a home has surged by more than a third over the past year, according to the Wall Street Journal. Yet, demand remains strong (for now). In areas like Southern California, a strong labor market coupled with extremely low supply could offset this. The cost of building materials has risen dramatically, and homebuilders are forced to charge more to maintain profit margins. It will be interesting to see what the total demand for mortgages is for 2022. In 2021, nearly two thirds of originations came from refinancing. Economists had projected, a few weeks back, that this number would be closer to 30%. As prices continue to rise, so are rents. This upward pressure on rents may push reluctant buyers into the market as the cost of renting may no longer make sense.

China is Back to Covid-19 Lockdowns:

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Just when we thought covid-19 and all its variants were in the rearview mirror, China is back to mass lockdowns. Forty-five cities that make up nearly 40% of China’s economic output are in some form of lockdown. This equates to roughly 370 million affected Chinese residents. There is already significant disruption to the Chinese economy, and it won’t help the global economy fight its way out of its supply-chain issues. Let’s hope this is the last set of measures necessary to put an end to this pandemic.

Market In A Snap! April 4th – April 8th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,488.65-1.26%-5.82%
Nasdaq Composite13,711.0-3.86%  – 12.36% 
Russell 2,000 2,002.37-4.24%-10.82%
Crude Oil$97.05-1.42%29.9%
US Treasury 10yr Yield2.713 %32.2%119.3

Source: Wall St. Journal

Market Wrap:

The major indices gave back some of the gains from the prior week. Inflationary fears persisted with economists and equity strategists worried that inflation levels will force the Fed to keep raising interest rates which could tip the economy into recession next year.  As of now, the probability of recession (provided by Estrella & Mishkin) remains well below the levels seen in late 2019 or mid-2021.  Economic and geopolitical uncertainty will likely continue to weigh on markets in the short term.  The yield curve has inverted (meaning the yield on the 2-year treasury note is higher than the 10-year note.  This, historically, signals a slowing economy and heightened risks of a recession.  However, equity markets have, on average, rallied for at least a year after the government bond yield curve inverts.  Yet, as we mentioned on our podcast, analyst buy ratings are at multi-decade highs.  The last time that happened was in September, 2011just after the market had sustained a roughly 12% correction. The major indices moved considerably higher over the following 10 years.  This is not to say that the markets will perform similarly, but rather that trying to time the market can be costly. There is no crystal ball. Just history to guide us.  

Warren Buffet is Investing During this Market Correction:

Despite the terrible start to the equity markets in 2022, Warren Buffet has been putting money to work.  Berkshire Hathaway bought stakes in Occidental Petroleum, HP, and is acquiring all of insurer Alleghany Corporation.  All told, these investments amount to almost $24 billion.  At the end of 2021, Berkshire was sitting on over $145 billion in cash. For those of you who have followed Warren Buffet over the years, you know that he doesn’t make investment decisions based on macro-economic events. He simply like to buy (or invest in) companies that have favorable long-term business characteristics. The market correction didn’t prevent him from making investments. That is a good message for investors.  

“Interest-Rate Surge Ripples Through Economy…”:

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As the Federal Reserve embarks on lifting interest rates, the cost to purchase homes and autos have surged higher.  Mortgage rates are approaching 5%, up from 3% at the start of the year.  Rates are still low historically, but the sudden increase is making it harder for many to purchase homes.  Same can be said about auto loans.  As for as homes are concerned, prices would need to decline to make it affordable.  In areas like San Diego, the low supply of homes coupled with low rates pushed prices higher.  As rates move higher, it should push some potential buyers to the sidelines which “could” bring down the price of homes.  For buyers who can’t wait, they may be forced to look for smaller homes or areas further away from metro centers.  Given how much home prices have increased over the past few years, a pullback would not be abnormal, and should make some areas more affordable again.

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Market In A Snap! March 28th-April 1st, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,545.86.06%-4.62%
Nasdaq Composite14,261.50.65%  -8.84 % 
Russell 2,000 2,091.11.63%-6.87%
Crude Oil$99.42-11.72%31.77%
US Treasury 10yr Yield2.385 %-9.37%

Source: Wall St. Journal

Market Wrap:

Thursday marked the end of the first quarter.  By mid-March, the S&P 500 was down 12.2% for the year but clawed back all but 4% of its losses.  The Nasdaq 100 was down 20% by mid-March. By Thursday, it was down ~ 8%.  It has been a wild quarter.  Fed rate hikes, geopolitical tensions, and a new wave of lockdowns in China all contributed to a rough start to 2022.  It’s enough to test anyone’s nerves.   

Mortgage Rates Spike:

The 30-year fixed-rate loan jumped to 4.67%, according to Freddie Mac.  That is quite an increase from 3.22% at the start of this year. In January 2021, rates were below 2.7%.  This likely isn’t a shock to many. The yield on the US 10-YR Treasury Note is well above 2%, up from 1.2% in August of last year. The Federal Reserve raised rates at the March meeting and, at present, intends to continue the path of rate hikes through this year and into next year to bring down inflation.  With higher mortgage rates, refinancing are expected to drop dramatically.  They are expected to make up 33% of mortgage originations this year, down from nearly 60% in 2021.  That has put pressure on home prices.  Median home prices had increased nearly 24%, year-over-year in March of 2021.  That pace has slowed to 15%.  It will be interesting to see what the data looks like after a few months of mortgage rates near, or above, 5%.

Real Estate Loans:

Despite the increases in home prices, Residential Real Estate loans are well below the peak during the recession of 2008.

Debt levels are much better.  Values are much higher.  Household balance sheets are also, obviously, in better shape.  Regardless, mortgage rate increase shocks are definitely a headwind for housing.  Historically speaking, mortgage rates are still below their long-term average.  The rate of change is, in the short term, what really matters.  Home Equity Lines of Credit are nowhere near the levels of 2008.  Savings rates are higher as well. But housing is cyclical.  The rapid growth in home values is declining and may continue to do so for the foreseeable future as the Fed tries to wrestle down inflation.

Market In A Snap! March 21st-March 25th, 2022

By: Jeff Anderson, CFA

CloseWeekly returnYTD return
S&P 5004,543.061.79%– 4.68%
Nasdaq Composite14,169.301.98%  – 9.43% 
Russell 2,000 2,076.97-0.44%-7.50%
Crude Oil$112.687.17%22.51%
US Treasury 10yr Yield2.481 %33.0%

Source: Wall St. Journal

Market Wrap:

Last week, the Federal Reserve officially kicked off their rate-hiking cycle by increasing the Fed Funds rate 0.25%. Fed Governor Jay Powell signaled consistent rate hikes would likely come with each quarterly meeting. The 10-Year Treasury yield is nearing 2.5%.  Mortgage rates are solidly above 4%, putting more pressure on potential homebuyers.  Gasoline is over $6 per gallon in many parts of California.  Everything’s getting more expensive.  Yet, despite this, the S&P 500 is up ~3.5% since last week’s Fed meeting.  That is not say that the rebound in equity markets will continue. The rebound caught many “pundits” off-guard.  Could the markets be responding to a belief that the Fed will bring down inflation and keep the economy from overheating, or falling into a recession?  Possibly.  Does anyone really know where the market is headed over the next nine months?  Absolutely not.  Having a well-diversified portfolio and a long-term approach to investing can help investors tune out the noise and avoid making emotional decisions that may derail their retirement goals.

Initial Jobless Claims Fall to Lowest Level in 50 Years:

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Simply put, initial jobless claims reflect just how tight labor markets are. Nancy Vanden Houten, lead economist at Oxford Economics was quoted saying, “In an environment where employers are struggling to hire and retain workers, layoffs are going to be at a minimum.”  This figure is exacerbated by the fact that roughly half a million fewer people were in the labor force in February.  We have 6.3 million unemployed people in the US yet there were roughly 11.3 million open positions in January.  Such an imbalance will likely continue to put upward pressure on wages.

Gas Prices Increase at Fastest Pace on Record:

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Americans are acutely aware of the sudden, and dramatic, increase in gas prices. In fact, the increase is the fastest on record.  There is some good news.  Prices, adjusted for inflation, are still well below the peak in 2008-2009.  The prices vary state by state due to factors such as taxes and gasoline specifications.  In addition, “gasoline inventories are below their five-year historic range in the West Coast region and above average for this time of year in the Midwest, according to the EIA.”  When will prices go down, or at least stop going up?  That’s anybody’s guess.  Putting more rigs in the ground in the US along with other supply increases globally and an end to the Ukrainian conflict should help. 

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