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Please note our holiday office hours:
Tuesday 12/27 – Friday 12/30 9:00am-4:00pm Monday, January 2nd CLOSED for New Year’s Day (observed) Update: Our new phone system was installed last week. We appreciate your patience as we navigate through the upgraded features of the new system. The Markets What a year! In some ways, it feels as though we lived through several years in 2022. The onslaught of events included, “The first major European war since the 1990s, unprecedented sanctions, energy-price mayhem, bail-outs, global interest rates rising at their fastest pace in four decades, a faltering Chinese economy, an overheating American one, housing markets looking peaky across the rich world, [and] a crypto blow-up for the ages…,” reported Hamish Birrell in The Economist’s Money Talks newsletter. The impact of these events was felt around the world. Global inflation averaged 10 percent, and global stock markets were down about 20 percent through November, reported The Economist. Yet, some countries showed remarkable economic resilience, performing far better than average. The Economist surveyed economic and financial data from 34 wealthy countries. The data included gross domestic product or GDP (which is the value of all goods and services produced in a nation), inflation, breadth of inflation, stock market performance and government debt. Many of the top performers were in the Mediterranean. They tended to have better-than-average stock market performance, declining debt-to-GDP ratios*, strong economic growth, and/or below average inflation. The top 10 included:
The United States ranked 20th, although its position may have skewed low. The author opined, “America’s GDP numbers are misleadingly weak: in recent quarters official statisticians have struggled to account for the impact of enormous stimulus packages.” Last week, major U.S. stock indices delivered mixed results as economic data, created uncertainty reported Nicholas Jasinski of Barron’s. Positive earnings news and strong labor market data were countered by cooling inflation and slower consumer spending. The Standard & Poor’s 500 Index and the Nasdaq Composite moved lower, and the Dow Jones Industrial Average rose. Treasury bond yields generally moved higher. *Debt as a percent of GDP measures a country’s ability to repay its debt. In addition, research from the World Bank found a high debt-to-GDP ratio may impede economic growth. We are upgrading our telephone system. During this process our calls are being forwarded to our cell phones. We are striving to make this interim time as seamless as possible; however, please know that if you call, we may need to take your number and have a team member return your call from their personal cell phone. Thank you for your patience as we navigate this change.
Please note our holiday office hours: Monday, December 26th - CLOSED for Christmas (observed) Tuesday 12/27 – Friday 12/30 - Office Hours 9:00am-4:00pm Monday, January 2nd - CLOSED for New Year’s Day (observed) The Markets Bad news is bad news, once again. For months, investors have cheered bad economic news. When the United States economy showed signs of weakness, stock markets often reflected investor enthusiasm. The thinking was that bad economic news would persuade the Federal Reserve to slow the pace of rate hikes. Inflation would slide lower, and recession would be avoided. Last week, there was a shift in attitude. On Wednesday, the Federal Reserve raised the federal funds rate by half a percent, as expected. Over the course of this year, the fed funds rate has risen from near zero to 4.33 percent. That’s an enormous increase designed to drop inflation by slowing economic growth – and the Fed expects growth to slow. The dot plot is a chart that reflects the expectations of each member of the Fed’s decision-making committee. It showed that Fed officials expect U.S. economic growth to slow next year. The forecasts indicated gross domestic product (GDP), which is the value of all goods and services produced in the U.S., could grow very slowly or even contract next year (it could contract -0.5 percent or grow to 1.0 percent). Fed officials also anticipated the unemployment rate could rise from a relatively low 3.7 percent to 4.6 percent. The day after the Fed’s statement, the Commerce Department reported that retail sales declined more than expected in November. That suggests economic growth may be slowing. The stock market didn’t surge on the bad economic news. It retreated. Vildana Hajric and Lu Wang of Bloomberg reported: “For the first time in a long time, news that was bad for the economy was bad for the stock market as well, more proof that recession fear has replaced inflation angst as that market’s biggest bugaboo… Rather than rise on speculation that weak data would curb Federal Reserve tightening, the S&P 500 dropped 2.5% on Thursday, while the Nasdaq 100 lost 3.4%. Small-cap stocks lost more than 2.5% and the VIX volatility gauge shot back above 22. The yield on 10-year Treasuries hovered around 3.45%, down from a peak of 3.63% earlier this week.” Last week, major U.S. stock indices finished lower, and the Treasury yield curve remained inverted. The Markets
What comes next? The U.S. stock market tends to be a forward-looking vehicle. Investors make decisions today based on what they think may be ahead for the economy, and how economic change may affect the companies they’re considering for investment. Currently, key questions include:
Opinions about the answers to these questions vary, and that’s one reason markets have been volatile lately. For example, some think the U.S. economy is headed for:
It’s important to remember the economy is not the stock market. It is just one of the many factors that influence share prices. Each of the economic possibilities would affect share prices and market sectors differently. With so much uncertainty, it’s hard to know what will happen. As baseball great Yogi Berra said, “It’s tough to make predictions, especially about the future.” That’s why it’s a good idea to hold a well-allocated and diversified portfolio that targets your financial goals. Last week, major U.S. stock indices finished lower, and the Treasury yield curve remained inverted. The Markets
What will it take to slow this economy down? In 2001, railway workers slowed a runaway train in Ohio by latching a second engine to the back of the locomotive and applying the brakes. In all, the train traveled sixty-six miles over two hours, decelerating from a maximum speed of 47 miles per hour to 10 miles per hour before workers regained control of it, according to CNN. Throughout 2022, the United States Federal Reserve has been trying to slow inflation by putting the brakes on the U.S. economy. So far, the Fed has raised rates six times, but the economy continues to grow apace. Last week, the Bureau of Economic Analysis reported the economy grew faster than originally thought from July through September 2022. Gross domestic product (GDP), which is the value of all goods and services produced by the U.S., was up 2.9 percent, annualized, rather than 2.6 percent as the advance estimate indicated. Last week’s unemployment report also suggested the economy remains strong. More jobs were added than economists expected, and the unemployment rate remained at 3.7 percent. Average hourly earnings also increased faster than expected, up 5.1 percent over the last 12 months. Megan Cassella of Barron’s reported, “The biggest outstanding obstacle to the Federal Reserve’s success in reining in inflation boils down to a numbers problem: There aren’t enough workers in the [United States]. Simply put, labor supply and demand need to come back into balance to contain wage growth and services inflation, which continues to climb…A combination of factors is contributing to the dearth of workers, from Baby Boomer retirements and falling immigration to a low birth rate and long COVID. Together, they suggest that shortages are here to stay.” Last week, stock and bond markets rallied following Fed Chair Jerome Powell’s mid-week speech, in which he confirmed it was likely December’s rate increase would be smaller than the last few increases have been. Later in the week, the strong employment report checked investors’ enthusiasm. Regardless, major U.S. indices finished higher, reported Nicholas Jasinski of Barron’s, and Treasury yields finished the week mostly lower. |
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