Category: Monthly Commentary

Monthly Commentary

December Market Commentary

Market Commentary

US stocks fell in December to end a positive quarter, but disappointing year, as investors focused on a potential recession and how severe it could be. US equity markets experienced their worst year since the financial crisis driven by decades high inflation and aggressive Fed rate hikes throughout the year. Economic news was mixed over the month. The U.S. labor market remained historically tight with employers adding 263,000 jobs in November, well above the 200,000 estimate. The unemployment rate in November was unchanged at 3.7%. Inflation data showed signs of easing with PPI, CPI and PCE all lower than October and well below their recent peaks. The producer-price index increased by 7.4% annually in November, down from 8% in October. CPI increased by 7.1% annually in November, down sharply from 7.7% in October and the 9.1% peak in June. Core CPI, which excludes food and energy, rose by 6% annually in November slightly below the 6.1% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 5.5% annually in November, matching expectations and down from the 6.1% increase reported for October. US retail sales fell 0.6% in November from the prior month for the biggest decline of the year. U.S. existing-home sales declined for a 10th straight month falling 7.7% in November. It extended a record streak of declines as high mortgage rates and home prices kept many buyers out of the market.

Foreign stocks were relatively flat in December, but ended the fourth quarter significantly higher as inflation remained near record levels and China reopened from Covid restrictions. Foreign stocks outpaced US stocks over December, the fourth quarter, and 2022. Gains were also driven by the US dollar falling by over 7.5% in the fourth quarter. The Eurozone’s headline inflation rate fell in November, for the first time since mid-2021, to 10% from 10.6% in October. The U.K.’s annual inflation rate fell more than expected in November to 10.7% after it hit a 41-year high in October. The European Central Bank, the Bank of England, and the Swiss National Bank all increased their benchmark interest rates by 0.5% to combat the high levels of inflation. The Bank of Japan made a surprise decision to let the yield on the 10-year Japanese government bond rise as high as 0.5% from a previous cap of 0.25%. The Bank of Japan had set a target range near zero since 2016 to keep overall market interest rates low. Oil prices were flat in December, ending the month at $80.26 per barrel, but gained 7% for the year. Emerging markets trailed developed markets over December, the fourth quarter, and 2022.

Interest rates increased in December as investors focused on Fed officials’ comments that they believed they needed to maintain higher rates for longer. The yield on the 10-year Treasury increased in December, ending at 3.83% up from 3.70% at the end of November, but jumping significantly from 1.50% to start the year. At its December meeting the Fed increased the fed funds rate by 0.5% to a range of 4.25%-4.50%, and signaled plans to lift rates in smaller increments through the spring to combat high inflation.  Fed Chair Powell said that slowing rate rises to more traditional quarter-percentage-point increments as soon as the Fed’s next meeting would provide the best way to manage the risk of over-tightening. The rate for a 30-year fixed-rate mortgage was unchanged remaining at 6.5% to end December. Municipal bonds were the top performer for December and the fourth quarter, while US Agency bonds were the top performer for 2022. Shorter-term bonds outpaced longer-term bonds for December and for 2022, while longer-term bonds outpaced shorter-term bonds for the fourth quarter.

Index PerformanceDecember4th Quarter Year to Date
US Stocks (Russell 3000)-5.86%7.18%-19.21%
Foreign Stocks (FTSE AW ex US)-0.53%14.36%-15.22%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.18%1.54%-8.23%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.41%2.86%-4.51%
Cash (ICE BofA ML 3-Mo T-Bill)0.36%0.84%1.46%

 

 

November Market Commentary

Market Commentary

US stocks added to their October gains as inflation data cooled and investors interpreted Fed comments to indicate the pace of its interest rate increases will begin to slow. As of the end of November, 99% of S&P 500 companies posted earnings and 70% reported earnings above estimates. Economic news was mixed over the month. Job growth slowed in September, with US employers adding 261,000 jobs, above the 205,000 estimate. The unemployment rate edged up to 3.7% in October from 3.5% in September. The producer-price index increased by 8% annually in October, down from 8.5% in September. CPI increased by 7.7% in October, below the expected 7.9% increase and down from 8.2% in August. Core CPI, which excludes food and energy, rose by 6.3% in October below the 6.5% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6% in October, down from the upwardly revised 6.3% annual increase reported for September. Third quarter US GDP was upwardly revised to 2.9% from the initial 2.6% reported increase. US retail sales rose 1.3% in October above the expected 1% gain. Sales of existing homes in the US declined for the ninth straight month in October as sales declined 5.9%.

Foreign stocks sharply rebounded in November as Chinese equities led global markets higher on hopes of reopening from Covid lockdowns. The U.K.’s annual rate of inflation rose to 11.1%, a 41-year high in October on surging energy prices. The U.K. government outlined tax increases and spending cuts, shifting policy to start sharply limiting its spending growth after years of fiscal stimulus during the pandemic and recent energy subsidies. The Bank of England raised its key interest rate by 0.75%, the largest increase since 1989. The Eurozone’s headline inflation rate hit 10.7% in October, up from 9.9% in September. Easing of Covid restrictions had a positive impact on foreign markets as Chinese equities surged with the economy reopening. Hong Kong’s main index rose 27% in November, the most since 1998. The US dollar fell sharply, dropping 5% in November for its worst monthly performance in 12 years. The decline in the US dollar is a positive for US investors in foreign markets. Oil prices declined in November, ending the month at $80.55 per barrel, down from $88.37 to end October. Emerging markets outpaces developed markets over November while developed markets topped emerging markets over the year-to-date and trailing year.

Interest rates fell in November as bond markets priced in the expected slower pace of future rate increases. The Federal Reserve increased its key rate by 0.75% for the fourth consecutive time at the November meeting, bringing the rate to a range of 3.75% to 4%. Federal Reserve Chairman Powell said in remarks delivered at the Brookings Institution that smaller interest rate increases are likely ahead and could start in December. He cautioned that policy is likely to stay restive for some time until data shows signs of significant progress on inflation. Fed meeting minutes signaled the desire of officials to slow down the pace of rate increases. The yield on the 10-year Treasury fell in November, ending at 3.70% down from 4.07% at the end of September. The rate for a 30-year fixed-rate mortgage fell to 6.5% to end November down from 7.1% to end October. US credit bonds were the top performer for November, while US Agency bonds were the top performer for the year-to-date. Longer-term bonds outpaced shorter-term bonds for November, while shorter-term bonds outpaced for the year-to-date.

 

Index PerformanceNovemberYear to DateTrailing 12 Months
US Stocks (Russell 3000)5.22%-14.18%-10.80%
Foreign Stocks (FTSE AW ex US)11.69%-14.76%-11.11%
US Bond Mkt. (BBgBarc Int. Gov/Cred)2.17%-8.07%-8.19%
Municipal Bonds (BBgBarc 1-10 Yr Muni)2.66%-4.90%-4.78%
Cash (ICE BofA ML 3-Mo T-Bill)0.32%1.09%1.10%

 

 

 

October Market Commentary

Market Commentary

US stocks sharply rebounded in October as investors looked for signs that the Federal Reserve might soon slow the pace of its interest-rate increases. As of the end of October, 85% of S&P 500 companies posted earnings and 70% reported earnings above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%. Economic news was mixed over the month. Job growth slowed in September, with US employers adding 263,000 jobs, below the 275,000 estimate and the 315,000 added in August. The unemployment rate fell to 3.5%, below the 3.7% estimated. The producer-price index increased by 8.5% annually in September, which was a slight deceleration from the 8.7% in August. CPI increased by 8.2% in September, slightly above the expected 8.1%, down from 8.3% in August and 9.1% in June, which was the highest inflation rate in four decades. Core CPI, which excludes food and energy, rose by 6.6% in September above the 6.5% estimate. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.2% in September, the same as in August. The U.S. economy grew in the third quarter but showed signs of a broad slowdown. US GDP grew, after declining in the first half of the year, at a 2.6% annual rate in the third quarter. Sales of existing homes in the US fell for the eighth straight month in September, the longest streak of declines in over 15 years, as higher mortgage rates continue to cool the housing market.

Foreign stocks also rebounded in October amidst hopes that rising recession risk would cause central banks to change course. The Bank of England was forced to step in and buy longer-term bonds to calm the British bond and currency markets after newly elected government officials introduced policies that were counter to the BOE’s attempts to reduce inflation. The U.K government reversed course, forcing U.K. Prime Minister Truss to resign after just six weeks on the job. UK inflation rose 10.1% in September, slightly higher than the 10% estimate. The European Central Bank (ECB) raised interest rates by 0.75% to 1.5%, the highest level in more than a decade, but signaled mounting concerns about economic growth. The Eurozone’s headline inflation rate hit 9.9% in September, up from 9.1% in August. China’s GDP grew by 3.9% in the third quarter, above the 0.4% increase in the second quarter and the 3.4% estimate. Oil prices moved higher in October ending the month at $88.37 per barrel, up from $79.49 to end September. Developed markets topped emerging markets over October, the year to date, and trailing year.

Interest rates increased in October as bond markets price in the future rate increases of the world’s central banks. The Federal Reserve is likely to raise its key rate by 0.75% for the fourth consecutive time at the November meeting. Some officials have signaled the desire to both slow down the pace of increases and to stop raising rates early next year to see how their moves are slowing the economy. The yield on the 10-year Treasury increased in October ending at 4.07% up from 3.83% at the end of September. The rate for a 30-year fixed-rate mortgage topped 7% for the first time in 20 years. US agency bonds were the top performer for October and the year to date and shorter-term bonds outpaced longer-term bonds for October and the year to date.

 

Index PerformanceOctoberYear to DateTrailing 12 Months
US Stocks (Russell 3000)8.20%-18.44%-16.52%
Foreign Stocks (FTSE AW ex US)2.93%-23.69%-23.96%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.44%-10.02%-10.03%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.26%-7.96%-7.53%
Cash (ICE BofA ML 3-Mo T-Bill)0.16%0.76%0.78%

 

 

September Market Commentary

Market Commentary

US stocks fell sharply in September to end a disappointing third quarter.  Aggressive moves from central banks around the world increased global recession fears.  Earnings for S&P 500 companies were strong in the second quarter with 75% beating estimates.  Of the 106 companies that issued third quarter EPS guidance, 65 issued negative guidance and 41 issued positive guidance.  Economic news was mixed over the month.  US employers adding 315,000 jobs in August, slightly less than the 318,000 economists had forecasted and well below the 526,000 added in July.  The unemployment rate increased for the first time this year in August to 3.7%, up from 3.5% in July.  CPI increased by 8.3% in August, above the expected 8.1%, but lower than the 8.5% increase in July.  Core CPI, which excludes energy and food prices, increased 6.3% in August from a year earlier, higher than the 6.1% expected.  On a monthly basis, core CPI rose 0.6% in August, above the 0.3% increase expected and double the increase from July.  The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.2% in August from a year earlier, below the 6.4% increase in July.  US manufacturing activity grew in August at the same rate as July with the pace of growth remaining at low levels.  U.S. home prices fell in July for the first time in years as higher mortgage rates started to weigh on prices.

Foreign stocks also declined sharply in September and for the third quarter as global recession fears increased.  The Bank of England increased its key interest rate by 0.5% to 2.25% marking the seventh consecutive increase.  In a move  contrary to the efforts of the BOE to curb inflation, the UK government announced tax cuts and energy subsidies that caused significant market volatility. The BOE had to step in and buy long term bonds to stabilize the market.  The U.K.’s annual inflation rate rose by 9.9% in August down from 10.1% in July.  The European Central Bank (ECB) increased its key rate by 0.75%, following the 0.50% increase in July, and signaled further rises were likely over the coming months.  ECB President Christine Lagarde warned that inflation was spreading beyond energy and said the ECB was ready to increase rates aggressively over the next several meetings.  The eurozone’s headline inflation rate hit 9.1% in August, higher than the 9% expected and up from 8.9% in July.   Oil prices continued to fall in September ending at $79.49 per barrel down from $89.55 at the end of August.  Developed markets topped emerging markets over September, the third quarter, the year to date, and trailing year.

Interest rates rose in September driving bond prices sharply lower as bond markets processed aggressive rate hikes from  the world’s central banks.  The Federal Reserve increased the federal-funds rate by 0.75% to a range between 3% and 3.25% and signaled additional large increases were likely even though they would increase the risk of a recession. New projections show the rate rising to between 4% and 4.5% by the end of the year, which would call for sizable rate increases at the November and December meetings. Fed Chairman Jerome Powell said, “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.”  The yield on the 10-year Treasury moved significantly higher in September and the third quarter ending the month at 3.80% up from 3.13% at the end of August and 2.93% to start the quarter.  The rate for a 30-year fixed-rate mortgage increased rose above 6%, its highest level since 2008, more than double the rate from a year ago.  US Agency bonds were the top performer for September, 3Q, and the year to date and shorter term bonds outpaced longer term bonds for September, 3Q,  and the year to date.

 

Index PerformanceSept.3QYear to DateTrailing 12 Months
US Stocks (Russell 3000)-9.27%-4.46%-24.62%-17.63%
Foreign Stocks (FTSE AW ex US)-9.95%-9.65%-25.86%-24.52%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-2.67%-3.06%-9.63%-10.14%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-2.47%-2.25%-7.17%-7.08%
Cash (ICE BofA ML 3-Mo T-Bill)0.25%0.46%0.57%0.58%

 

August Market Commentary

Market Commentary

US stocks fell in August as comments from Fed officials showed the Fed planned to continue to be aggressive with fed funds rate increases to reduce inflation “until they are confident the job is done.” Earnings for S&P 500 companies continue to be strong. As of the end of August, 99% of S&P 500 companies posted earnings and 75% of those companies reported earnings above estimates, although many have issued lowered forward guidance. Economic news was positive over the month. Job growth continues to be strong, with US employers adding 528,000 jobs in July, more than doubling the estimated 258,000 economists had forecasted. The unemployment rate fell to 3.5%, just under the 3.6% estimated. The producer-price index increased by 9.8% annually in July, much lower than the 11.3% increase in June and the smallest annual rise since October 2021. CPI increased by 8.5% in July, below the expected 8.7%, and lower than the 9.1% increase in June. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.3% in July from a year earlier below the 6.8% increase in June. US manufacturing activity grew in July. While July marked the 26th consecutive month of growth, the pace of growth continues to slow and remains at the lowest levels since June 2020. Sales of existing homes in the US fell for the sixth straight month in July, the longest streak of declines in over eight years, as higher mortgage rates continue to cool the housing market.

Foreign stocks also declined in August as aggressive foreign Central Bank interest rate increases and contracting economies put pressure on foreign markets. The Bank of England raised its key interest rate by 0.50%, the largest increase in 25 years, and predicted the UK would fall into a recession this year. The U.K. economy contracted in the second quarter. Gross domestic product fell 0.1%, slightly better than the 0.2% decrease economists expected, but lower than the 0.8% increase in the first quarter. The U.K.’s annual inflation rate hit 10.1% in July up from 9.4% in June. European Central Bank (ECB) officials set the stage for another big hike at their September meeting, likely repeating the 0.5% increase from the previous meeting with the possibility of an even larger move as inflation is at record highs. The eurozone’s headline inflation rate hit 9.1% in August, higher than the 9% expected. In response to data showing economic activity slowed across the board in July, China unexpectedly cut two key interest rates. Oil prices continued to fall, down 9.2% for the month, ending August at $89.55 per barrel. Emerging markets outpaced developed markets in August and the year to date, while developed markets led the way over the trailing year.

Interest rates increased in August driving bond prices sharply lower as the bond market continues to focus on the future paths of the world’s central banks. Fed Chair Powell pointed out during his speech at Jackson Hole that the actions taken to bring down inflation will also likely bring some pain to households and businesses. He stated that while these impacts are unfortunate, failure to restore price stability would lead to far greater pain. Minutes from the July Federal Reserve meeting indicated they likely would not consider pulling back on interest rate hikes until inflation came down substantially. The yield on the 10-year Treasury spiked in August ending at 3.13% up from 2.64% at the end of July. The rate for a 30-year fixed-rate mortgage increased to 5.55% up from just below 5% in July. US Agency bonds were the top performer for August and the year to date and shorter term bonds outpaced longer term bonds for August and the year to date.

Index PerformanceAugustYear to DateTrailing 12 Months
US Stocks (Russell 3000)-3.73%-16.92%-13.28%
Foreign Stocks (FTSE AW ex US)-3.02%-17.67%-18.72%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-2.00%-7.14%-8.20%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-1.49%-4.82%-5.16%
Cash (ICE BofA ML 3-Mo T-Bill)0.16%0.36%0.37%

 

 

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