Category: Monthly Commentary

Monthly Commentary

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%

 

 

July Market Commentary

Market Commentary

US stocks rebounded sharply in July posting their best month of the year as the market reacted positively to corporate earnings reports. Earnings for S&P 500 companies continue to be strong despite high inflation levels, with the majority of companies who have posted earnings beating Q2 estimates. Economic news was mixed over the month. Job growth continues to be strong, with US employers adding 372,000 jobs in June, beating the estimated 250,000 economists had forecasted. The unemployment rate held steady, for the fourth consecutive month at 3.6%, in line with estimates. US consumers increased their seasonally adjusted spending by 1.1% in June, up from the revised 0.3% gain in May. US manufacturing activity continued to increase, but at the lowest levels since June 2020. CPI increased by 9.1% in June, higher than the expected 8.8%, marking its largest annual increase since November 1981. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.8% in June from a year earlier, the sharpest rise since January 1982 and above the 6.3% increase expected. GDP fell 0.9% over the second quarter, following the 1.6% decline in the first quarter. Two consecutive quarters of declining economic output is a common, but not official, definition of a recession.

Foreign stocks also rebounded in July propelled by solid corporate earnings. With roughly 20% of European companies reporting earnings nearly 60% have topped analysts’ expectations. The European Central Bank (ECB) increased its key rate, for the first time in eleven years, by a larger than expected 0.5% and signaled that further rate rises are likely at coming meetings. The move takes the ECB’s key interest rate to zero, ending eight years with negative interest rates. The eurozone’s headline inflation rate hit 8.6% in July, higher than the 8.4% expected. Inflation in the U.K. climbed to 9.4% in June, above the 9.3% increase expected. Chinese GDP expanded by 0.4% for the April to June period, the weakest growth rate in more than two years. China’s annual inflation rate increased by 2.5% in June, slightly higher than expectations, but still much lower than in developed countries. Oil prices continued to fall, down 6.8% for the month, ending July at $98.62 per barrel. Developed markets outpaced emerging markets in July, the year to date, and over the trailing year.

Interest rates fell in July driving up bond prices as the bond market focused on the future paths of the world’s central banks. The Fed increased its benchmark rate by 0.75%, for a second consecutive meeting in July, to a range between 2.25% and 2.5%. At their July meeting, the Fed projected they would raise the fed funds rate to at least 3.5% by the end of the year and 4% next year. However, the yield on the 10-year Treasury ended July at 2.64% falling from 2.93% at the end of June on investors’ projections that the Fed will need to begin cutting the fed funds rate next year. The rate for a 30-year fixed-rate mortgage dropped significantly to just below 5%, down from 5.8% in June. US credit bonds were the top performer for July, while US agency bonds were the top performer for the year to date. Longer term bonds outpaced shorter term bonds for July, but shorter term bonds topped longer term bonds for the year to date.

Index PerformanceJulyYear to DateTrailing 12 Months
US Stocks (Russell 3000)9.38%-13.70%-7.87%
Foreign Stocks (FTSE AW ex US)3.46%-15.11%-15.37%
US Bond Mkt. (BBgBarc Int. Gov/Cred)1.63%-5.25%-6.37%
Municipal Bonds (BBgBarc 1-10 Yr Muni)1.74%-3.38%-3.82%
Cash (ICE BofA ML 3-Mo T-Bill)0.05%0.20%0.21%

 

June Market Commentary

Market Commentary

US stocks sharply declined in June to end a brutal second quarter and the worst first half of a year in over fifty years. Inflation and the potential of an economic slowdown or recession remain front and center for financial markets. Earnings for S&P 500 companies continue to be strong, with the majority of the companies beating Q1 estimates. Economic news was mixed over the month. US employers added 390,000 jobs in May, beating the estimated 325,000 economists had forecasted. The unemployment rate held steady, for the third consecutive month, at 3.6% in May. US consumer spending increased by 0.2% in May, the smallest increase of the year. US manufacturing activity slightly increased in May remaining at the lowest levels since late 2020. CPI increased by 8.6% in May, higher than the expected 8.3%, marking its largest annual increase since December 1981. The personal consumption expenditures index, the inflation gauge the Fed prefers, was up 6.3% in May from a year earlier, the same increase as in April. The producer price index rose 0.8% in May as expected, above the 0.4% increase in April. Sales of existing homes fell in May by 3.4% as surging mortgage rates slowed sales.

Foreign stocks also fell sharply in June as concerns of a global economic slowdown sent foreign markets lower, however foreign stocks have outpaced domestic stocks for the second quarter and year to date. The European Central Bank (ECB) laid out plans to increase its key rate, for the first time in more than a decade, by a quarter percentage point to minus 0.25% at its July meeting and increase it again in September, possibly by a larger amount. The ECB will also end its large-scale bond-buying program on July 1. The eurozone’s headline inflation rate hit 8.1% in May, higher than April’s 7.4%. Inflation in the U.K. climbed to 9.1% in May and the Bank of England (BOE) expects it to move above 11% before it peaks. The BOE raised its key interest rate at a fifth consecutive meeting, from 1% to 1.25%, and the central bank indicated larger moves might be warranted. China’s inflation, which is much lower than developed countries, came in slightly below expectations, increasing by 2.1% in May from a year earlier. Chinese retail sales declined 6.7% in May from a year earlier, beating estimates and an improvement from the 11% decline in April. Oil prices ended the month at $105.76, down 7.77% for the month. Emerging markets outpaced developed markets in June, the second quarter and the year to date, but developed markets outpaced over the trailing year.

Interest rates increased in June pushing bond prices down for the month. The Fed increased its benchmark rate at its June meeting by 0.75%, the largest increase since 1994, to a range between 1.5% and 1.75%. New projections from Fed officials show the Fed plans to raise the fed funds rate to at least 3% by the end of the year. Fed Chairman Powell said he doesn’t expect moves of this size to be common, but indicated a 0.5% to 0.75% increase seemed most likely at their July meeting. The yield on the 10-year Treasury ended June at 2.93% after coming close to hitting 3.5% intra-month. June’s yield was slightly higher than the 2.84% yield at the end of May but much higher than where it started the year at roughly 1.5%. The rate for a 30-year fixed-rate mortgage jumped to 5.78% up from 5.1% in May. Municipal bonds were the top performers for June and the second quarter, US Agencies bonds were the top performers for the year to date. Longer term bonds outpaced shorter term bonds for the month and second quarter, but shorter term bonds topped longer term bonds for the year to date.

Index PerformanceJune2QYear to DateTrailing 12 Months
US Stocks (Russell 3000)-8.37%-16.70%-21.10%-13.87%
Foreign Stocks (FTSE AW ex US)-8.54%-13.56%-17.95%-18.64%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-1.11%-2.37%-6.77%-7.28%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.37%-0.57%-5.03%-4.92%
Cash (ICE BofA ML 3-Mo T-Bill)0.02%0.10%0.14%0.17%

May Market Commentary

Market Commentary

US Stocks were relatively flat in May as positive economic news eased recession fears. Earnings for S&P 500 companies continue to be strong, but many companies issued profit warnings for future quarters driving recession fears. Economic news was positive over the month. US employers added 428,000 workers to their payrolls in April, above the estimated 395,000. The unemployment rate held steady at 3.6% in April. Wage growth slowed slightly, increasing 0.3%, below forecasts for a 0.4% gain. US retail sales rose for a fourth consecutive month, up 0.9% in April compared to March. Industrial production increased by 1.1% in April for a fourth straight month of gains. CPI increased by 8.3% in April, slightly higher than the expected 8.1%, but lower than the 8.5% increase in March. The personal consumption expenditures index, the inflation gauge the Fed prefers, also showed signs of easing. The index was up 0.2% in April and 6.3% from a year earlier, compared to March which was up 0.9% monthly and 6.6% annually. The producer price index rose 0.5% in April as expected, a reduction from the 1.4% increase in March. US housing sales declined for a third straight month as record home prices and rapidly rising mortgage rates cool down the housing market.

Foreign stocks were positive for the month driven by strong performance from European stocks. In a sharp pivot from previous statements, the European Central Bank (ECB) president stated the ECB would likely increase its key interest rate from -0.50% to zero by September and could keep raising rates after that. The ECB suggested it could raise its key rate by 0.25% at each of its next seven meetings, reaching a level of 1.25%. The eurozone’s headline inflation rate hit 7.4% in April, slightly lower than March’s 7.6%. China’s CPI increased by 2.1% in April from a year earlier, slightly above the expected 2% increase. The increase was the biggest jump in five months, accelerating from March’s 1.5% increase. Chinese retail sales declined by 11% in April from a year earlier, it was the second straight month of declines and the largest contraction since March 2020. Oil prices ended the month at $114.67, up 9.53% for the month. Emerging markets have trailed developed markets in May, the year to date, and over the trailing twelve months.

Interest rates fell in May pushing bond prices up for the month. The Fed increased its benchmark rate by a half percent, the largest increase in over two decades, and plans to reduce its asset portfolio. Fed officials broadly agree that additional half percentage point increases may be warranted in upcoming meetings. The Fed plans on shrinking its asset holding passively by allowing bonds to mature without reinvesting the proceeds into new securities rather than by selling them in the open market. The yield on the 10-year Treasury fell in May to 2.84% from 2.89% in April. The average rate for a 30-year fixed mortgage has risen to 5.1%. Municipal bonds were the top performers for May and year to date. Longer term bonds outpaced shorter term bonds for the month, but shorter term bonds topped longer term bonds for the year to date.

 

Index PerformanceMayYear to DateTrailing 12 Months
US Stocks (Russell 3000)-0.13%-13.89%-3.67%
Foreign Stocks (FTSE AW ex US)0.66%-10.28%-11.48%
US Bond Mkt. (BBgBarc Int. Gov/Cred)0.74%-5.72%-6.14%
Municipal Bonds (BBgBarc 1-10 Yr Muni)1.36%-4.68%-4.50%
Cash (ICE BofA ML 3-Mo T-Bill)0.07%0.12%0.14%

April Market Commentary

Market Commentary

US Stocks sharply declined in April as markets focused on more aggressive Federal Reserve comments on the path of future interest rate increases. Earnings for S&P 500 companies continue to be strong. Of companies that have reported so far, about 80% have beaten analyst expectations. Economic news was mixed over the month. US employers added 431,000 workers to their payrolls in March, slightly below the estimated 490,000. The unemployment rate fell to 3.6% from 3.8% in February. US real GDP (inflation-adjusted) unexpectedly fell short of economist estimates and shrank by 1.4% in the first quarter, down from the 6.9% growth rate in the fourth quarter. Consumer spending continued to be strong, rising at an annual rate of 2.7% in the first quarter, up from 2.5% in the prior quarter. Manufacturing grew in March, but at a slower pace than in February. Inflation continued to rise to four decade highs, with the CPI hitting 8.5% over the last twelve months, in line with economists’ expectations. The producer price index rose 1.4%, slightly above estimates of 1.1%. US home prices hit a record in March up 15% versus the year prior, despite rapidly rising mortgage rates.

Foreign stocks also fell sharply for the month as global economic growth decelerated. Businesses around the globe faced headwinds from the effects of the war in Ukraine, lockdowns in China, and high inflation. The European Central Bank (ECB) president stated they would lag behind the Federal Reserve in tightening its monetary policy due to a weakened growth outlook with a possible rate hike coming in the third quarter. The eurozone’s headline inflation rate hit 7.5% in March, another record high, as the war in Ukraine pushed energy and food prices higher. Factories in China had to halt production due to Covid lockdowns putting additional pressure on supply chains. Chinese stocks experienced their worst sell off in two years as concerns over the economic impacts of lockdowns pushed stocks lower. Oil prices ended the month at $104.69, up 5.45% for the month. Emerging markets outpaced developed markets in April and were relatively in line for the year to date, but lagged developed markets over the trailing twelve months.

Interest rates continued to climb in April driving bond prices down for the month. The minutes from the Fed’s March meeting stated they expected to raise the fed funds rate by a half percent at their May meeting and develop a plan for reducing their bond portfolio. Comments from Fed governors throughout the month reiterated the Fed’s focus on taking all necessary steps to bring inflation under control with the potential for multiple half percent fed funds rate increases. The 10-year Treasury yield surged over the month, rising from 2.32% to 2.89%, its highest level since 2018. The average rate for a 30-year fixed mortgage rose above 5% for the first time in over a decade. Treasuries and municipal bonds were the top performers for April and year to date. Shorter term bonds topped longer term bonds over the month, year to date, and trailing year.

Index PerformanceAprilYear to DateTrailing 12 Months
US Stocks (Russell 3000)-8.97%-13.78%-3.11%
Foreign Stocks (FTSE AW ex US)-6.11%-10.87%-9.39%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-2.00%-6.42%-6.48%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-1.55%-5.97%-5.76%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.05%0.08%