Category: Monthly Commentary

Monthly Commentary

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%

March Market Commentary

Market Commentary

US Stocks rebounded over the last two weeks of March to post their first month in the black of the year. Earnings for S&P 500 companies have continued to be strong as companies have been able to pass along higher production costs to the consumer. Economic news was positive over the month. US employers added 678,000 workers to their payrolls in February, the biggest gain in seven months, exceeding economist forecasts of 440,000. The unemployment rate fell to 3.8% from 4.0% in January. US consumer spending rose in February, but at a slower pace than earlier in the year. Manufacturing grew by 1% in February, with the overall economy achieving its 21st consecutive month of growth. Inflation continued to rise with the CPI hitting 7.9% over the last twelve months, matching expectations, and the producer price index rose 0.8%, slightly below estimates. The average rate for a 30-year fixed mortgage rose above 4% for the first time since 2019. Existing-home sales declined 7.2% in February as rising mortgage-interest rates increased borrowing costs.

Foreign stocks were slightly positive for the month as the war in Ukraine and high inflation continue to put pressure on foreign markets. Ukraine’s president met with the U.S. Congress to ask for further military assistance, new sanctions, and accelerate shipments of weapons. For the third time in as many policy meetings, the Bank of England raised its key interest rate to 0.75% from 0.50%. The European Central Bank left its rate unchanged at its meeting trying to weigh the economic impact of the Russian invasion of Ukraine with surging inflation numbers. China set its goal for economic growth this year at 5.5%. Economists believe this paves the way for more-aggressive stimulus measures in China in the near future. Oil prices jumped to $123.70 a barrel during the month before ending at $99.27. Oil fell 4% for the month as other energy producing nations increased supply to the market filling the void left by Russian sanctions. Emerging markets outpaced developed markets over the first quarter, but trailed developed markets in March and over the past twelve months.

Bonds continued to decline in March as high levels of inflation and the expectation the Fed will increase the Fed Funds rate more substantially incoming months pushed yields higher. The Fed signaled the likelihood of raising rates six more times this year in an escalating effort to slow inflation. Chairman Powell indicated the Fed would raise interest rates in half percentage points steps if they concluded it was necessary to bring down inflation. The 10-year Treasury yield started the month at 1.86%, jumped to 2.49%, before easing to end the month at 2.37%. Credit bonds were the top performer for March and the first quarter, while Treasuries led the way over the past year. Shorter term bonds topped longer term bonds over the month, quarter, and trailing year.

Index PerformanceMarch1QTrailing 12 Months
US Stocks (Russell 3000)3.24%-5.28%11.87%
Foreign Stocks (FTSE AW ex US)0.32%-5.07%-0.59%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-2.45%-4.51%-4.08%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-2.14%-4.49%-3.86%
Cash (ICE BofA ML 3-Mo T-Bill)0.03%0.04%0.06%

February Market Commentary

Market Commentary

US Stocks posted a second straight negative month as uncertainties over Russia’s invasion of Ukraine and continued concerns over high inflation weighed on US markets. Earnings for S&P 500 companies have continued to be strong, but many firms are lowering their forward earning guidance as they see the economy slowing from 2021 levels. Economic news was positive over the month showing a robust economy. US hiring surged in January adding 467,000 jobs while the unemployment rate ticked up to 4% from 3.9% in December. US consumer spending rose in January, up 2.1% after being down 0.8% in December. The pace of manufacturing slowed as the spread of the Omicron variant created supply chain disruptions. Inflation continued to climb, rising 7.5% over the last twelve months, higher than the expected 7.2%. Retail sales rose by a seasonally adjusted 3.8% in January from the prior month. Home price growth jumped 18.8% in 2021 as low mortgage rates and limited supply drove prices up.

Foreign stocks fell over the month, driven by the Russian invasion of Ukraine, sanctions imposed by the West, and record high inflation in Europe. In response to the invasion, the U.S. and its allies implemented significant sanctions that limited Russian banking institutions and halted the Nord Stream 2 natural-gas pipeline. Eurozone consumer prices rose 5.8% over 2021, setting another all time record high as Russia’s invasion of Ukraine threatens to send energy costs soaring. The Bank of England enacted its first back to back rate hikes since 2004. The European Central Bank signaled its willingness to use rate increases to slow surging inflation. This was a major change from its view a few weeks prior where it said it would not raise rates this year. Oil prices touched $100 a barrel during the month for the first time since 2014 before ending at $95.12 a barrel. Oil rose 7.9% for the month as the war in Ukraine created supply shortage concerns. Emerging markets trailed developed markets in February, but have outpaced developed markets over the year to date.

Bonds declined in February driven by high inflation levels and the expectation the Fed will need to make multiple Fed Rate increases over the year. Fed officials at their January meeting discussed an accelerated timetable for raising rates with the first increase in March. After the meeting officials pushed back against the possibility they would begin with a half-percent increase. The 10-year Treasury yield climbed above 2% for the first time since 2019, before easing to end the month on the hostilities between Russia and Ukraine. The 10-year yield ended the month at 1.83% up from 1.79% to start the month. Treasuries and Munis were the top performers for the month, while credit and muni bonds led the way for the trailing year. Shorter term bonds topped longer term bonds for the month and trailing year.

Index PerformanceFebruaryYear to DateTrailing 12 Months
US Stocks (Russell 3000)-2.52%-8.25%12.24%
Foreign Stocks (FTSE AW ex US)-1.81%-5.37%0.55%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.66%-2.11%-2.45%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-0.30%-2.40%-1.40%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.01%0.04%

 

January Market Commentary

Market Commentary

US Stocks posted their worst month since the beginning of the pandemic on concerns over higher interest rates. To date, roughly a third of S&P 500 companies have reported fourth quarter earnings and 77% have topped analysts’ expectations, however forward earnings guidance has fallen short of investors’ expectations for many firms. Economic news showed the country grappling with the impact of the Omicron variant. US hiring fell significantly short of expectations with 199,000 jobs added in December. The unemployment rate fell to 3.9% from 4.2% in December and wage growth rose 4.7%. The pace of manufacturing eased and retail spending fell 1.9%. Inflation continued to climb, rising 7% over 2021, a four decade high and producer prices rose 9.7%. On the positive side, home sales jumped to a 15 year high in 2021. The US posted a strong GDP growth rate of 6.9% in the further quarter and a full year rate of 5.7% for its best year for growth in nearly four decades.

Foreign stocks declined over the month, driven by interest rate concerns and fears Russia will invade Ukraine. Eurozone consumer prices rose 5% over 2021, its fastest pace ever, adding to pressure on the European Central Bank (ECB) to reconsider its position about not raising its benchmark interest rate this year. Tensions remain high on the Ukraine/Russian border as Russia continues to expand its military presence. It has helped drive oil prices to their highest level since 2014 hitting $88.15 a barrel, up over 17% for the month. China grew at its worst pace since the beginning of the pandemic over the fourth quarter, up 4%. Recent measures of China’s factory activity and consumer spending have weakened showing the impact of Covid-19. In response to weakening growth, China’s central bank cut two key interest rates. Emerging markets outpaced developed markets in January, but have trailed developed markets over the last twelve months.

Bonds fell in January driven by changing investor expectations for Fed policy. Minutes from the Fed’s December meeting outlined that they were planning on completing their bond purchase program in March and that they expected to raise the Fed Funds rate three times in 2022. In addition, they discussed reducing the size of their bond portfolio, another form of monetary tightening. Then, after the Fed’s January meeting, Fed Chair Powell reiterated all of the above points and opened the door to more frequent and larger rate hikes than had previously been expected. The 10-year Treasury yield rose to 1.79% at the end of January, up from 1.50% to start the year. Over the course of the month, the 10-year Treasury yield hit levels last seen in January 2020, before the pandemic. Treasuries were the top performer for the month, while Muni and credit bonds were the top sectors for the trailing year. Shorter term bonds topped longer term bonds for the month and trailing year.

Index PerformanceJanuaryTrailing 12 Months
US Stocks (Russell 3000)-5.88%18.72%
Foreign Stocks (FTSE AW ex US)-3.63%4.47%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-1.47%-2.61%
Municipal Bonds (BBgBarc 1-10 Yr Muni)-2.11%-2.02%
Cash (ICE BofA ML 3-Mo T-Bill)0.00%0.04%

December Market Commentary

Market Commentary

US Stocks hit new record highs in December as the severity of the Omicron variant appeared to be less than initially feared. After passing the infrastructure package, Democrats were not able to reach an agreement on a $2M social spending package before year end. However, an agreement was reached to raise the debt ceiling that will likely fund the government into 2023. Economic news was mixed over the month. US hiring fell short of expectations with just 210,000 jobs added in November, however, the labor force participation rate rose to 61.8%, the highest level since March 2020. The unemployment rate also fell to 4.2% from 4.6% and weekly initial jobless claims remain near a five decade low. US retail sales rose just 0.3% in November, below expectations, but US retail sales rose 8.5% between November 1st and Christmas eve compared to last year, the best growth in 17 years. Existing home sales rose to their highest rate since January and are on pace to have their best year since 2006. December consumer confidence was higher than expected. US inflation reached a nearly four decade high in November rising 6.8% from a year earlier. Producer prices jumped a higher than expected 9.6% in November over the past year, the highest since tracking began in 2010. With fears over Omicron subsiding, oil surged in December to finish at $75.21 a barrel, a gain of 13.6% for the month and up from roughly $50 a barrel at the start of the year.

Foreign stocks climbed over the month as fears over the new variant’s impact subsided. While cases have surged and many European nations have reintroduced restrictions, stocks climbed as the severity of the cases did not appear to be as bad as other variants. After not making a change last month, the Bank of England elected to raise its benchmark interest rate by 0.15% to 0.25%. It was the first major central bank to raise its benchmark interest rate since the pandemic began. On the flip side, the European Central Bank said it would not adjust its benchmark rate until inflation remained above its target rate for some time. It also said it would phase out its bond buying, program, but boost other stimulus measures. The bank said it was unlikely to raise its benchmark rate in 2022 continuing to provide accommodative policy. China reported higher increases than expected in consumer and producer prices in November as inflation has remained high globally. China’s central bank said it was reducing the cash required to maintain on hand for banks, injecting more liquidity into the economy in hopes of spurring growth. Emerging markets trailed developed markets in December, the fourth quarter, and 2021.

Bonds ticked down in December and yields moved higher as investors grew less concerned with Omicron’s impact. At the conclusion of the Fed’s December policy meeting, they announced a plan to curtail their bond buying program by next March and the potential for three Fed Funds rate increases in 2022. It is a significant change from their projections just a month ago given increasing concerns over high inflation readings. The 10-year yield ended the year at 1.50%, up from 1.43% to start the month and up significantly from 0.93% where it started the year. Muni and credit bonds were the top sectors for the month, quarter, and year. Shorter term bonds topped longer term bonds for the month and year, while longer term bonds outpaced for the fourth quarter.

Index PerformanceDecember4QYear to Date
US Stocks (Russell 3000)3.94%9.28%25.66%
Foreign Stocks (FTSE AW ex US)4.28%1.81%8.66%
US Bond Mkt. (BBgBarc Int. Gov/Cred)-0.13%-0.57%-1.44%
Municipal Bonds (BBgBarc 1-10 Yr Muni)0.12%0.10%0.43%
Cash (ICE BofA ML 3-Mo T-Bill)0.01%0.01%0.05%