Bi-Weekly Market Insights 09-16-22 - Thoughts On Yesterday's Downturn
Hi {Firstname},
Opinion
I had a message prepared and headed to compliance for approval and then yesterday happened and I thought it appropriate to comment on yesterday's action in the markets.
First, let's begin with the fact that markets do not go straight up or down. Bear Market conditions are jagged and sharp in both their ups and their downs. They are not predictable nor should one try and time them. That would be on par with trying to avoid raindrops in a thunderstorm.
Second, we are investing for the long haul, and one day does not make one year and one year does not make one decade. Keeping your emotions in check is critical to the success of investing over one's lifetime.
Last, days like yesterday are actually opportunities, in that we are getting closer to the point where we can begin to go shopping again and buy great companies for a discounted price. If you are in the camp of "Oh, my goodness, I need to look at my account so I can dread and worry over what I cannot control"....you are missing the entire point of investing! That is to BUY LOW and SELL HIGH. What we believe were some of the factors that contributed to yesterday's downturn are the same as they were earlier in the year. Inflation and the FED's actions to curb it. Russia's Invasion of Ukraine and Supply Chain issues.
The CPI numbers were released indicating that inflation was higher than last month indicating it is still a BIG problem. This in turn leads to concerns over the FED rate increases, specifically how much and for how long will they be doing this. A departure from the narrative in July when the markets rallied on the belief that the FED has things in hand and under control and this condition may soon be behind us. Notice I said narrative and not actual data....which explains why we follow the data and not the headlines and narrative of the day.
In recent days, the Ukraine resistance/army have been having success against the Russian army leading to the belief that this conflict is not nearing its end but may drag on and lead to a reversal on the battlefield. This could extend the pressure on food shortages going into the winter for parts of the world and that is not good news. In other words, what was perceived to be a known outcome just became an unknown outcome and Wall Street hates the unknown. Supply chain issues seemed to be relaxing and repairing until this week.
There are big contract negotiations happening for the rail industry and their unionized workforce. 10 of the 12 Labor Unions have already struck deals this week. The two that have not, have been holding out for nearly 3 years, now have asked congress for intervention. This is expected to come to a head on Thursday after the cooling off period expires. Here's the thing, ALL the unions have threatened to strike if even one remains without an agreement impacting more than 100K workers, impacting the biggest carriers in North America. This could and would lead to delays in delivery of goods for all parts of the US economy leading to the potential for increased costs due to demand vs supply.
So, when we say we are not out of the woods yet and growth is not in favor, these are but some of the indications why. During Bear Markets, conditions can change as often as the weather forecast during hurricane season.
We are watching closely. Our entire team are as busy as we have been keeping everything squared away, planned, balanced and on track for you and your financial goals. This is nothing new, just more jagged than we have seen in a while but still expected during these market conditions.
Till we speak again, enjoy the beginning of Football Season!
Jon
General Market Commentary
In a holiday-shortened week of trading, stocks posted healthy gains despite more tough talk on monetary policy from Fed officials.
The Dow Jones Industrial Average rose 2.66%, while the Standard & Poor’s 500 gained 3.65%. The Nasdaq Composite index picked up 4.14% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.26%. 1,2,3
Stocks Rise
Stocks fell coming off the Labor Day weekend, dragged down by news that Russia was cutting off natural gas supplies to its European customers. Stocks also were under pressure due to a surprisingly strong report on business conditions, which heightened fears of continued Fed hawkishness.
Sentiment quickly improved as bond yields turned lower and oil prices fell. Investors reacted positively to comments by Fed Vice Chair Lael Brainard, who reiterated the Fed’s commitment to quashing inflation while acknowledging the risks of going too far. Stocks added to their gains on Thursday as the market digested another speech from Fed Chair Powell and a 0.75% hike by the European Central Bank. The markets surged onFriday amid little news, ending a positive week on an upbeat note.
No Inflation Walk Back
In his first public comments since his speech at Jackson Hole that sent markets into a tailspin, Fed Chair Powell did not seek to soften the edges of the Fed’s commitment to fighting inflation. In an interview on Thursday, Powell reaffirmed the need for sustained and robust actions to bring down inflation. He emphasized that it was critical that “the longer inflation remains well above target, the greater the risk the public does begin to see higher inflation as the norm, and that has the capacity to really raise the costs of getting inflation down.”4
With the Federal Open Market Committee (FOMC) set to meet on September 20-21, these comments may indicate that market expectations of a rate hike of 0.75% this month align with the Fed’s plans.
This Week: Key Economic Data
Tuesday: Consumer Price Index (CPI).
Wednesday: Producer Price Index (PPI).
Thursday: Retail Sales. Industrial Production. Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, September 9, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases
(including key economic indicators), Federal Reserve policy meetings, and speaking
engagements of Federal Reserve officials. The content is developed from sources
believed to be providing accurate information. The forecasts or forward-looking
statements are based on assumptions and may not materialize. The forecasts also
are subject to revision.
This Week: Companies Reporting Earnings
Monday: Oracle Corporation (ORCL).
Source: Zacks, September 9, 2022
Companies mentioned are for informational purposes only. It should not be
considered a solicitation for the purchase or sale of the securities. Investing involves
risks, and investment decisions should be based on your own goals, time horizon, and
tolerance for risk. The return and principal value of investments will fluctuate as
market conditions change. When sold, investments may be worth more or less than
their original cost. Companies may reschedule when they report earnings without
notice.
"Music’s for grooving man, and music’s not for puttin’ yourself through
bad changes, y’know?"
– Janis Joplin
How Tax Transcripts Can Help You File
an Accurate Tax Return
The IRS has a few resources to help you file an error-free return. They suggest making an online account to see estimated tax payments, prior year adjusted gross income, and more.
They also offer the option to request a tax transcript online. There are five types of tax transcripts, each used for different purposes, so make sure to see which one best fits your needs. A Tax Return Transcript, for example, shows most line items from your original Form 1040. You can request a tax transcript online, by mail, or by phone.
Tip adapted from IRS.gov5
Meet The World’s Easiest Brussels Sprout Salad
Eating healthy can be delicious with recipes like this shaved Brussels sprout salad! You only need a few ingredients to bring it all together.
You’ll need:
- 4 cups shaved Brussels sprouts
- ¼ cup extra-virgin olive oil (and a bit more for a drizzle on top)
- ¼ cup fresh lemon juice
- ½ cup pine nuts
- ⅓ cup dried cranberries
- ⅓ cup grated pecorino cheese
- ⅓ cup chopped chives
- Sea salt and pepper to taste
To make this salad, all you have to do is thinly slice the Brussels sprouts with a mandoline (or a knife if you don’t have one), then place them in a bowl with the olive oil, lemon juice, pine nuts, cheese, chives, and a sprinkle of salt and pepper to taste. Toss everything together, then drizzle with more olive oil to serve.
Tip adapted from Love and Lemons6
Gerald Ford was our 38th President, but he was actually the 37th man to take the job. Why was that?
Last week’s riddle: A sudden noise startles a gopher, an owl, and a skunk at the edge of a forest. The owl flies off and the gopher retreats into his burrow, but the skunk runs for the trees. How far can that skunk run into the forest? Riddle answer: Halfway; after it gets halfway into the forest, it is running out of the forest.
Hintersee Lake, Berchtesgaden, Bavaria, Germany
Footnotes and Sources
1. The Wall Street Journal, September 9, 2022
2. The Wall Street Journal, September 9, 2022
3. The Wall Street Journal, September 9, 2022
4. The Wall Street Journal, September 8, 2022
5. IRS.gov, March 24, 2022
6. Love and Lemons, May 26, 2022
Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.
The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.
The Dow Jones Industrial Average is an unmanaged index that is generally considered representative of large-capitalization companies on the U.S. stock market. Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of technology and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) and serves as a benchmark of the performance of major international equity markets, as represented by 21 major MSCI indexes from Europe, Australia, and Southeast Asia. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
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International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Please consult your financial professional for additional information.
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