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Be careful what you ask for… you just might get it.
In early March, almost two-thirds of Americans who participated in a Nationwide Retirement Institute survey said the Federal Reserve (Fed) should take more aggressive action on inflation. The next week, the Federal Open Market Committee (FOMC) did just that. It increased the target range for the Federal funds rate by a quarter point to 0.25 percent to 0.50 percent.
When rates rise, borrowing becomes more expensive. The change often reduces demand and pushes prices – and inflation – lower. Last week, the Fed rate hike began to affect consumers and investors in a variety of ways. We saw:
- A sharp increase in Treasury rates. Last week, the 2-year UST rate rose from 1.97 percent to 2.30 percent. When bond rates rise, bond prices fall, and that can make bonds less attractive to investors. Ben Levisohn of Barron’s reported: “With government bonds on pace for their worst year since 1949, investors are looking for other places to put their money – and they may have settled on stocks. In recent weeks, stock and bond prices have stopped moving in the same direction…”
- Demand for home loans and refinancing drop. Last Friday, the rate on a 30-year fixed mortgage rose to 4.95 percent. That’s 1.64 percent higher than it was a year ago, reported Diana Olick of CNBC. One consequence of higher rates is likely to be lower demand for homes. Last week, applications for mortgages were down 12 percent from the prior year, and the number of home refinancing applications dropped, too.
- The cost of carrying credit card debt increases. Last week, the average credit card rate rose from 16.17 percent to 16.25 percent, according to Kelly Dilworth of CreditCards.com. That means carrying a balance is more costly – and that expense is likely to continue to increase every time the Fed raises rates.
Currently, the FOMC expects to raise the target rate range at each of its six meetings this year. If rates increase by a quarter point each time, rates could be significantly higher by the end of 2022, reported Evie Liu of Barron’s.
Last week, major U.S. stock indices gained, reported Ben Levisohn of Barron’s.
|Data as of 3/25/22||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor's 500 Index||1.8%||-4.7%||16.2%||17.5%||14.2%||12.4%|
|Dow Jones Global ex-U.S. Index||0.2||-7.2||-3.8||5.2||4.2||3.1|
|10-year Treasury Note (yield only)||2.5||NA||1.6||2.4||2.4||2.2|
|Gold (per ounce)||0.9||7.4||12.5||14.0||9.2||1.5|
|Bloomberg Commodity Index||5.3||30.9||56.5||16.6||9.0||-1.0|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, Federal Reserve Bank of St. Louis, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
What’s Your Parallel Parking Strategy?
A new research study, discussed in the Annals of Improbable Research, recommends that drivers reconsider their parallel parking choices in densely populated areas.
Limited street parking creates a variety of challenges for city planners. A dearth of parking may create opposition to bike lanes or new residential developments. In addition, it can produce higher traffic volumes and greater greenhouse gas emissions when driving time is extended by the search for a parking place, reported Dr. Benjy Marks of the University of Sydney and Dr. Emily Moylan of UNSW Sydney who authored Parallel Parking Vehicle Alignment Strategies. They explained:
“The alignment of vehicles within parallel parking spaces influences the efficiency of street parking. We numerically model the effect of vehicle-alignment strategy on the packing density over a range of block lengths. We investigate the effect of four strategies:
- front of available space
- either end of available space
- middle of space
- randomly within the space
“The findings quantify the advantage of aligning vehicles at the ends of the available space…”
While the researchers’ findings may be valid, drivers who do not excel at parallel parking may find the idea of employing a specific parallel parking strategy to be wildly optimistic.
A recent survey found 49 percent of American drivers have some degree of fear of parallel parking, which is a fairly complex driving maneuver. Taylor Covington of The Zebra reported:
“Parallel parking spots are often located in areas where parking is limited. These areas are usually busy with pedestrians or other cars so, it increases the pressure to find and fit in a spot. That may explain why drivers reported that ‘holding up traffic’ was their biggest fear related to parallel parking. Other common concerns included hitting another car, getting blocked in, bystanders watching, and hitting the curb.”
Perhaps self-parking cars will help.
Weekly Focus – Think About It
“It takes time to create excellence. If it could be done quickly, more people would do it.”
—John Wooden, NCAA basketball coach
Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
- Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
- Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
- The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
- All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
- The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
- The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
- Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
- The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
- The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
- International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
- Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
- Past performance does not guarantee future results. Investing involves risk, including loss of principal.
- You cannot invest directly in an index.
- Stock investing involves risk including loss of principal.
- The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth may not develop as predicted and are subject to change. Investing involves risk including loss of principal.
- The Price-to-Earning (P/E) ratio is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means investors are paying more for each unit of net income, thus, the stock is more expensive compared to one with a lower P/E ratio.
- These views are those of Carson Group Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
- This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with the named broker/dealer.
- The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
- Consult your financial professional before making any investment decision.
https://www.barrons.com/articles/stock-market-dow-nasdaq-sp500-bonds-51648254963?refsec=the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/03-28-22_Barrons-The_Stock_Market_Got_a_Big_Boost_From_the_Bond_Selloff-Footnote_5.pdf)
https://www.barrons.com/articles/federal-reserve-interest-rate-hikes-51648233547?mod=hp_LEADSUPP_2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2022/03-28-22_Barrons-Its_Been_Two_Decades_Since_the_Fed_Has_Raised_Rates_Like_This-Footnote_9.pdf)
ADV & Investment Objectives: Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.
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