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Brace for a bumpy ride.
There were some unwelcome surprises in last week’s economic data that caused markets to reassess expectations for 2023. For example:
Inflation Didn’t Fall as Fast as Expected
Last week, the Consumer Price Index showed inflation rose 6.4%, year-over-year, in January. That was an improvement over December’s pace and the seventh consecutive month of falling prices, but economists expected price increases to slow more quickly, reported Megan Cassella of Barron’s.
“Look into the details, and it is easy to see that the inflation problem is not fixed. America’s ‘core’ prices, which exclude volatile food and energy, grew at an annualized pace of 4.6% over the past three months, and have started gently accelerating. The main source of inflation is now the services sector, which is more exposed to labor costs… It is hard to see how underlying inflation can dissipate while labor markets stay so tight,” reported The Economist.
Consumer Spending Accelerated
Americans were in a buying mood. Retail sales, which is a proxy for consumer spending, rose 3.0% in January after declining in November and December of last year, reported the U.S. Census Bureau. John Authers of Bloomberg opined:
“Another day, another item of evidence that the U.S. economy isn’t slowing down anything like as much as many had thought. U.S. retail sales in January rose the most in almost two years, reinforcing the narrative that consumer demand remains strong.”
Bullish sentiment in stock markets has been supported by the idea that inflation will continue to slow, and the Fed will be able to ease up on interest rates, reported Al Root of Barron’s. Last week, The Economist suggested stock markets may be overly optimistic. “Investors are pricing stocks for a Goldilocks economy in which companies’ profits grow healthily while the cost of capital falls… This is a rosy picture. Unfortunately, as we explain this week, it is probably misguided. The world’s battle with inflation is far from over.”
Bond markets were less sanguine. After a chorus of Fed officials took the stage to let everyone listening know the federal funds rate would likely need to move higher – and stay higher – for longer, the bond market capitulated, reported William Watts of MarketWatch. As expectations shifted, the yield on a six-month Treasury moved above 5% for the first time since 2007 and the yield on a 10-year Treasury hit a new high for the year.
Major U.S. stock indices finished the week mixed. The S&P 500 Index and Dow Jones Industrial Average moved lower, while the Nasdaq Composite Index finished slightly higher. Treasury yields rose across most maturities.
|Data as of 2/17/23||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor's 500 Index||-0.3%||6.2%||-6.9%||6.6%||8.5%||10.3%|
|Dow Jones Global ex-U.S. Index||-0.5||6.2||-11.5||0.0||-0.6||1.9|
|10-year Treasury Note (yield only)||3.8||N/A||2.0||1.6||2.9||2.0|
|Gold (per ounce)||-1.4||1.2||-3.1||5.1||6.4||1.3|
|Bloomberg Commodity Index||-2.0||-5.6||-4.5||11.9||3.9||-2.6|
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, 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 Do You Value Most?
The 2022 Modern Wealth Survey, which is conducted for Charles Schwab by Logica Research, asked Americans whether personal values are more important to life decisions than they once were. The majority said yes.
“Almost three-quarters of Americans (73%) say their personal values guide how they make life decisions more today than they did two years ago, and nearly an equal number (69%) say that supporting causes they care most about are a top consideration when it comes to their financial decisions… When asked which personal values are their biggest motivators, Americans prioritize doing what’s best for others, including the environment and the greater good as well as their family and friends, followed by saving more and reducing unnecessary spending.”
Defining and prioritizing values takes time and can be a challenging exercise. The Good Project, a research initiative at the Harvard Graduate School of Education’s Project Zero, offers an online value sorting activity. Visitors review a list of 30 values and choose 10 to begin. The list includes options like:
- Fame and success,
- Courage and risk taking,
- Creativity and originality,
- Power and influence,
- Hard work and commitment,
- Pursuing the common good,
- Recognition in your field, and
- Solitude and contemplation.
A majority of each generational group that participated in the Modern Wealth Survey agreed that values affect their investment choices: 68% of Baby Boomers, 73% of Gen X, 75% of Millennials, and 82% of Gen Z.
Overall, “When looking at the factors that influence investing decisions, a company’s reputation (91%) and its corporate values (81%) are almost as important as more traditional factors like a company’s performance (96%) and its stock price (93%). As personal beliefs and interests become more important, many investors (84%) are also interested in having a more personalized investment portfolio.”
When you think about money and investing, what is important to you? Be sure to discuss these factors with your advisor, as we now offer ways to align your investments more closely with your values.
Weekly Focus – Think About It
“For me, I am driven by two main philosophies: know more today about the world than I knew yesterday and lessen the suffering of others. You'd be surprised how far that gets you.”
—Neil deGrasse Tyson, Astrophysicist
Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
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- 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.economist.com/leaders/2023/02/16/inflation-will-be-harder-to-bring-down-than-markets-think (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/02-20-23_The%20Economist_Inflation%20Will%20Be%20Harder%20to%20Bring%20Down%20Than%20Markets%20Think_2.pdf)
https://www.bloomberg.com/opinion/articles/2023-02-16/no-landing-us-consumers-haven-t-spent-like-this-since-before-lehman (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/02-20-23_Bloomberg_Consumers%20Are%20Letting%20the%20Good%20Times%20Roll%20Again_4.pdf)
https://www.barrons.com/articles/stock-market-dow-nasdaq-s-p-500-d27ac97?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/02-20-25_Barrons_Sell%20in%20March%20and%20Go%20Away_5.pdf)
https://www.marketwatch.com/story/stock-market-bulls-defiant-as-bond-market-surrenders-to-fed-heres-what-to-watch-c334727e (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/02-20-23_MarketWatch_Stock-market%20Bulls%20Defiant%20as%20Bond%20Market%20Surrenders_6.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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