The Markets
Still exceeding expectations.
Last week, the United States Treasury market rallied. Yields fell and bond prices rose as some bond market investors enthusiastically embraced the idea that the Federal Reserve will soon change course. Michael Mackenzie and Rich Miller of Bloomberg explained:
“Softening inflation and employment data in the past month have convinced investors that the Federal Reserve is done raising interest rates and ignited bets that cuts of at least 1.25 percentage points are in store over the next 12 months. Treasury yields, which touched highs of 5% as recently as October, have declined sharply, with the U.S. 10-year benchmark sliding more than three-quarters of a percentage point.”
Bond investors were hoping that last week’s unemployment report would show jobs and wage growth slowing in November. Instead, employers added more jobs than expected (199,000 jobs vs. 180,000), and the unemployment rate fell to 3.7 percent.
On Friday, the Treasury market reversed course. Yields on long and short-term Treasury bonds rose sharply and prices fell, reported Karishma Vanjani of Barron’s.
The employment report also showed that average hourly earnings increased in November – rising 4 percent year-over-year. Wages have risen faster than inflation for seven months, reported Sarah Foster of Bankrate. However, many workers are still feeling a pinch.
“While inflation has come down, broadly speaking, prices have not. There is a kind of continuing, virtual sticker shock that continues to weigh on the minds and pocketbooks of consumers that is meaningful,” according to Senior Bankrate Economic Analyst Mark Hamrick.
Last week, the Standard & Poor’s 500 Index gained for the sixth consecutive week, according to Bloomberg, and yields on most maturities of U.S. Treasuries moved higher.
| Data as of 12/8/23 | 1-Week | Y-T-D | 1-Year | 3-Year | 5-Year | 10-Year |
|---|---|---|---|---|---|---|
| Standard & Poor's 500 Index | 0.2% | 19.9% | 16.2% | 7.5% | 11.8% | 9.8% |
| Dow Jones Global ex-U.S. Index | 0.0 | 7.6 | 6.5 | -1.8 | 3.5 | 1.3 |
| 10-year Treasury Note (yield only) | 4.3 | N/A | 3.5 | 0.9 | 2.9 | 2.9 |
| Gold (per ounce) | -1.8 | 10.8 | 12.2 | 2.4 | 10.0 | 5.0 |
| Bloomberg Commodity Index | -3.6 | -13.3 | -12.0 | 9.9 | 3.4 | -2.5 |
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.
Americans Agree On Some Things!
The Old-Age, Survivors and Disability Insurance (OASDI) program plays a significant role in the lives of many Americans. In 2022, it provided monthly benefits to 51 million retired workers and their dependents, 9 million disabled workers and their dependents, and the dependents of 6 million deceased workers.
In 2022, the program spent $1.24 trillion and took in $1.22 trillion. From here on out, the program’s spending is expected to exceed its funding. Under current assumptions, the trust fund will be depleted by 2034 – unless something changes.
An issue brief from the American Academy of Actuaries (AAoA) stated, “If Congress has not acted by 2034, we will be faced with an automatic 20% cut in benefits to people already receiving benefits, the need to immediately increase Social Security taxes by 25%, or some combination of cuts in benefits and increases in taxes.” The AAoA discussed options for keeping Social Security solvent, including:
- Increase the payroll tax rate by 25 percent. Currently, the payroll tax rate is 15.3 percent on up to $160,200 of a workers’ income. The worker pays half, and the employer pays half. This would cover 100 percent of the 2034 shortfall.
- Raise or eliminate the wage limit ($160,200 in 2023). This would cover 36 percent to 78 percent of the 2034 shortfall.
- Increase Social Security’s investment income by investing a portion of the money raised through taxes in equities.
- Tax Social Security benefits similarly to the way pensions are taxed. This would cover 8 percent of the 2034 shortfall.
- Reduce benefits for higher income recipients who are not yet eligible for benefits. This would cover 10 percent or less of the 2034 shortfall.
- Raise the retirement age for future recipients. If normal retirement age is raised to 69 by 2034, it would cover about 10 percent of the shortfall.
Many Americans are concerned about the future of Social Security. According to a survey conducted by Republican firm North Star Opinion Research, Democratic firm Global Strategy Group, and the nonpartisan Peter G. Peterson Foundation:
- 97 percent of Democratic participants and 97 percent of Republican participants want Congress to “reform Social Security and ensure it’s available for current retirees and younger generations.”
It’s uncertain whether Congress will address Social Security funding before automatic cuts take place. If you would like to talk about the role of Social Security in your retirement plan, please get in touch.
Weekly Focus – Think About It
“If it's your job to eat a frog, it's best to do it first thing in the morning. And if it's your job to eat two frogs, it's best to eat the biggest one first.”
—Mark Twain, writer and humorist
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.
Sources:
https://edition.cnn.com/business/live-news/markets-jobs-report-november-120823/index.html (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/12-11-23_CNN%20Business_Markets%20Rise%20after%20Stronger%20Than%20Expected%20Nov%20Jobs%20Data_2.pdf)
https://www.bls.gov/news.release/empsit.nr0.htm
https://www.barrons.com/livecoverage/stock-market-today-120823/card/treasury-yields-spike-after-jobs-report-xNAgEcyVfPw6NvKgyqZ5 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/12-11-23_Barrons_Treasury%20Yields%20Spike%20After%20Jobs%20Report_4.pdf)
https://www.bankrate.com/banking/federal-reserve/wage-to-inflation-index/
https://www.bankrate.com/personal-finance/pay-raise-survey/
https://finance.yahoo.com/news/japanese-shares-eye-early-slump-225640582.html
https://www.ssa.gov/oact/TR/2023/tr2023.pdf [Pages 2-3]
https://www.actuary.org/sites/default/files/2023-11/pension-brief-social-security-reform-sooner.pdf
https://www.ssa.gov/people/materials/pdfs/EN-05-10297.pdf
https://www.brainyquote.com/quotes/mark_twain_414009
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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