Team VNFA joins the Lehigh Valley community in welcoming the 42nd U.S. Senior Open to Saucon Valley Country Club this week. Tickets to the USGA Championship are still available at Tickets: 42nd U.S. Senior Open Championship (usga.org). All parking is free of charge. General Admission parking is located at Lehigh University’s Goodman Campus. Shuttle transportation is provided by the USGA to and from the main entrance. Juniors aged 18 and under can request a complimentary Gallery ticket for any day of the event at the Ticket Office with a ticketed or credentialed adult.
Daily Archives: June 21, 2022
Current Market Observations
The hope for some immediate relief to investors faded as on as the markets faced their worst week since March 2020, with the S&P entering bear market territory early in the week. Consumers are not in a much better situation, as inflation lingers on the budgets of Americans everywhere and the summer saga of travel-related increased gasoline consumption will be met with rising energy prices. Regardless of the current market and economic environment, we must remember the value of staying invested and opportunities presented during periods of turmoil.
Markets (as of 6/19/22; change since 1/1/22)
Global Economy
Treasury Secretary Janet Yellen provides little relief on the inflation front, stating that high prices are expected to continue rising for the remainder of the year, coupled with a prediction of slowed economic growth. Chart 1 depicts the probability of a U.S. recession.
Chart 1: Probability of U.S. Recession
The tried and true “balanced” portfolio allocation model (60% stocks and 40% bonds) is set to endure a worse quarter than any during the bear market of 2008 (Chart 2). Unlike the era of the Global Financial Crisis, bonds are offering little relief to the sharp pains of the equities markets. The top 1% of wealth in the U.S. lost over $1.5 trillion this quarter, as they own more than half of all equities held in America.
Chart 2: Quarterly Change in 60/40 Portfolio
Policy and Politics
- Concerns are growing over the international status of the Taiwan Strait, as the Biden Administration interprets the assertive language used by Chinese officials in Beijing to describe the nautical powerhouse.
- Colombia has followed in the footsteps of previous Latin American countries before them and elected their first radical leftist, President Gustavo Petro, in a close race with his corporate-centered opponent Rodolfo Hernandez. Investor concerns around the situation are growing as Petro’s plans include phasing out oil production/consumption, tax increases on the wealthy, and creating a stronger bond with its neighbor, Venezuela.
What to Watch
- Fed Chair Jerome Powell’s semi-annual Congressional testimony begins on 6/22/22 at 9:30am EST and continues 6/23/22 at 10:00am EST.
- Initial Jobless and Continuous Claims report will be released on 6/23/22 at 8:30am EST.
- The final Michigan Consumer Sentiment report will be released on 6/24/22 at 10:00am EST.
Chart 3: Primary Mortgage Market Survey
The Numbers & “Heat Map”
THE NUMBERS
The Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the economy is a key driver of long-term returns in the stock market. Below, we assess the key economic conditions that we believe are of particular importance to investors.
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US ECONOMY |
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CONSUMER HEALTH |
NEUTRAL |
Q1 2022 Real GDP shrunk at a 1.5% annual rate according to the second estimate. This is the first contraction since the beginning of the pandemic. The main factors that resulted in a decrease in GDP were a surge in imports and trade deficit highlighting that the U.S. is buying more goods from foreign countries. This may be an indication that the U.S. economy has recovered faster than other countries. |
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CORPORATE EARNINGS |
NEUTRAL |
The earnings growth rate for Q1 2022 was 9.2% — the lowest since Q4 2020 (3.8%). This estimate was revised upward from the previous forecast of 7.1% in April. All S&P500 companies have reported earnings — 77% reported a positive EPS surprise and 73% beat revenue expectations. The estimated growth rate for Q2 2022 is now 4.0% which would mark a new post-pandemic low. |
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EMPLOYMENT |
POSITIVE |
Total nonfarm payroll employment rose by 390,000 in May and the unemployment rate remained constant at 3.6%. Job growth was widespread, led by gains in leisure and hospitality, manufacturing, and transportation and warehousing. Employment in retail trade declined. |
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INFLATION |
NEGATIVE |
CPI rose 8.6% year-over-year in May2022, the largest increase since December 1981. Core CPI recorded a 6.0% increase (down slightly from April). The increase in CPI was driven by energy, food, and shelter. After declining in April, energy increased by 3.9% over May and gasoline rose by 4.1%.
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FISCAL POLICY |
NEUTRAL |
After passing a $13.6 billion package to support Ukraine a few weeks ago, the House approved an additional $40 billion military and humanitarian package for Ukraine. The bill was passed with 368 votes against 57 votes. The total of the two packages ($53 billion) is the largest foreign aid moved through Congress in over 20 years. |
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MONETARY POLICY |
NEUTRAL |
The Fed raised rates by the expected 25 bps in March and 50 bps in May. Jay Powell projected a clear path for 2022 with as many as five additional rate hikes. The next decisions by the Fed will be data-driven based on future inflation numbers and estimated economic growth. |
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GLOBAL CONSIDERATIONS |
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GEOPOLITICAL RISKS |
NEGATIVE |
Russia was able to avoid default so far by making the required payment on its debt however, the U.S. has imposed additional sanctions barring Russia from using U.S. banks to make debt payments. The next coupons worth $400 million will be due on June 23rd and 24th and Russia is trying to leverage resources outside the Western financial infrastructure to make these payments. |
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ECONOMIC RISKS |
NEUTRAL |
Supply chain disruptions in the U.S. are waning but the rising cost of oil due to the Russian-Ukraine war is likely to cause additional inflationary pressures not only on gasoline prices but also on many other goods and services. Starting in June, China has started to remove some restrictions in major cities to end the COVID-19 lockdown. |
The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.
Quote of the Week
“A good golfer has the determination to win and the patience to wait for the breaks.” – Gary Player
“Your Financial Choices”
Tune in Wednesday, 6 PM for “Your Financial Choices” with Laurie Siebert on WDIY 88.1FM. Laurie will discuss: Gifting and Inheriting.
Laurie can address questions on the air that are submitted either in advance or during the live show via yourfinancialchoices.com. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.