Team VNFA is joining forces with Apollo Grill to fundraise for Cancer Support Community Greater Lehigh Valley in support of Breast Cancer Awareness.
Team Apollo with members from VNFA will each walk/run 10 miles over seven days and Apollo and Valley National Financial Advisors will donate for each mile to the Cancer Support Community.
How can you help? Do good by dining out. Every Thursday in October Apollo Grill has been donating 5% of their lunch and dinner food sales to the Cancer Support Community. It is not too late – there is still one more Thursday left this month.
October is Cybersecurity Awareness Month AND Financial Planning Month
Safe Senders and Ransomware By Rob Ziobro, AVP Technology Did you know that you can add our domain to your Safe Senders list? Due to the nature of our business, we need to discuss finances through e-mail at times. For obvious reasons, spam filters don’t always like that, and we may be mistakenly categorized as “Junk.” The easiest way to keep receiving the emails we send is to add your Service Team’s email addresses to your e-mail “Whitelist.” If you are available to whitelist our full domain, even better.
The last topic for the month that I would like to discuss is the dreaded pop-up and ransomware. If you ever see a pop-up on your computer telling you to call Microsoft right now, to fix an issue or your computer will explode, please do not fall for their scare tactics. Immediately shutdown your computer by holding the power button or by pulling the plug. Usually, a website will be hijacked to display these false claims. Once they are clicked, bad things can start happening. Don’t waste time trying to read pop-ups or clicking to perform a proper shutdown. The quicker you end the process before it can do harm, the better.
Listen to a recent recording of “Your Financial Choices” radio from WDIY 88.1FM when Rob was a guest discussing Cybersecurity Awareness and the hot topics that everyone should know to stay safe. Cybersecurity – Your Financial Choices Radio
What is a Financial Plan? According to Charles Schwab, there are eight major components to a good financial plan:
Financial goals
Net worth statement
Budget and cash flow planning
Debt management plan
Retirement plan
Emergency funds
Insurance coverage
Estate plan
Want to dive in to these “8 Components of a Good Financial Plan,” read the full article by Charles SCHWAB or ask one of our professionals about VNFA’s Financial Roadmap.
Equity markets reacted favorably across all major indexes to end the week nearly +5% higher. Favorable corporate earnings and FED commentary pushed markets higher. About a fifth of the S&P 500 companies have reported their earnings thus far, with 73% of reported earnings beating estimates. The road to FED hikes remains steady as tightening assumptions dropped at the end of week, but the market is still pricing in a +75bp hike for next week. In the absence of poor information equity markets enjoyed the rally. Bond markets, however, continued to weaken with the 10-Year U.S. Treasury ending the week at 4.21%, 19 basis points higher than the previous week.
U.S. Economy The chart below from Valley National Financial Advisors and Y Charts shows U.S. Investor Sentiment (% Bull-Bear Spread), which measures investors’ overall feelings about the markets. October 14 hit a multi-year low, which some market prognosticators believe is a point that markets are oversold. This is the point which equities become reasonably priced and often signal a ‘BUY.’
The goal across Washington is to avoid a recession at all costs. The Fed is at the forefront of this and continues to gauge the pace/amount of rate hikes according to the economic and financial data released prior to FOMC (Federal Open Markets Committee) meetings. Bond yields and broader markets are driven by the Fed’s narrative and actions that follow, so the Fed may not want to push too hard on markets that are recovering after a tough September.
While bond markets continue to post negative returns for the year, the outlook (1-3 years) remains favorable once bond yields peak. (See the Chart below from Edward Jones and FactSet.) This makes clear sense to us when the FED’s path to interest rates and the economy is considered.
Policy and Politics
Political uncertainty continues to affect the United Kingdom as Prime Minister Liz Truss resigned after only 44 days in office. Her replacement is to be determined, with former Prime Minister Boris Johnson taking himself out of the race and former Chancellor of the Exchequer, Rishi Sunak, currently in the lead.
China is on the global radar as anticipated economic data was released last week that showed signs of a mixed economy. While GDP grew in September, retail sales slumped, and the housing market is failing to recover. President Xi was reelected for an unprecedented third term, tightening his grip on China and reinforcing his potential plans for reunification with Taiwan.
What to Watch
U.S. Initial Claims for Unemployment Insurance; released 10/27 (Prior 214k)
U.S. Real 3rd Quarter Gross Domestic Product Quarter over Quarter; released 10/27 (Prior –0.60%)
U.S. Core Personal Consumption Expenditures Price Index Year over Year; released 10/28, (Prior 6.25%)
There is a lot going on globally with China, Ukraine/Russia, the United Kingdom all adding uncertainty to the markets, and we hate uncertainty. However, here in the United States we have our own issues with inflation and the FED understands this and is aggressively raising interest rates to slow the economy down and thereby halt inflation pressures. This will take time as a lot of stimulus has to be let out of the economy and consumers’ pockets but the path to lower inflation has been set. Last week, we saw the FED start to whisper that the end is near for rate hikes. It may not be in 2022, but 2023 should be a pivotal year in all aspects. Investors should remain focused on the long-term economic viability of the U.S. Economy, and it remains favorable.
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.
US ECONOMY
CONSUMER HEALTH
NEUTRAL
Q1 2022 Real GDP shrunk at a 1.6% annual rate. 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. According to the second estimate, real GDP for Q2 2022 decreased at an annual rate of 0.6% (up from the first estimate of -0.9%) marking the second consecutive quarter of declining GDP. Some retail outlets are reporting excess inventories which could signify a slowdown in consumer demand.
CORPORATE EARNINGS
NEUTRAL
The estimated growth rate for Q3 2022 is 1.5%, which was adjusted downward from 9.8% in June and 2.4% two weeks ago. So far, with 20% of S&P500 companies reporting actual results, 72% of them reported a positive EPS surprise and 70% beat revenue expectations.
EMPLOYMENT
NEUTRAL
U.S. Nonfarm Payrolls for September 2022 increased by 263,000 and the unemployment rate fell back to the June and July level of 3.5% after spiking slightly in August to 3.7%. Professional and business services, health care, and leisure and hospitality were among the sectors with the most notable job gains.
INFLATION
NEGATIVE
The annual inflation rate in the U.S. increased by 8.2% for September 2022 — down slightly from 8.3% in August but still a stubbornly high result and above expectations. Core CPI increased by 6.6% year-over-year marking the highest gain since August 1982. Food and shelter were the main contributors to the increase in CPI, gasoline index fell slightly but overall energy prices are expected to rebound again. Used car prices are also not declining as much as expected.
FISCAL POLICY
NEUTRAL
Senator Manchin and Majority Leader Schumer reached an agreement on the latest tax and energy bill with incentives for green energy, electric cars, and conversely oil & gas companies for exploration. No changes in private equity taxes or higher tax rates for the very wealthy were enacted. The bill has been officially passed by the Senate. Last week, President Biden announced student loan forgiveness of up to $20,000 subject to income limitations.
MONETARY POLICY
NEGATIVE
With inflation still running hot, Fed Chairman Jay Powell is clear on his path to slow the economy enough to cool inflation. The Fed raised rates by 0.75% in September, bringing its target rate to 3.00-3.25%, and suggesting that additional 75bps rate hikes are likely in the coming months.
GLOBAL CONSIDERATIONS
GEOPOLITICAL RISKS
NEGATIVE
Russia held controversial referendums for the annexation of four Ukrainian regions and the Russian Parliament unanimously recognized these regions as part of Russia. Ukraine and Western countries have condemned these actions by Russia by declaring them illegitimate and illegal. Additional sanctions are being imposed on Russia by many countries.
ECONOMIC RISKS
NEGATIVE
COVID-19 lockdowns in China are persistent and the ongoing Russian-Ukraine war is causing a major energy crisis in Europe. Putin shut down the pipeline that supplies Europe with natural gas indefinitely until all sanctions affecting Russia are lifted. Gas supplies from Russia to Europe have decreased by 88% over the past year and EU countries have agreed to cut gas usage by 15% as gas prices have more than doubled.
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.
Tune in Wednesday, 6 PM for “Your Financial Choices” on WDIY 88.1FM. Laurie and her guest Bill Henderson, Chief Investment Officer at Valley National Financial Advisors will discuss: Third to Fourth Quarter Market Review.
Questions can be submitted at yourfinancialchoices.com during or in advance of the live show. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.
The WDIY Fall Membership Drive continues this week, and Team VNFA’s partnership has so far resulted in more than 10,000 meals to be funded for Second Harvest Food Bank.
For every $100 pledged to WDIY during the membership drive, Valley National Financial Advisors will donate to allow Second Harvest to provide 21 meals to individuals and families in our community.
October is Cybersecurity Awareness Month AND Financial Planning Month
THE REAL VALUE OF A FINANCIAL PLAN by Jonathan Ritter, CFP®, CPA “The process of financial planning can help guide you through complicated financial decisions so you can have less stress and more time to focus on the things that matter to you. The time you don’t have to spend worrying about financial uncertainty can be devoted to activities that bring you enjoyment rather than anxiety and frustration.”
Clients are most appreciative and thankful when we prepare a plan and provide them with strategies to accomplish their financial goals.
CYBERSECURITY TIP by Robert Ziobro, AVP Technology Do you know about Phishing? Phishing is a cybercrime in which a target or targets are contacted by email, telephone, or text message by someone posing as a legitimate institution to lure individuals into providing sensitive data such as personally identifiable information, banking and credit card details, and passwords. The information is then used to access important accounts and can result in identity theft and financial loss.
Here are some common features to look for:
Too Good To Be True – Lucrative offers and eye-catching or attention-grabbing statements are designed to attract people’s attention immediately. For instance, many claim that you have won an iPhone, a lottery, or some other lavish prize. Just don’t click on any suspicious emails. Remember that if it seems to good to be true, it probably is!
Sense of Urgency – A favorite tactic amongst cybercriminals is to ask you to act fast because the super deals are only for a limited time. Some of them will even tell you that you have only a few minutes to respond. When you come across these kinds of emails, it’s best to just ignore them. Sometimes, they will tell you that your account will be suspended unless you update your personal details immediately. Most reliable organizations give ample time before they terminate an account, and they never ask patrons to update personal details over the Internet. When in doubt, visit the source directly rather than clicking a link in an email.
Hyperlinks – A link may not be all it appears to be. Hovering over a link shows you the actual URL where you will be directed upon clicking on it. It could be completely different, or it could be a popular website with a misspelling, for instance www.bankofarnerica.com – the ‘m’ is actually an ‘r’ and an ‘n’, so look carefully.
Attachments – If you see an attachment in an email, you weren’t expecting or that doesn’t make sense, don’t open it! They often contain payloads like ransomware or other viruses. The only file type that is always safe to click on is a .txt file.
Unusual Sender – Whether it looks like it’s from someone you don’t know or someone you do know, if anything seems out of the ordinary, unexpected, out of character or just suspicious in general don’t click on it!
Last week we saw major markets diverge for the first time this year. The Dow Jones Industrial Average notched out a +1.15% return while the S&P 500 Index (-1.55%) and the NASDAQ (-3.11%) each posted negative returns. This divergence of returns is emblematic of the market and economy themselves with economists calling a pending recession while real data – jobs, bank balance sheets, Earnings Per Share (EPS) releases and consumer health – remains healthy if not growing in strength.
Global Economy U.S. economists are beginning to increasingly predict a recession within the next 12 months. On average, economists put the probability of a coming recession at 63%, up from 49% in July. This is the first time since July 2020 that the survey has yielded a result above 50%. Additionally, the survey suggests that GDP (Gross Domestic Product) will contract at
-0.2% on an annual basis during Q1 2023 and -0.1% in Q2 2023. These predictions come as doubts heighten over the Fed’s ability to tame inflation without inducing increased unemployment. Two-thirds of those surveyed believe the Federal Reserve will pivot in either Q4 2023 or Q1 2024.
European Union leaders are meeting on October 20 and 21 to discuss potential implementation options for a cap on gas prices. After Russia’s invasion of Ukraine, the Kremlin vastly reduced gas exports to Europe as retaliation for the economic sanctions the country received. Energy in the EU is becoming prohibitively expensive, raising concerns for a rough winter over the next few months. The annual inflation rate for energy is currently standing at 37.5%, with electricity at 35.7%, gas at 62.5%, and liquid fuels at 78.9%.
What to Watch
Monday, October 17th
4:30PM: US Retail Gas Price (Prior: $4.034/gal.)
Wednesday, October 19th
8:30AM: US Housing Starts (Prior: 1.575M)
8:30AM: US Housing Starts MoM (Prior: 12.18%)
10:00AM: US Job Openings, Total Nonfarm (Prior: 10.05M)
Thursday, October 20th
10:00AM: 30-Year Mortgage Rate (Prior: 6.92%)
10:00AM: US Existing Home Sales (Prior: 4.80M)
10:00AM: US Existing Home Sales MoM (Prior: -0.41%)
While calls for a recession mount mostly on economist’s note pads and TV prognosticator’s teleprompters, the underlying fundamentals of the U.S. economy remain solid as we stated above. If we get a recession, the economy starts with a real safety net that did not exist in the 2008-09 recession, thereby guaranteeing said recession is neither deep nor lengthy. Opportunities mount in fixed income (now offering yields north of 4.00%) and equities (now trading ~19x forward EPS & yields ~2.00% on the S&P 500 Index) offering investors good entry points for continued long-term wealth creation.
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.
US ECONOMY
CONSUMER HEALTH
NEUTRAL
Q1 2022 Real GDP shrunk at a 1.6% annual rate. 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. According to the second estimate, real GDP for Q2 2022 decreased at an annual rate of 0.6% (up from the first estimate of -0.9%) marking the second consecutive quarter of declining GDP. Some retail outlets are reporting excess inventories which could signify a slowdown in consumer demand.
CORPORATE EARNINGS
NEUTRAL
The estimated growth rate for Q3 2022 is 1.6%, which was adjusted downward from 9.8% in June and 2.4% last week. So far, with 7% of S&P500 companies reporting actual results, 69% of them reported a positive EPS surprise and 67% beat revenue expectations.
EMPLOYMENT
NEUTRAL
U.S. Nonfarm Payrolls for September 2022 increased by 263,000 and the unemployment rate fell back to the June and July level of 3.5% after spiking slightly in August to 3.7%. Professional and business services, health care, and leisure and hospitality were among the sectors with the most notable job gains.
INFLATION
NEGATIVE
The annual inflation rate in the U.S. increased by 8.2% for September 2022 — down slightly from 8.3% in August but still a stubbornly high result and above expectations. Core CPI increased by 6.6% year-over-year marking the highest gain since August 1982. Food and shelter were the main contributors to the increase in CPI, gasoline index fell slightly but overall energy prices are expected to rebound again. Used car prices are also not declining as much as expected.
FISCAL POLICY
NEUTRAL
Senator Manchin and Majority Leader Schumer reached an agreement on the latest tax and energy bill with incentives for green energy, electric cars, and conversely oil & gas companies for exploration. No changes in private equity taxes or higher tax rates for the very wealthy were enacted. The bill has been officially passed by the Senate. Last week, President Biden announced student loan forgiveness of up to $20,000 subject to income limitations.
MONETARY POLICY
NEGATIVE
With inflation still running hot, Fed Chairman Jay Powell is clear on his path to slow the economy enough to cool inflation. The Fed raised rates by 0.75% in September, bringing its target rate to 3.00-3.25%, and suggesting that additional 75bps rate hikes are likely in the coming months.
GLOBAL CONSIDERATIONS
GEOPOLITICAL RISKS
NEGATIVE
Russia held controversial referendums for the annexation of four Ukrainian regions and the Russian Parliament unanimously recognized these regions as part of Russia. Ukraine and Western countries have condemned these actions by Russia by declaring them illegitimate and illegal. Additional sanctions are being imposed on Russia by many countries.
ECONOMIC RISKS
NEGATIVE
COVID-19 lockdowns in China are persistent and the ongoing Russian-Ukraine war is causing a major energy crisis in Europe. Putin shut down the pipeline that supplies Europe with natural gas indefinitely until all sanctions affecting Russia are lifted. Gas supplies from Russia to Europe have decreased by 88% over the past year and EU countries have agreed to cut gas usage by 15% as gas prices have more than doubled.
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.
