Join us in welcoming Avani Dattani, MPAcc to the position of Senior Tax Accountant. Avani is a Western Sydney University Alumna, where she graduated with a master’s degree in Accounting.
Avani has more than 11 years of corporate experience in accounting & income tax preparation. She has experience in the preparation and review of tax returns, both for individuals and businesses. “Our Tax Department team is pleased to welcome Avani to VNFA in this full-time role,” said Amanda Pugliese, CPA, Director of Tax Services.Originally from India, Avani has lived in New Jersey for more than 12 years. Outside of her professional work, she enjoys spending time with her husband & daughter. She loves to travel and has already been to 10 countries, so far. Avani will work a full-time remote schedule and she can be reached through our Bethlehem headquarters at 610-868-9000 ext.104 or adattani@valleynationalgroup.com.
Financial markets posted another weekly gain pushing November to a positive month overall and helping equities post back-to-back monthly gains for October and November 2022. Further, bonds posted positive returns; in fact, their largest monthly gain since 2008. Positive returns in both markets helped balanced portfolios regain a lot of lost ground in markets since the beginning of 2022. See the summary returns immediately below but note importantly that the NASDAQ returned +2.09% for the week while the 10-Year U.S. Treasury fell 18 basis points to close the week at 3.56%. Just over one month ago, the 10-Year Treasury was 69 basis points higher at 4.25%.
Global Economy
Big news last week was Fed Chairman Jay Powell’s speech at the Washington, D.C. Brookings Institute where he confirmed that smaller interest rate increases are ahead and mostly likely as soon as the December FOMC (Federal Open Markets Committee) meeting. Chairman Powell further cautioned that monetary policy would remain restrictive until progress on combating record high inflation continues. Charts 1 and 2, both by Valley National Financial Advisors and Y Charts, show recent downward inflationary trends – PCE (Personal Consumption Expenditures) and Core PCE and U.S. Retail Gas Price.
As demonstrated by both charts, the Fed’s tight monetary policy is impacted inflation but clearly more work is needed. We expect to see several rate hikes in 2022-23; albeit modest hikes such as +0.25-0.50%, rather than the aggressive +0.75% rate hikes we have seen thus far in 2022.
Most market prognosticators are still calling for a recession in 2023 solely based on historic patterns and economic data. While a recession may happen in 2023 – by whichever measure is popular now since NBER (National Bureau of Economic Research) does not seem to be the decider any longer – looking at market indicators today (labor, consumer health, bank balance sheets and loan delinquency rates, and corporate earnings), any recession will most likely be modest and short-lived.
Policy and Politics
Several key U.S. and Global issues remain:
China is easing COVID-19 lock-down rules, easing supply chain concerns, and helping to open Chinese global supply chains.
Russia/Ukraine War shows no signs of abating even as we move closer to winter and the resulting impact on Euro-zone energy prices.
OPEC votes to keep crude oil production at current levels which helps Russia (OPEC member) rather than disrupts Russia’s oil revenue stream.
The bankruptcy filing of cryptocurrency FTX continues to unwind but one clear outcome from this will be deeper and further government oversight and regulation of this nascent industry.
What to Watch
U.S. Durable Goods New Orders for October 2022, released 12/5/22 (prior +0.39%)
U.S. Initial Claims for Unemployment for week of Dec 3, 2022, released 12/8/22 (prior +225k)
U.S. Core Producer Price Index Year Over Year for November 2022, released 12/8/22 (prior +6.68%)
U.S. Index of Consumer Sentiment for December 2022, released 12/8/22 (prior 56.8)
Mixed messages abound in the markets today. So-called market experts all suggest a recession is coming in 2022. But U.S. equity markets are rallying (the Dow Jones Industrial Average is up +20% since its October 2022 lows) and U.S. fixed income markets have found a sweet spot as the 10-Year U.S. Treasury has fallen nearly 70 basis points since peaking in October. A recent post by asset manager BlackRock noted that the TINA Trade (There Is No Alternative) has given way to BARB (Bonds Are Back). We believe both remain in place—meaning a balanced and diversified portfolio is the surest path to long-term wealth creation.
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
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. The second estimate for Q3 2022 shows Real GDP to have increased by an annual rate of 2.9%, up from the previous advance estimate that reported a 2.6% gain.
CORPORATE EARNINGS
NEUTRAL
The estimated growth rate for Q3 2022 is 2.2%, which was adjusted upwards from 2.2% last week. So far, with 99% of S&P500 companies reporting actual results, 70% of them reported a positive EPS surprise and 71% beat revenue expectations.
EMPLOYMENT
NEUTRAL
U.S. Nonfarm Payrolls for November 2022 increased by 263,000 and the unemployment rate remained unchanged at 3.7%. Wages have risen more than expected at a rate of 5.1% YoY. Service sectors contributed the most to the increase in jobs while industries that are sensitive torising rates, such as construction and manufacturing, have started to level off.
INFLATION
NEGATIVE
The annual inflation rate in the U.S. increased by 7.7% for October 2022 compared to the expected 7.9% — showing some signs of deceleration. Core CPI was also reported below expectations at 6.3% versus the estimated 6.5%. Shelter, food, and gasoline remain the main contributors to elevated inflation.
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. President Biden announced student loan forgiveness of up to $20,000 subject to income limitations.
MONETARY POLICY
NEGATIVE
The Fed approved a fourth consecutive 75 bps hike earlier this month which took its target range to 3.75%-4.00% – the highest it has been since 2008. The Fed hinted at potentially reducing the magnitude of future rate increases from 75 to 50 bps but also mentioned the possibility of a new higher target range closer to 5%.
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 easing which should help the global supply chain recover. On the other hand, the Russian-Ukraine war does not show signs of abating. 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 U.S. is now dealing with a major diesel shortage with national reserves at their lowest levels since 1951 and a ban on Russian products that willintensify the issue.
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 “Your Financial Choices” on WDIY 88.1FM. Laurie will be discussing Gifting- Things to Know.
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.
