March 22 is World Water Day! A day that helps recognize the importance of freshwater and the urgent need for sustainable water management practices.
This year’s theme is “Accelerating Change” in order to solve the water and sanitation crisis. This day provides an opportunity to focus on the importance of freshwater and promote sustainable management practices to ensure that everyone has access to clean water.
Visit World Water Day to learn more.
Equity markets posted mixed results last week as issues surrounding U.S. Regional Banks continued to roil investors. Further, Swiss banking giant Credit Suisse, beleaguered for decades, finally found a merger partner in fellow Swiss Bank UBS. While seemingly good news on the surface, investors took this news as more of a “canary in a coal mine” signal that further unwelcome news could follow in the banking sector. As a result, there was a large flight to quality trade as investors scooped up U.S. Treasury Bonds. By week’s end, the bellwether 10-year U.S. Treasury Bond had moved lower by 16 basis points to close the week at 3.39%. Just three short weeks ago, the rate on the 10-year U.S. Treasury was 4.06%. Last week, the Dow Jones Industrial Average returned -0.15%, the S&P 500 Index moved higher by +1.43%, and finally, the NASDAQ rallied higher by +4.41%.
It will take some time for 2022’s interest rate tightening to be completely felt in the economy, but the direction is correct – lower inflation. The Federal Open Market Committee meets this week. Several Wall Street analysts are calling for a pause in further rate hikes, given the recent inflation reports and the continued economic uncertainty surrounding the banking sector. While Fed Fund Futures are still pricing in a +0.25% rate hike this week, we at VNFA certainly believe a pause is more appropriate.
Policy and Politics
Several factions in the U.S. House and the U.S. Senate call for the Federal Deposit Insurance Corporation to guarantee all deposits at U.S. Depository Institutions (banks, savings and loan associations, and credit unions) rather than only to the current limit of $250,000. A change in the FDIC limit would require an act of Congress, which is possible should a crisis in confidence in the banking sector continue.
What to Watch
Wall Street insiders, executives, regulators, and lawmakers have managed to quell the current banking problem, which thus far has been limited to very few banks specifically catering to the technology and crypto world. Banks remain very well capitalized, especially compared to the 2008-08 Global Financial Crisis, see Chart 2 below from the FDIC & Bloomberg. Contagion is a tricky beast, and the markets need to see just the right amount of government and private intervention before taking a directional turn. We remain cautiously optimistic about the equity and fixed-income markets for 2023. Watch for cues from Chairman Powell this week on whether we get a pivot in policy this year.
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 10- year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Mortgage Bankers Association.
MARKET HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade key economic conditions that we believe are of particular importance to investors.
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.
“If we had no winter, the spring would not be so pleasant.” – Anne Bradstreet
Tune in Wednesday, 6 PM “Your Financial Choices” on WDIY 88.1FM. Laurie will be discussing: Pre-Retirement Checklist.
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.