A ‘WOW!’ JOBS REPORT:  In January, the U.S. economy added another 517,000 jobs.  The unemployment rate decreased once again to 3.4%.  There were big gains last month in leisure and hospitality, professional business services, and health care.  This of course remains the best thing about this economy.  For the most part, if you want a job, you can find a job.  Meaningful work provides dignity and is a basic building block to a healthy society.  So it is difficult to see these reports parsed and responded to negatively for being “too good.”  But of course, that is what happens.  If everyone is working, and it is relatively easy to find a job, then workers continue to have leverage to ask for higher wages, so the argument goes.  If that happens too much, inflation will remain a problem, and the Fed will not be our friend.  And thus, after this report came out, markets slowed a bit.  However, wage growth does seem to be slowing.  In January, wages were 4.4% higher than a year before.  A month earlier, that 12-month figure was 4.8%.  

STOCKS RISE:  Despite stumbling on Friday after the surprisingly strong jobs report, U.S. stocks had another solid week.  Investors seem to be generally encouraged by the actions of central banks (see below), overall economic data and corporate earnings reports.  Last year, tech and growth companies in the U.S. did quite poorly, but so far this year, they have been outperforming on the upside.  The tech-heavy NASDAQ Composite Index is up 14.77% year-to-date compared to the S&P 500 which is up a very healthy 7.86%.  Last year, the S&P 500 was down 19.44% while the NASDAQ Composite decreased by 33.1%.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

THE FED RAISES RATES BY 0.25%:  On Wednesday, the U.S. Federal Reserve Bank raised it’s key interest rate by just 0.25% up to 4.5%.  It said the magic words, “inflation has eased.”  In the announcement, the Fed stated that its benchmark interest rate would still need to be increased further and stay elevated throughout the year.

EUROPEAN CENTRAL BANK HIKES RATE:  The European Central Bank (ECB) increased its key rate by 0.5% up to 2.5% last week.  In the announcement, the ECB said that it intended to raise the rate another 0.5% in March.  Last year the ECB raised rates out of what had been a negative rate environment for the prior 8 years.

BANK OF ENGLAND HIKES RATE:  Last week, the Bank of England increased its key interest rate by 0.5%, it’s second consecutive such increase.  The main Bank rate now stands at 4.0%.  With the announcement, the Bank also said that smaller hikes and an eventual end to the hiking cycle is likely in the coming meetings.

MORTGAGE RATES DECREASE AGAIN:  After peaking at 7.08% in early November, the average rate for a 30-year mortgage in the U.S. has been gradually moving down, and ended last week at 6.09%.

IS THE DEBT CEILING SHOWDOWN GOING TO HURT THE MARKETS?:  The President and the House of Representatives are wrangling about the debt ceiling.  The U.S. Treasury Department has already begun to take special measures to be able to keep paying its obligations as the federal government bumped up against its $31.4 trillion borrowing limit.  These measures will buy time until somewhere between early June and mid-August.  In 2011, a debt-ceiling showdown occurred, Standard & Poor’s downgraded U.S. sovereign debt, and the S&P 500 tumbled by 17%.  But this type of showdown has occurred several times, and during the last five episodes, the median drop has been about 4%.  It is usually close to a non-event, but if it gets bad enough for the U.S. to experience another downgrade, it may be more than 4%.  Let’s hope it does not come to that.

HOW BAD WAS 2022?:  The S&P 500 was down just over 18%.  The U.S. 10-Year Treasury Note was down by more than 15%.  How does that compare with past history?  Let’s just say 2022 was real bad.  Since 1928, stocks (as measured by the S&P 500) and bonds (as measured by the U.S. 10-Year Treasury Note) have both been negative in the same year only three times:

• 1931          Stocks -43.8%/Bonds -2.6%
• 1941          Stocks -12.8%/Bonds -2.0%
• 1969          Stocks -8.2%/Bonds -5.0%

2022 was the worst combined total return for both stocks and bonds in the U.S. since 1872.  The typical 60/40 portfolio fell by approximately 24%, the worst return for this type of portfolio since 1930.  It was the worst year for 30-year Treasury Bonds ever (falling 33%).

It was bad.  And you lived through it.

STONECROP WEALTH ADVISORS CORPORATE VIRTUES:  As mentioned last week, Stonecrop Wealth Advisors has adopted the following five corporate virtues:

• Servanthood,
• Curiosity,
• Calmness,
• Courage, and
• Humor.

I will take these a week at a time as they deserve some explanation. 

First, “servanthood.” 

We discussed so many words that hovered around this concept.  Ultimately, we zeroed in on servanthood.  A definition we really like is “Taking action to use your knowledge, abilities, or resources to help and care for other people in a way that might not benefit you.”  That perfectly describes what we are called to do whenever a client hires us, and creates a great standard for how we aspire to act on behalf of anyone to whom we are privileged to serve.

GO EAGLES, BUT DON’T LET JALEN SING:  Next week, the Eagles play in the Super Bowl against the Kansas City Chiefs.  Last week, the Eagles won the NFC Championship game to get there.  At the end of the game, Terry Bradshaw handed his microphone to Eagles’ quarterback Jalen Hurts and urged him to sing the Eagles’ fight song.  He did, and he was horrible.  Being totally off key did not stop him from being enthusiastic and passionate in singing through the entire song.  The fans absolutely loved it (but they were not exercising sober judgment if you know what I mean).  But, if the Eagles win, please hand the microphone to Jason Kelce, Lane Johnson and Jordan Mailata three Eagles who have actually sung professionally! (Look up “A Philly Special Christmas” on Spotify).

THE WISDOM OF EXPERIENCE:  All who work with me at Stonecrop Wealth Advisors are lifelong Eagles fans.  I respect that.  I grew up not far from Foxboro, Massachusetts, so I suffer from the affliction of being a lifelong Patriots fan.  I tried to offer my wisdom this week to my co-workers.  “You know,” I said, “this is a weird week because there is no football on the weekend and you are preparing for the Super Bowl.”  I continued, “I have been through this eleven times, so if you need any insight on how to get through this week, I’m happy to help.”  I didn’t have any takers.  I was just trying to help.

Have a great week!

“You may not know now, but later you’ll understand.”  Jalen Hurts

“Keep your lives free from the love of money and be content with what you have.”  Hebrews 13:5 (NIV)

SOURCES:
 A ‘WOW!’ JOBS REPORT: bls.gov/news.release/empsit.nr0.htm
EUROPEAN CENTRAL BANK HIKES RATE:  msn.com/en-us/money/markets/european-central-bank-raises-rates-by-50-basis-points-pledges-further-hike-in-march/ar-AA171SXW
BANK OF ENGLAND HIKES RATE: msn.com/en-us/money/markets/bank-of-england-hikes-rates-by-50-basis-points-now-sees-much-shallower-recession-than-feared/ar-AA171S0e
THE FED RAISES RATES BY 0.25%: reuters.com/markets/rates-bonds/fed-expected-deliver-small-rate-hike-keep-anti-inflation-tilt-2023-02-01/
IS THE DEBT CEILING SHOWDOWN GOING TO HURT THE MARKETS?: goldmansachs.com/insights/pages/a-deal-on-the-debt-ceiling-is-likely-but-not-without-uncertainty.html
HOW BAD WAS 2022: awealthofcommonsense.com/2023/01/5-lessons-from-an-awful-year-for-financial-markets/

(c) 2023 A.D., Stonecrop Wealth Advisors, LLC, All Rights Reserved

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets. 
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States. 
*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.