|
|
|
|
| THE FED GETS A BIT MORE AGGRESSIVE: With rates still historically low, the Fed took a more decisive step raising the federal funds rate by 0.75%, not the 0.5% it had been indicating until very recently. What follows are some key comments made by Chair Jerome Powell in the statement this past week:
Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.
The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate [by 0.75%] and anticipates that ongoing increases in the target range will be appropriate.
(Source: federalreserve.gov/newsevents/pressreleases/monetary20220615a.htm) |
|
| RECESSION FEAR GRIPS THE MARKETS: Will inflation peak and subside in time to avoid a recession? Will the Fed tighten its monetary policies so much as to cause a recession? These are the fears that gripped the markets this past week causing a decisive downturn. |
|
| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
|
U.S. INDUSTRIAL PRODUCTION INCREASED IN MAY: Total industrial production in the U.S. increased in May, but the rate slowed. It increased 0.2% after averaging 0.9% increases in the prior four months of 2022. One important component of industrial production, manufacturing, decreased by 0.1%. We are still in a healthy place with overall industrial production, but May’s numbers add to the narrative of a a growing economy that is slowing.
(Source: federalreserve.gov/releases/g17/Current/default.htm) |
|
| NEW HOME CONSTRUCTION SLOWS A BIT BUT STILL A LOT OF NEW HOMES COMING: The current amount of new homes under construction remains at an all time high in the U.S. The beginning of actual construction is called a “housing start.” Housing starts in May were 14.4% less than April and 3.5% below one year ago. Building permits, even earlier in the process, indicates how many housing starts will occur and ultimately how many homes will be built. Permits in May were 7.0% below April but were 0.2% higher than a year ago. |
|
THE U.S. CONSUMER FINALLY SAYS UNCLE: As inflation rose, consumer spending kept rising. People, with secure jobs and fat savings accounts, were not slowing their spending. That changed last month. Total spending for May decreased by 0.2%. May’s spending was 8.1% higher than a year ago.
(Source: census.gov/retail/marts/www/marts_current.pdf) |
|
| BEAR MARKET: A bear market occurs when the market falls at least 20% from its most recent peak. The S&P 500 is now 23.55% lower than it’s peak on January 3, 2022. Historically, the average length of a bear market is 289 days with a peak-to-trough market decline of 37.3%. If we are in an “average” bear market, we are about 2/3 of the way to the bottom and about four months from the end. All bear markets are different. A major difference in this one is that it is happening during a strong labor market. That labor market, along with supply-chain problems, increased demand caused by government stimulus and post-pandemic spending and very loose monetary policy is pushing inflation. When stocks hits these negative return levels, investors tend to start getting back in. In the past week, $16.6 billion flowed into stocks. That is not a huge number, but it shows that there are plenty of investors out there who think it is worth deploying some capital into companies that are now 20% or more cheaper than they were six months ago. |
|
| CONTINUING TO WATCH THE DATA: We continue to watch the data on COVID-19. But, we do this because of its potential effects on the markets and the economy. At present, with the exception of China which uses a zero-COVID policy, the statistics on infections, hospitalizations and deaths have come so far down that they are not currently affecting the markets as they once did. This could certainly change, and quickly as we have seen in the past. But the increasing disconnect between infection rates and hospitalizations and deaths makes it less likely that governments will take actions in response that cause economic consequences (again, with the exception of China). Therefore, for now at least, and for the first time in a couple of years, we will stop presenting the weekly COVID graphs. Again, we are continuing to pay attention, but we will only bring it back to this newsletter if it rises back to the level of a story that moves markets and economies. |
|
| DOWNSIZING AND DECLUTTERING: I recently saw a cartoon that perfectly illustrated a dilemma many face. It showed an old man with a walker standing next to his middle-aged son. They were both staring at a garage with the door open. Inside the garage was a massive pile of stuff from floor to ceiling. There were boxes, an old refrigerator, books, an old fan, a dresser, an old propane tank, a lamp, an old television, a mattress, and just downright clutter. As the two men stared at this, the old man said, “One day son, all this will be yours.” I have a friend I have known for many years, Rita Wilkins. She is an interior designer and has “redesigned” her career, and now she is a “Downsizing Designer.” She speaks from experience because she moved from a very large suburban home to a very small apartment in Rittenhouse Square, Philadelphia. She found it very freeing, and so she decided to turn her learnings into a new career. Recently she put out an article about “stuff”, and what to do with it. She has some sage wisdom here. It dovetails quite well with the webinar we put together called “What to Do With Your Stuff.” |
|
| A BABY GETTING A BATH!: This picture of my grandson Silas made my week. There, now after reading all this dry, and somewhat negative, economic news, don’t you feel a little better? |
|
|
|
Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
|
|
Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
|
|
| “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” Warren Buffett
“Dishonest money dwindles away, but whoever gathers money little by little makes it grow.” Proverbs 13:11
|
|
SOURCES:
BEAR MARKET: https://www.marketwatch.com/story/based-on-history-the-next-bull-market-is-just-months-away-and-could-take-the-s-p-500-to-6000-says-bofa-11655475414?mod=home-page
NEW HOME CONSTRUCTION SLOWS: calculatedrisk.substack.com/p/may-housing-starts-all-time-record |
|
| (c) 2022 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 Barclays U.S. Aggregate: This is a measure of the U.S. bond markets. |
|
|
|
|
|
|
|
