HWM Market Recap - March 2023
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So how's the stock market? Well, it peaked early last year, then declined, and since then, it has gone sideways. As of last week, the S&P 500 Index ended the week's trading at 4,048.22; ten months earlier, it concluded that week's trading at 4,067.91 -- a price change of 19.49 points or less than one-half percent. But during that time, the market went:
↑ 9.6%,
↓ 13%,
↑ 18.7%,
↓ 19.3%,
↑ 17.5%,
↓ 8.2%,
↑ 11.5%, and
↓ 6.6%.
In the industry, we call that volatility. The total of these moves is over 100%, and during this timeframe, the net result was that the stock market's price more or less ended the last ten months where it began. This cartoon is a good depiction of the confusing times in which we live:
We interpret these swings as the markets digesting the conflicting economic currents swirling across the globe. It is easy to predict that we can expect to see more ups and downs in the near term, and we may have just begun another downstroke in the market. In the meantime, our investments compensate us in the form of interest and dividends while we wait for the market to course-correct.
There have been many other significant economic events this past year. The Federal Reserve Board (FED) has raised interest rates and tightened monetary policy at the most aggressive pace in over 40 years. Recently, the MBA Purchase Index (compiled by the Mortgage Bankers Association, which tracks the number of mortgage loan applications) dropped to a 25-year low due to increased home prices and mortgage rates near 7%. Another key interest rate, the Two-Year Treasury Yield, has risen to its highest rate in 16 years.
Economists look at the difference between short-term and long-term interest rates to get a sense of which direction the economy is heading, i.e., expanding or contracting (recession). Ordinarily, short-term interest rates are lower than long-term interest rates. The higher interest rate for longer maturities (when the loan is paid off) is because of the increased risk of lending for more extended periods. This is known as a normal yield curve.
However, sometimes short-term interest rates are higher than long-term interest rates. This is known as an inverted yield curve and is where we find ourselves today. The FED is raising short-term interest rates, which has caused them to rise above existing long-term interest rates. Not only that, but interest rates are more inverted now than they have been in 20 years.
The importance of an inverted yield curve is that it is usually a precursor of a recession. Because of the confusing mixture of historical circumstances, one can make an equally strong case for three scenarios of where the economy is headed: a mild recession (soft-landing), a severe recession (hard-landing), or no recession at all (no landing).
As we mentioned last month, not all is bad. Employment numbers are encouraging, corporate profits are good, and the inflation rate is cooling. All of which is to say that the economy and the markets are working through various domestic and international problems. Consequently, it is easy to be confused about what is happening and what it means for us.
But we digress. We will remain cautious and adjust our portfolios to the prevailing winds. It will be interesting to see how the government resolves the coming taxing, spending, and debt ceiling debates. Whatever happens, you can be sure they will significantly affect the economy and investment markets. In the meantime, we will also continue to endeavor to explain economic and financial events as they unfold.
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Monthly Changes in Indices Year-to-Date Changes in Indices
S&P 500: -2.61% S&P 500: +3.40%
Dow Jones Industrial Average: -3.95% DJIA: -1.15%
Nasdaq Composite: -1.11% Nasdaq Composite: +9.45%
Monthly Performance By Sector Year-to-Date Sector Performance
Technology +0.41% 1. Cons Discret +12.69%
Industrials -0.90% 2. Comm Servs +11.51%
Consumer Discretionary -2.09% 3. Technology +9.72%
Financials -2.30% 4. Materials +5.36%
Consumer Staples -2.30% 5. Financials +4.39%
Communication Services -2.87% 6. Real Estate +3.38%
Materials -3.31% 7. Industrials +2.78%
Health Care -4.60% 8. Cons Staples -3.39%
Utilities -5.88% 9. Energy -6.86%
Real Estate -5.93% 10. Health Care -6.39%
Energy -6.86% 11. Utilities -7.76%
Monthly Top 5 Performers
Technology +0.41%
Technology was the best-performing sector in February 2023 and the only sector that finished positive, with its leaders including: NVIDIA Corp (+18.83%), Ansys Inc (+13.98%), Fortinet Inc (+13.57%), Monolithic Power Systems Inc (+13.53%), and Arista Networks Inc (+10.06%).
Industrials -0.90%
Industrials jumped from the seventh-best-performing sector in January to the second-best-performing sector in February. Its leaders include: W.W. Grainger Inc (+13.68%), Parker Hannifin Corp (+8.34%), Eaton Corp PLC (+7.84%), United Rentals Inc (+6.59%), and United Airlines Holdings Inc (+6.13%).
Consumer Discretionary -2.09%
Consumer Discretionary dropped from the second-best-performing sector in January to the third-best in February. Its leaders included: Tesla Inc (+18.76%), Royal Caribbean Group (+8.78%), BorgWarner Inc (+6.70%), Genuine Parts Co (+5.39%), and O’Reilly Automotive Inc (+4.76%).
Financials -2.30%
Financials were the fourth-best-performing sector in February, with leaders being: Everest Re Group Ltd (+9.80%), Cincinnati Financial Corp (+6.67%), Progressive Corp (+5.26%), CME Group Inc (+4.92%), and Cboe Global Markets Inc (+3.08%).
Consumer Staples -2.30%
As the fifth-best-performing sector, Consumer Staples’ leaders included: Clorox Co (+7.43%), The Hershey Co (+6.57%), Church & Dwight Co Inc (+3.95%), Altria Group Inc (+3.09%), and PepsiCo inc (+1.47%).
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January’s Consumer Price Index (CPI) report showed that consumer prices rose 0.5% for the month or 0.4% excluding food and energy (also known as Core CPI). In addition, over twelve months, inflation slowed to 6.41%, down from 6.45% for December’s trailing twelve months. “The process of getting inflation down has begun,” said Federal Reserve Chairman Jerome Powell. While inflation has cooled for the seventh consecutive month from the June highs of the 9.1% annual rate (the highest since 1981), we are still above the Fed’s 2% target.
In its first meeting of 2023, the Federal Reserve announced it is raising interest rates for the eighth time in a row. In this meeting, they announced a quarter of a percentage point increase (25 basis points)—the lowest increase since May.
As of February 23rd, 30-year fixed mortgage rates are at 6.5%, according to Freddie Mac. This is down from November’s 20-year high, which surpassed 7% but is still above the 52-week average of 5.75%.
The January jobs report from the U.S. Bureau of Labor Statistics showed nonfarm employment increased by 517,000, about 330,000 more than the market estimate. Also, the report showed that the unemployment rate fell slightly to 3.4%, compared to 3.5% in December, and average hourly earnings increased by 0.3%, up 4.4% over the last year. This marks the lowest unemployment level since May 1969.
According to the U.S. Census Bureau, the South was the fastest-growth and largest-gaining region in 2022, increasing by 1.1% or about 1.37 million people. The fastest-growing state in 2022 was Florida, with a growth of 1.9%. This is the first time since 1957 that Florida was the state with the largest percent increase in population.
The Congressional Budget Office now estimates the national debt will increase over the next decade by $19T, which is $3T more than projected in May. This will raise the debt from about 97% of the GDP to 118%, a level we haven’t seen since WWII. To learn more, check out our last newsletter about the debt ceiling!
In a press release from Zillow, single renters in the U.S. living in a one-bedroom pay $7,000 more yearly than couples. Conversely, a couple can save $14,000 annually on average by splitting the rent. This phenomenon of single individuals paying more than couples is known as a ‘singles tax.’ Not surprisingly, the amount of the ‘tax’ varied widely by region: New Yorker saw the highest singles tax of $19,500, while the ‘singles tax’ was lowest in Cleveland and Detroit at $4,387 and $4,483, respectively.
Russia announced it plans to cut oil output by 500,000 barrels per day (about 5%) in March in response to the West imposing price caps on Russian oil and oil products. Deputy Prime Minister Alexander Novak claimed this action “...will contribute to the restoration of market relations.” Critics claim the move will likely drive up prices and make inflation harder to tackle.
Friday, February 24th, marks one year since the war between Russia and Ukraine began.
According to data from the Federal Reserve Bank of New York, people in the U.S. have more credit card debt than ever. Credit card balances increased by $61B in Q4 to $986B, surpassing the previous high of $927B set during the pre-Covid era at the end of 2019. Moreover, according to the Forbes Advisor’s weekly credit card rates report, the average credit card interest rate is 24.08%.
American millennials in their 30s have racked up debt at historical rates, per the WSJ and New York Fed. These individuals’ balances hit more than $3.8T in Q4 of 2022, a 27% increase from late 2019. That is a steeper increase than any other age group and the fastest rate of debt accumulation over a three-year period since the 2008 financial crisis.
According to a survey published by Bankrate, over one in three Americans have more credit card debt than emergency savings. This is the highest on record since 2011. The most affected group is the working generation (individuals aged 27-58), in which more than 4 in 10 people have more credit card debt than short-term savings.
U.S. existing home sales fell for the twelfth straight month, according to the National Association of Realtors. January’s sales were down 0.7% for the month and 37% from the same time last year. This is the slowest annual pace since 2010, after the 2008 housing market crash.
According to a report from Rent.com, yearly rent changes are moderating. Rents are up 2.37% since January 2022, the smallest annual increase in 20 months and the fifth consecutive month of single-digit increases in this metric. The median rental price now sits at $1,942, down from the August 2022 peak of $2,053.
The American Gaming Association projected that 50.4 million Americans would wager $16 billion on Super Bowl LVII -- more than double the $7 billion bet on last year’s game. FanDuel, the popular online gambling company, said it was accepting 50,000 bets per minute at its peak during the Super Bowl, averaging 2 million active users throughout the game. Super Bowl LVII was also the third-most watched T.V. show of all time, with 113 million viewers. The record holder remains the 2015 Super Bowl XLIX, in which 114.4 viewers watched the New England Patriots beat the Seattle Seahawks.
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Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.
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