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Weekly eNews: August 29, 2022

Financial Market Update

Welcome to the StrategicPoint Financial Market Update — a market and economic overview of what occurred last week and what’s up for this week. Please find our market commentary and most recent Blog posts in our StrategicPoint of View®.

StrategicPoint of View®: Investing in Unpredictable Markets

The recent market rally inspired several calls from clients asking whether it is time to invest money again, after a bruising first half of the year. With the past week seeing stocks retreat off their recent highs, it is a good time to review how one should invest in unpredictable markets.

The S&P reached its lows for the year on June 16th, down 23% from January 1st. Over the next nine weeks, ending August 19th, the S&P had climbed 15% off its mid-June close, the Nasdaq had rallied 20% and the Dow was up 14%. If the markets continued their climb, basically uninterrupted, one would call this a V shaped recovery, where markets pick themselves up and don’t look back. During significant rallies, some investors experience FOMO (fear of missing out). The last V shaped rally we had was in 2020, during the pandemic, when the S&P 500 dropped 31% during the first three months of the year and ended the year up 18.40% — a 49.4% move.

More frequently, however, markets rebound from deep downturns in fits and starts. One term for intermittent bounces off lows is “bear market rally;” another is “dead cat bounce” – meaning stocks rise in the interim but then continue their downward trajectory, leaving investors who jump in on the upside facing unexpected losses.

Will we soon experience the beginning of a V shaped market recovery, where markets can overlook negative news and focus on a more positive future? Or will we be subject to repeated whiplash as markets get ahead of themselves and then retreat?

Unfortunately, we don’t know yet, although we are inclined to believe there is more volatility to come. Since my last blog, which discussed the relationship between inflation and recession, data is mixed. Inflation has probably peaked following the pullback in commodity prices but could remain sticky. A hawkish Federal Reserve has signaled that it will continue the current plan of raising interest rates and holding rates high until inflation is under control, leading to the oft quoted prediction that a recession is coming. The labor market is still overheating, whereby those who want a job can have a job, and wages are rising. At the same time Q2 corporate profits have handily beaten expectations and supply chains are healing. However, we are seeing signs of a weakening housing market accompanied by stubbornly high rents, and the rest of the world is threatening to go into its own recession. So, no clear messaging from the economy.

Restoring price stability is key to sustained, improving US economic data. That has not happened yet. It will take time for the Federal Reserve to get the process right and inflation under control, and that means more uncertainty.

So, if you have cash on the sidelines that you want to invest, what are you supposed to do? If you are a very conservative investor, you can wait it out, enjoying modestly higher interest rates in high yield money market accounts, until you feel risk is comfortably less. And if you are younger and/or more aggressive in your risk taking, you can put your waiting cash into the markets, with the understanding that potentially poor timing now is unlikely to derail your long-term plans.

But if you are neither very conservative nor very aggressive, it can be hard to determine how to invest and when. In periods of high market volatility, like we are seeing now, the best approach may be to dollar cost average in– put your money to work in equal increments over a fixed period of time.

Dollar cost averaging (DCA) isn’t new. 401(k) investors practice this approach all the time with their monthly withholding from pay checks. In reverse, retirees who take their RMDs monthly are also practicing a form of dollar cost averaging.

For most of the last dozen years market prices have increased, favoring lump sum investing, where shares are purchased at the lower end of rising prices.  Dollar cost averaging generally performs better in declining markets when shares are purchased over time at lower and lower values.  In the current unsettled economic and market environments, investors may perceive greater immediate risk than in recent years and want to hedge that risk by investing methodically over time.

One caveat:  dollar cost averaging does require follow-through and self-discipline to achieve its benefits. As markets tumble, it can be emotionally difficult to regularly add money to your accounts. That, of course, defeats the purpose of dollar cost averaging, which is designed to be a dispassionate process that helps to control emotional responses to market volatility.

In sum: during the first half of the year market performance was lousy. The second half of the year is giving us mixed results, with no end in sight for uncertainty. That means that it is unclear which market rally will stick and how soon that could happen.

If you have money that you want to employ but are afraid of missing the upside and/or getting caught on the downside, then consider periodic investing. Whether you decide to divide your investments into two, four or more payments and invest monthly or quarterly until a defined date, you can tailor your strategy to match your risk tolerance and confidence of execution.
-Betsey A. Purinton, CFP®

S&P 500: 4,057 (down 4.04% for the week and down 14.87% for the year)
NASDAQ: 12,141 (down 4.44% for the week and down 22.39% for the year)
Dow: 32,283 (down 4.22% for the week and down 11.16% for the year)
US Treasury 10yr: 3.03% (from 2.98% last week)
Crude Oil: $92.91 (from $90.05 last week)
Gold: $1,749.90 (from $1,760.90 last week)
USD/Euro: $0.9966 (from $1.0040 last week)

Last Week’s Headlines

  • According to the second estimate of second-quarter gross domestic product, the economy contracted by 0.6%. GDP decreased 1.6% in the first quarter. Consumer spending, up 1.5% in the second quarter, has buoyed the economy, which is otherwise feeling the negative effects of elevated inflation, supply chain disruptions, and higher interest rates. Gross investment fell 13.2%, as residential investment dropped 16.2% and investment in nonresidential structures decreased 13.2%. The personal consumption expenditures price index, a measure of inflation, increased 7.1% in the second quarter. Excluding food and energy, consumer prices rose 4.4%.
  • The personal consumption expenditures price index dipped 0.1% in July, according to the latest personal income and outlays report. July also saw the consumer price index, import and export prices, and producer prices either flat or decreasing. The PCE price index rose 1.0% in June. Excluding food and energy, prices increased 0.1%. Personal consumption expenditures, a measure of consumer spending, inched up 0.1% in July. Consumers spent more on services, which rose 0.3%, while expenditures on goods slipped 0.2%. Consumer spending increased in housing and utilities and “other” services (mainly international travel), while a decrease in spending on gasoline and energy contributed to the decrease in spending on goods. Both personal income and disposable (after-tax) personal income rose 0.2% in July.
  • The international trade in goods deficit fell 9.7% in July. Exports declined 0.2% and imports dropped 3.5%. Only exports of automotive vehicles, etc., and capital goods increased in July. Exports of foods, feeds, and beverages; industrial supplies; and consumer goods decreased. The 3.5% decline in July imports followed a 0.4% decrease in June, evidencing a slowdown in domestic demand.
  • The housing sector continued to slump in July. According to the latest data from the Census Bureau, sales of new single-family homes fell 12.6% from their June total. Sales are down 29.6% from July 2021. Despite the decline, home prices rose in July. The median sales price of new homes sold in July was $439,400, up from June’s median price of $414,900. The July average price was $546,800, nearly 20.0% over the June average sales price of $457,300. Both the median and average sales prices for new single-family homes were well above their respective values from a year ago. The July 2022 median price was 8.2% above the July 2021 price, while the average sales price in July was 18.2% higher than the July 2021 price. The number of new single-family homes for sale rose in July from the previous month. The inventory sits at a 10.9-month supply, up from the June figure of 9.2 months.
  • The total value of new orders for manufactured durable goods in July was essentially unchanged from the previous month. Excluding transportation, new orders increased 0.3%. Excluding defense, new orders rose 1.2%. Transportation equipment, slipped 0.7% in July, following three consecutive monthly increases. Shipments of durable goods increased in July for the 14th of the last 15 months. New orders for nondefense capital goods in July increased 2.8%, while new orders for defense capital goods rose 8.7%. Since July 2021, new orders for durable goods have increased 10.8%.
  • The national average retail price for regular gasoline was $3.880 per gallon on August 22, $0.058 per gallon below the prior week’s price but $0.735 higher than a year ago. Also as of August 22, the East Coast price decreased $0.090 to $3.766 per gallon; the Gulf Coast price fell $0.025 to $3.403 per gallon; the Midwest price dropped $0.025 to $3.730 per gallon; the West Coast price slid $0.065 to $4.849 per gallon; and the Rocky Mountain price fell $0.061 to $4.152 per gallon. Residential heating oil prices averaged $3.701 per gallon on August 19, about $0.183 per gallon more than the prior week’s price. According to the U.S. Energy Information Administration report of August 24, members of OPEC will earn about $842 billion in oil export revenue in 2022, the most inflation-adjusted net oil export revenue for the group since 2014. OPEC liquids production and crude oil prices in 2022 will be nearly 50.0% greater than in 2021. According to the report, crude oil prices had been generally increasing since late 2020, when global consumption began to outpace production, resulting in inventory draws. However, prices further increased sharply following Russia’s invasion of Ukraine in February 2022.
  • For the week ended August 20, there were 243,000 new claims for unemployment insurance, a decrease of 2,000 from the previous week’s level, which was revised down by 5,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended August 13 was 1.0%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended August 13 was 1,415,000, a decrease of 19,000 from the previous week’s level, which was revised down by 3,000. States and territories with the highest insured unemployment rates for the week ended August 6 were New Jersey (2.2%), Puerto Rico (2.2%), California (1.9%), Connecticut (1.8%), Rhode Island (1.8%), Massachusetts (1.6%), New York (1.6%), Pennsylvania (1.4%), Alaska (1.2%), Illinois (1.2%), and Nevada (1.2%). The largest increases in initial claims for the week ended August 13 were in Oklahoma (+1,419), Missouri (+1,014), Indiana (+691), Virginia (+404), and Michigan (+318), while the largest decreases were in California (-3,185), Ohio (-1,659), Georgia (-946), South Carolina (-847), and Pennsylvania (-617).

This Week

The employment figures for August are released this week. The labor sector has been quite strong for much of the year. July saw over 500,000 new jobs added, while average weekly wages have risen 5.2% over the past 12 months.


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*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors (SPIA) has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors. Certain statements contained herein may be statements of future expectations and other forward-looking statements that are based on SPIA’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue” and similar expressions identify forward-looking statements. SPIA assumes no obligation to update any forward-looking information contained herein.

Certain statements contained herein may be statements of future expectations and other forward-looking statements that are based on SPIA’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may, will, should, expects, plans, intends, anticipates, believes, estimates, predicts, potential, or continue” and similar expressions identify forward-looking statements. SPIA assumes no obligation to update any forward-looking information contained herein.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Third party content does not reflect the view of the firm or of our parent company, Focus Financial Partners. LLC and is not reviewed for completeness or accuracy. It is provided for ease of reference.

Parts of this report were prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2022. Part of this content contributed by Forefield, Inc.