| February 09, 2023

Macro Overview

Inflation became less of a concern in January as the most recent data revealed six consecutive months of falling prices. The most recent inflationary data, as measured by the Consumer Price Index (CPI), fell to 6.5% after reaching 9.1% in June.

Surveys of banks conducted by the Federal Reserve have revealed that lending is slowing down markedly, with banks tightening credit scoring and steadily bolstering their cash reserves. Major banks are building protection against what they predict are upcoming economic woes in the form of asset and cash consolidation.

Recently passed legislation will allow millions of taxpayers the ability to reap tax benefits on electric vehicles and 529 college savings plans. Provisions from the Inflation Act as well as the SECURE Act will benefit mostly middle-income earners across the country.

Recent comments by Fed Chair Jerome Powell signaled that the Fed intends to continue rate hikes due to a strong labor market. Some economists and analysts differ in their view surrounding the strength of the labor market and instead note a decreasing hiring trend by companies as well as stagnant wages.

With recent concerns surrounding the debt ceiling and funding for different governmental agencies, the Office of Management & Budget identifies where the federal government allocates funds. The biggest expense in 2022 was Social Security, which was the only spending category of over $1 trillion. $770 billion was appropriated for National Defense, with other notable categories including Health, Income Security, and Medicare. In total, the federal government spent $6.27 trillion throughout 2022, nearly double what it did just a half-decade ago.

Sources: Bureau of Labor Statistics, Board of Governors of the Federal Reserve, Internal Revenue Service, U.S. Congress, U.S. Office of the President, Office of Management & Budget

Major Equity Indices Post Gains So Far This Year - Domestic Equity Overview

Major equity indices were positive year to date at the end of January, with the S&P 500 index up 6.18% as technology-related companies led the gains. The Dow Jones Industrial Index gained 2.83% for the month and the technology-heavy Nasdaq advanced 10.68%. Expanding earnings and containing expenses continue to be objectives for companies throughout all sectors and industries.

Sources: S&P, Bloomberg, Nasdaq, Dow Jones

Demand For Bonds Rose in January - Fixed Income Review

Demand for bonds is increasing as investors have a seemingly endless appetite for debt amid signs inflation is cooling and central banks worldwide are slowing their pace of tightening. Yields fell across the yield curve in January with lower yields on shorter and longer-term bonds, in turn elevating bond prices which move higher as yields head lower. Housing was buoyed as the average rate on a 30-year conforming mortgage fell to 6.09% on Feb 2nd, the lowest since September.

Sources: U.S. Treasury, Bloomberg, Freddie Mac

U.S. Inflation Cools While Global Inflation Persists - Global Inflation Trends

Following 40-year highs in inflation, the Fed’s aggressive rate hikes and a slowing economy have begun cooling inflation. For the 6th consecutive month, U.S. Inflation has decreased, reaching 6.5% in December 2022.

For the United States, this stands as an optimistic sign of easing inflationary pressures on consumers, corporations, and small businesses. While 6.5% inflation is still abnormally high, and over 4% greater than the Fed’s target rate, it is also the lowest inflation has been since October of 2021. However, the Fed’s monetary policy that lowered inflation has also introduced a recessionary environment, which might continue to unfold throughout 2023.

At the same time American inflation cools, nations worldwide are continuously struggling with high inflation. Argentina is facing 94.8% inflation as of December 2022 and is expected to reach 98% inflation by the end of 2023. This is the highest inflation Argentina has observed in three decades and comes amidst political turmoil. Other nations with notably high inflation include Turkey at 84%, Russia at 12%, the UK at nearly 11%, and Poland at 17.5%.

Sources: Bureau of Labor Statistics, IMF, WorldBank

Home Sales Fall Across the Nation - Housing Update

Following seven consecutive quarters of double-digit increases in the median sales price of American homes, pending home sales have reached an all-time low as fewer homeowners are looking to sell their homes. The reasoning behind most homeowners’ thinking is that, with home prices at historic highs, they will have nowhere to comfortably move to after selling their residences.

In the third quarter of 2022, the median American home price across the nation eclipsed $450,000 for the first time recorded and upheld an ongoing period of double-digit home price increases. This is the second-longest period of double-digit increases ever recorded, only behind a period between Q4 1977 to Q3 1979. With home prices at such abnormal highs, fewer potential purchasers are willing to meet extreme costs and fewer existing homeowners are willing to move on from their residences and purchase a different one in such an unstable market. This can be exhibited across the nation, with the housing affordability index down 36% and existing home sales nationwide down 35%. The housing crisis has affected western states abnormally harsher than the rest of the country, with higher home prices and home sales down nearly 46% in the region.

Overall, a stagnated housing market has persisted since 2021 and may worsen if home prices continue to climb from already overpriced levels. While mortgage rates have also maintained abnormally high levels, they have decreased slightly from their previous peaks which sends an optimistic sign for potential home buyers. However, low inventory across the nation and falling home sales can signal continued stagnation in the housing market.

Sources: National Association of Realtors, U.S. Census Bureau, Freddie Mac, S&P Dow Jones Indices, Federal Reserve Bank of St. Louis.

Job Openings Are Decreasing - Labor Market Update

With looming recessionary pressures throughout 2022, many corporations reversed their 2021 hiring frenzies. Instead, companies have been opting to slow down hiring, shutter positions, and implement layoffs.

In fields such as technology, many companies have already admitted to over-hiring throughout the pandemic. Following 20 months of job openings growth, 2022 closed with 5 consecutive monthly decreases in job openings as compared to the year prior. Slowed and even halted hiring practices were also apparent, with 6 consecutive months of reduced hires in the private sector heading into 2023.

The labor market may produce instability in 2023 as recessionary pressures develop, with the unemployment rate possibly rising to as high as 6% according to many analysts. This should assist in the Fed’s efforts to mitigate inflation, yet may spell worries for employees who struggle with reduced job security.

Sources: Bureau of Labor Statistics

SECURE Act 2.0’s Benefits ROTH IRAs & 529 Savings Plans - Financial Planning

The SECURE Act 2.0, passed by Congress on December 29 as part of a new 1.7 trillion spending bill, instituted a wide array of changes in retirement planning. While much focus has been placed on changes to Required Minimum Distributions (RMDs) and company-sponsored retirement plans, a key highlight of the act lies in its changes to Roth plans, which will go into effect in January 2024.

The most major of these changes is introducing the ability for individuals to roll over funds from a 529 college savings plan into a Roth IRA. Households will be able to transfer a lifetime maximum of $35,000 as penalty-free and tax-free rollovers into their Roth IRA plans.

The annual limit of these rollovers will be equal to the IRA contribution limit, which is currently $6,500 per year for those under the age of 50 and $7,500 for those 50 and older. Further restrictions include that the 529 accounts must have been open for at least 15 years and that contributions made within the last five years are barred from being rolled over. It should be noted that this is an entirely new rule created by the act, and thus further guidance from the IRS should be expected in the coming months on specific guidelines for these rollovers.

Additionally, the SECURE ACT 2.0 delayed Required Minimum Distributions for 401(k) plans and eliminated RMDs for original account owners of Roth 401(k) plans. These new changes are expected to assist the wave of primarily Baby Boomer Americans who will approach the age of retirement in the upcoming decade.

Sources: U.S. Congress, Internal Revenue Service

**Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.