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Volatility Continued in June (in the Markets & Otherwise)

Volatility Continued in June (in the Markets & Otherwise)

July 07, 2022
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It’s safe to say that everyone was hoping to see the markets settle down in June, but it ended up being another painfully bumpy month. Ongoing volatility meant both stocks and bonds were under pressure amid inflation worries and rising recession fears. During periods of market turbulence, it’s helpful to recall a favorite Warren Buffett quote: “Don’t watch the market closely.”

The Oracle of Omaha gave this sage advice in 2016, when China’s economic issues, Brexit, and the Federal Reserve’s interest rate policy roiled the markets. Now, here we are in July 2022 and facing turbulent markets again, thanks to inflation, global growth, and uncertainties over the Fed’s interest rate policy. Buffett’s words remind us that pullbacks, corrections, and bear markets are an expected part of the investing process. Please reach out if you have any concerns, but in the meantime, take a break from watching too closely. That’s why we’re here.

Fed Rate Hike. In mid-June, the Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest rate increase since 1994 and signaling its commitment to address inflation. The report from the Federal Open Market Committee meeting also indicated new rate projections, showing that all committee members expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise to 3.375%. (The Wall Street Journal, June 15, 2022.) The 75-basis-point increase was a late-developing change from earlier Fed guidance of a 50-basis-point increase. The change of heart was in response to inflation data and rising inflationary expectations.

SCOTUS Decision. The US Supreme Court decision in late June to overturn the landmark Roe v. Wade ruling was definitely divisive (considered a hard-won victory by some and an upsetting defeat by others). In May, Treasury Secretary Janet Yellen testified before the Senate Banking Committee that restricting women’s reproductive rights would have “very damaging effects on the economy,” but only time will tell whether it will impact the markets or if there will be financial fallout from the decision.

Gun Legislation Passes. President Biden signed into law new gun legislation on June 25. Congressional bipartisan support was required to push the bill through. While both sides of the aisle say they made significant compromises, the bill does expand child and family mental health services, strengthens background checks for buyers under age 21, bolsters crisis intervention programs and red flag laws, and more.

Cost of Living Inflation Bump. As you might have heard, people are talking about a big bump in Social Security benefits next year. The Senior Citizens League says payments could rise by as much as 8.6% in 2023, compared to an increase of 5.9% in 2022. That would mean an average benefit of $1,658 for the 70 million Social Security recipients on January 1. What does this mean for you? Stay tuned as these numbers become clearer in the coming months.

We know market volatility and negative headlines can translate into worries. If you’re feeling concerned about anything, please schedule some time with our office – we’d be happy to review your plan and discuss any questions. Just give us a call.

Stocks

Equity markets closed out June in negative territory, rounding out the worst first half of the year since 1970. Investors continue to sell off shares amid rising recession fears sparked by surging inflation and rate hikes from the Federal Reserve.

Sector Performance

Despite a significant downturn on June, energy remains the best performing sector on the year. While declining sharply throughout June, Brent crude has remained above $100 a barrel to end the second quarter as fears continue over the restriction of Russian oil supply. Oil prices have bolstered the energy sector, the only group in the S&P 500 index with a positive year-to-date return. Energy stocks dropped -16.8% in June but still remain up 31.84% for the year. No sector produced a positive return for the month of June, which can seem scary on paper. But remember, the economy is not the same as the market. If you're concerned about your investment positions, let’s get together and review. Outside of energy, materials and consumer discretionary sectors got hit the hardest. Materials returned -13.84% while the Consumer Discretionary Sector returned -10.80% for the month of June.  

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Bonds

Bond returns have been historically poor because the Federal Reserve, along with other major central banks, has pivoted to normalize rates faster than expected. Bond prices and rates move inversely to each other. Therefore, as the Fed continues to hike rates, we could see downward pressure in the bond market.

Economic Update

As investors look ahead to the second half of the year, they’re asking how much longer high inflation will persist, how aggressively the Fed will fight it and how much farther asset prices will fall before they reach the bottom. Many current market trends reflect stark reversals in sentiment from this time last year. Some of the moves can have a broad impact on businesses or reveal what investors anticipate for the economy.

However, a massive part of the economy, the labor market, remains on solid footing. The economy has added on average roughly 440,000 jobs per month since the beginning of the year.

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Outside-the-Box Thinking with Ecological Impact

Groundbreaking company Inversa Leathers has developed an innovative way to positively impact our planet… say hello to “fish leather!” The company’s founder, Aarav Chavda, is an avid scuba diver and engineer who had seen many of his favorite reefs devastated by the lionfish -- an aquarium staple that is actually an invasive, predatory species when in the wild.

Seeking to help save these beautiful (and ecologically important) reef habitats, Chavda’s company buys lionfish (several thousand per day) from fishermen and fishing firms all across Florida, Mexico and the Caribbean. They then ship them to a tanning facility in Ohio, where they go through a 60-step tanning process that turns them into beautiful, exotic leathers for shoes, wallets and more.

Transforming invasive species into a mass-harvestable resource is not only a great way to monetize their capture and disposal (which usually costs governments tens of millions of dollars), it’s also is a positive turn for the garment and fashion industries, which are some of the largest polluters in the consumer goods sector. Invasive species represent a uniquely beneficial opportunity to transform industry supply chains into ones which work for the planet, not against it. Learn more about this unique product at Inversa Leathers.

THOUGHT FOR THE MONTH

Index Definitions

Dow Jones Industrial Average: The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies. The index covers all industries except transportation and utilities.

Dow Jones U.S. Real Estate Total Return Index: The index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.

NASDAQ Composite: The NASDAQ Composite is a market-cap weighted index of all issues listed on the Nasdaq stock exchange. It is heavily weighted towards the technology sector. 

S&P 500 Bond Index: The S&P 500® Bond Index is designed to be a corporate-bond counterpart to the S&P 500, which is widely regarded as the best single gauge of large-cap U.S. equities. Market value-weighted, the index seeks to measure the performance of U.S. corporate debt issued by constituents in the iconic S&P 500.

S&P 500 Consumer Discretionary: The S&P 500® Consumer Discretionary comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer discretionary sector.

S&P 500 Consumer Staples: The S&P 500® Consumer Staples comprises those companies included in the S&P 500 that are classified as members of the GICS® consumer staples sector.

S&P 500 Energy: The S&P 500® Energy comprises those companies included in the S&P 500 that are classified as members of the GICS® energy sector.

S&P 500 Financials: The S&P 500® Financials comprises those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

S&P 500 Index: The S&P 500® index is a market-cap weighted index of the largest 500 companies headquartered in the United States. The index covers approximately 80% of available market capitalization.

S&P 500 Utilities: The S&P 500® Utilities comprises those companies included in the S&P 500 that are classified as members of the GICS® utilities sector.

S&P U.S. Aggregate Bond Index: The S&P U.S. Aggregate Bond Index is designed to measure the performance of publicly issued U.S. dollar denominated investment-grade debt. The index is part of the S&P AggregateTM Bond Index family and includes U.S. treasuries, quasi-governments, corporates, taxable municipal bonds, foreign agency, supranational, federal agency, and non-U.S. debentures, covered bonds, and residential mortgage pass-throughs.

S&P U.S. Treasury Bond Index: The S&P U.S. Treasury Bond Index is a broad, comprehensive, market-value weighted index that seeks to measure the performance of the U.S. Treasury Bond market.

Disclosures 

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A portion of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results. 

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

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Securities and investment advisory services are offered through the firms: FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., Triad Advisors, LLC, and Woodbury Financial Services, Inc., broker-dealers, registered investment advisers, and members of FINRA and SIPC. Securities are offered through Securities America, Inc., a broker-dealer and member of FINRA and SIPC. Advisory services are offered through Arbor Point Advisors, LLC, Ladenburg Thalmann Asset Management, Inc., Securities America Advisors, Inc., and Triad Hybrid Solutions, LLC, registered investment advisers. Advisory programs offered by FSC Securities Corporation, Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial Services, Inc., are sponsored by VISION2020 Wealth Management Corp., an affiliated registered investment adviser. Advisor Group, Inc. is an affiliate of these firms.