Market Share Newsletter Vol 3 Issue 24

 

November 23, 2021

data abstract illustration
Market Share logo
Your 1st Source for market information
The Consumer Price Index for October was up 6.2%, the highest in 30 years. Expectations are that this holiday season will be much more expensive, and we will feel it in a variety of ways. Let’s start with the average cost for a Thanksgiving dinner. According to the American Farm Bureau survey, this will cost around 14% more than it did a year ago. Travel is another area Americans will feel increased costs this holiday season. Airfares are up 23% in 2021 and nationwide gasoline prices have risen to $3.41 per gallon, up from $2.11 at this time last year. The topic of inflation is top of mind as we talk with clients and is creating a nervousness about the investment markets and the economy.
 
The Federal Reserve calls the current spike of inflation “transitory” which is the term first used in 2011 to explain inflation following the great recession. They expect inflation to ebb over the next year or so to a more manageable level versus a permanent increase in price levels. Currently, the investment markets are acting like that is the case. Corporate earnings continue to be strong, interest rates have risen modestly, and stock prices are near all-time highs for the S&P 500.
 
The coming months of inflation data will receive extra scrutiny for the size of ebb in inflation. Improvements in the disrupted supply chains that have been responsible for a portion of price increases would be a notable spot to see this decline. Food and energy prices can be volatile and have seen surges in the past several months. The way consumers feel about inflation matters. Consumer sentiment has fallen, and inflation is the most quoted reason. If consumers slow down their purchases, inflation will moderate. If they feel the need to buy now because prices will be higher later, that will become a problem. Consumers today have plenty of money and access to credit to make the second outcome possible.
 
We have become more cautious and decreased the amount of interest rate risk. We have maintained the overweight to equities, as they can do well when inflation is moderate. Both decisions are regularly reviewed.
 
While inflation is important, the upcoming holiday season is as well. We are thankful for the opportunity to work with so many families.
 
Happy Thanksgiving!
Paul Gifford, CFA
Chief Investment Officer
Wealth Advisory Services
Investment Management Group
GiffordP@1stsource.com
Erik Clapsaddle, CFA, CFP®
V.P. and Sr. Fixed Income Portfolio Manager
Wealth Advisory Services
Investment Management Group
ClapsaddleE@1stsource.com
Considerations for your portfolio

The Economy

  • The Consumer Price Index (CPI) is the most important gauge for inflation. In October, the CPI increased by 0.9% month-over-month (MoM) and 6.2% year-over-year (YoY). The YoY increase was the largest since November 1991 and came from gasoline (+49.6%), used cars and trucks (+26.4%), and fuels and utilities for residences (+10.4%). The smallest increase over the past 12 months came from medical care as it increased by only 1.3%.
  • October saw existing home sales increase to an annual sales pace of 6.34 million – their highest level since January 2021. Sales only increased by 0.8% over the previous month, but the largest increase came from the Midwest region as sales increased by 4.2% but they declined by 2.6% in the Northeast. The median price for existing home sales increased by 13.1% over the past 12 months.
  • Consumer confidence dramatically dipped in November, based on data from the University of Michigan Consumer Sentiment index. The index declined to its lowest level since November 2011, as more individuals now believe their household finances will be worse next year at this time and are worse today than they were five years ago. The largest concern within the index were higher prices in the United States that affected in multiple factors within the index.
  • The Eurozone unemployment rate dropped to 7.4% as of September 30, which is the lowest rate since April 2020. Many countries within the Eurozone, such as Germany and Poland, have reported close to full recoveries within their labor markets, while many others have not recovered and are still experiencing very high unemployment rates. Spain has an unemployment rate of 14.6%, Italy 9.2%, and Sweden is at 8.5%–all notably above their pre-pandemic levels. Denmark’s most recent unemployment rate was lower than its pre-pandemic level.
Economic Data: Recent
  Actual Survey Prior
Consumer Price Index MoM 0.9% 0.6% 0.4%
Consumer Price Index YoY 6.2% 5.9% 5.4%
University of Michigan Sentiment
66.8 72.5 71.7
Existing Home Sales 6.34m 6.20m 6.29m
Economic Data: Upcoming
    Survey Prior
Change in Nonfarm Payrolls   500k 531k
ISM Manufacturing   61.0 60.8
Conference Board Consumer Confidence   110.0 113.8
Personal Income   0.2% -0.3%

 

Equities

  • Lowe’s, one of the nation’s largest home improvement stores, reported better than expected revenue and earnings in the third quarter. Same-store sales were also much better than expected as they increased by 2.2% in the quarter but were anticipated to decline by 2.6%. A unique characteristic of Lowe’s is their Winning Together profit-sharing bonus, which resulted in a total payout of $138 million to all of their front-line employees.
  • The S&P 500 has closed at a record high 66 times this year, based on data from Bloomberg. 2021 has the second most highs on record as there were 77 record highs in 1995. The three largest returning sectors year-to-date have been energy, financials, and real estate.
  • European stock markets have been negatively affected by the increased concerns of government action surrounding the uptick in COVID cases throughout Europe. Investors are questioning Europe’s ability to grow amid the possibility of the European Central Bank beginning to pull back on their monetary policy. The STOXX Europe 600 index declined slightly on Monday but opened more than 1% down on Tuesday.
Equity Index Values and Total Returns
  Value YTD 1-Year
S&P 500 4,682.9 26.26% 32.31%
Dow Jones Industrial Average 35,619.3 18.33% 22.67%
NASDAQ Composite 15,854.8 23.77% 32.86%
Russell 2000 (small-cap index) 2,331.3 19.01% 28.24%
MSCI EAFE (developed intl.) 2,328.0 11.36% 18.25%
MSCI Emerging Markets 621.2 -0.47% 5.50%
 
Equities chart
Source: Bloomberg
 

Fixed Income, Commodities and Currencies

  • Despite the direction that most other central banks are headed, the European Central Bank (ECB) President Christine Lagarde stated on Friday that “conditions to raise rates are very unlikely to be satisfied next year” as reported by CNBC. She perceives an increase in their central bank rate next year to be “premature tightening.” The ECB’s current benchmark rate is 0.00% and most recently inflation was reported to be at 4.1% over the past 12 months.
  • LIBOR, the London Inter-Bank Offered Rate, largely considered the world’s benchmark interest rate for borrowing, will no longer be used in the issuance of new loans or credit products beginning January 1, 2022. The rate will continue to be quoted until mid-2023 for existing loans that used it but will transition to the Secured Overnight Financing Rate (SOFR) or an alternative rate. Three-month LIBOR is currently quoted at 0.164% while SOFR is at 0.05%.
  • Many commodity prices have soared this year as coffee increased by 83.2%, cotton by 49.5%, and aluminum increased by 35.9% through Monday. Despite increased global demand for almost everything, there have been a few commodities that have experienced a strong decline this year as rubber has declined by approximately 25% and iron ore and lumber have declined by 46.3% and 11.5% respectively.
Fixed Income Index Yields & Total Returns
  Yield YTD 1-Year
B’berg Barclays Inter Govt./Credit 1.32% -1.82% -1.44%
B’berg Barclays US Aggregate Bond 1.78% -2.05% -1.77%
B’berg Barclays US Corp.High Yield 4.44% 4.23% 6.77%
B’berg Barclays Municipal Bond 1.14% 1.12% 1.86%
Key Interest Rates
  11/22/21 12/31/20 11/24/16
Federal Funds Target Rate 0-0.25% 0-0.25% 0.25-0.5%
3-Month LIBOR 0.17% 0.24% 0.92%
2-Year U.S. Treasury Note 0.58% 0.12% 1.12%
10-Year U.S. Treasury Note 1.62% 0.91% 2.35%
Prime Rate 3.25% 3.25% 3.50%
Commodities & Currency
  11/22/21 12/31/20 YoY Change
Gold 1,809.1 1,914.0 -4.05%
Crude Oil 76.8 48.5 81.17%
Natural Gas 4.79 2.54 84.06%
Corn 576.8 484.0 35.17%
Soybean 1,274.3 1,315.3 6.46%
USD: Euro 1.124 1.222 -4.89%
Equity chart
Source: Bloomberg
 
DISCLOSURES
The information in this email was prepared from sources believed to be reliable; it is for informational purposes only and does not provide recommendations based on the investment objectives, financial situation, or needs of any individual or entity. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets. The information in this email is not a comprehensive statement of the matters discussed. Unless specifically indicated otherwise, this email is not an offer to sell or a solicitation of any investment products or other financial product or service or a confirmation of any transaction. If you have questions about the information in this email, please contact your trust administrator at 1st Source Bank Wealth Advisory Services or call 800 882-6935. Investment and Insurance products are:
  • Not insured by the FDIC or any Federal Government Agency
  • Not a deposit or other obligation of, or guaranteed by, the Bank or any bank affiliate
  • Subject to investment risks, including possible loss of the principal amount invested

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.