Author: Derek Tallon

Recently, you may have seen the headlines regarding Silicon Valley Bank collapse, creating implications for the financial system as a whole. If you looked at the performance of the financial sector over the past week or two you’d be excused for feeling a bit of panic. The deterioration in share prices slowly accelerated into a crushing run on two banks in two days. Given the way markets have been fluctuating over the past 18 months and the pressure the Fed has been putting on the market, we can understand how some people might jump to conclusions and think the financial system is finally cracking under the pressure of rate hikes and inflation.

We’re going to dive into this deeper, but lets start this reaction piece off by pressing pause on any panic you might be feeling.

Why Is The Financial Sector Under Pressure with Silicon Valley Bank Collapse

The financial sector has been under pressure as rate hike expectations have come back into focus. While we’ve had plenty of speculation around rate hikes over the past 18 months, the past week or two has seen the 2s – 10s spread expand rapidly. The 2s-10s spread is the gap between 2 year treasury yields and 10 year treasury yields. In normal markets conditions, longer maturity yields are typically higher than short maturity yields – governments or companies who issue debt have to pay more for investors to feel comfortable locking their money up for longer periods of time. However, in the current environment where rapid rate hikes are expected to be temporary, the yield of treasury bonds with shorter maturities is higher than the yield on treasuries with longer maturities.

This spread is important because the spread between long term and short term maturities can have a significant impact on bank profitability. Banks fundamentally operate in the business of borrowing short term money and lending it out to people for longer term projects. The most extreme example taking a customer deposit for say, $500,000, and then turning around and giving another customer a loan for $500,000. The bank has borrowed short term money from the depositor, and lent it out for much longer – for the sake of this example, lets say 10 years. The interest they make on the 10 year loan is used to pay for the bank’s operational costs, drive value for bank shareholders, and of course, pay the customer some interest on their savings account.

Read the full article in Forbes.

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When discussing 2023 inflation trends, we first take a look back at the Federal Reserve’s recent moves regarding interest rates. Last month, the Federal Reserve raised rates by 25 basis points. This stepped down from 50 basis points in December. However, the latest strong batch of economic reports suggest that 50 basis points returned to the table.

Examining the Future Beyond 2023 Inflation Trends

Regardless of whether the Federal Reserve raises rates by 25 or basis points, investors need to ask themselves about where the United States economy will head over the course of the next 6-12 months. Furthermore, what does the terminal rate look like for interest rates? Will it be 4.75%, 5.0%, or 5.25? Currently, any of these numbers is in play. Additionally, most fixed-income investors should feel capable of handling these rate increases.

However, in the event that the Federal Reserve feels the need to increase the federal funds rate beyond 5.25%, this causes greater challenges for investors and the United States economy as a whole. Rates at 6.0% and 6.25% create more cause for concern.

Understanding the Federal Reserve’s Inflation Strategy

This past week, the Produce Price Index, inflation figures, and consumer spending figures came in stronger than anticipated. For instance, the Producer Price Index rose 0.7% month-over-month in January. This exceeded the 0.4% increase consensus forecast. Ultimately, this data does facilitate concerns over the “stickiness” of inflation.

Overall, the Federal Reserve’s hands are somewhat tied. Not only are they combatting inflation, they are dealing with expectations of future inflation as well. Food prices, fuel prices, and other volatile market sectors contribute to higher inflation expectations. In another example, housing prices facilitate further inflation. Since the Great Recession, the United States dealt with a shelter shortage. To make matters worse, raising interest rates further increases prices related to home construction, skilled labor, and material costs.

Best Practices for Dealing with 2023 Inflation Trends

Despite these challenges, inflation will eventually come down. At present, the economy is facing a lag effect from the Federal Reserve’s periodic rate increases. Even by the end of 2023, it is unlikely that the Federal Reserve will begin to cut interest rates due to this lag effect. Crucially, the Federal Reserve wants to “beat” inflation the first time around, as opposed to pausing or scaling back interest rate hikes only to redo them later down the road.

In the meantime, the bond market should see plenty of activity, making banking stocks and investing vehicles attractive. Simply put, they do not face the same wage pressure that other sectors, like restaurants and bars might. As for the ongoing concerns regarding the tech sector, this market segment proved time and time again to find new ways to drive margins, even in tough times.

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To reevaluate your inflation strategy in 2023, contact the financial advisors at IHT Wealth Management.

In the penultimate week of 2022, the stock market experienced typical end of year volatility. Generally, this resulted in stocks rounding out the week at a lower point.

Investors React to Inflation Data Amidst End of Year Volatility

Notably, the latest inflation data came out last week, sparking the end of year volatility. According to the Bureau of Economic Analysis, inflation rose by only 0.1% in November 2022.

Now, investors digest this information while simultaneously anticipating the Federal Reserve’s response. After more than a year of record inflation levels, investors hope this marks the latest sign that inflationary pressures reached their peak. If this is the case, the data might influence the Federal Reserve to scale back its interest rate hikes.

China Experiences Surge in COVID-19 Cases

Further fueling the end of year volatility, China revealed news of their latest surge in COVID-19 cases. Due to this news, investors potentially expect further government-imposed lockdowns. If this occurs, the lockdowns hold heavy potential to influence the global economy.

Diving into the numbers, Ten-Year Treasury Yields advanced the most since April 2022. Meanwhile, the dollar edged lower. On the other hand, gold prices climbed higher. Finally, crude oil prices increased for the second week in a row. As a result, crude oil prices approach $80.00 per barrel.

Eye on the Week Ahead After End of Year Volatility

Despite last week’s end of year volatility in the stock market, trading tends to die down during the final week of the year. Typically, investors take a break while preparing for the new year.

Additionally, very little economic reporting comes out between Christmas and New Year’s Day. In the meantime, investors look towards the Federal Reserve for updated projections on their increases to the federal funds rate.

To reevaluate your financial goals in 2023, contact the financial advisors at IHT Wealth Management.

Want to read about the rest of the week ending on December 17th? Explore our additional resources below.

Information accredited to Broadridge.

After a year of record inflation levels, November 2022 Personal Income rose. On the contrary, manufactured durable goods faced a decrease after three months of increases. Finally, the latest report from the U.S. Energy Administration showed that gas prices slid last week.

Consumer Spending Rises with Personal Income Increase

Personal income and disposable (after-tax) income rose 0.4% in November, according to the latest data from the Bureau of Economic Analysis. Consumer spending, as measured by personal consumption expenditures, rose 0.1%.

Consumer prices edged up 0.1% in November. Prices, less food and energy, increased 0.2%. Since November 2021, consumer prices have increased 5.5%, lower than the 12 months ended in October (6.1%).

Decrease in November Manufactured Durable Goods as Personal Income Increases

Aside from the November 2022 Personal Income data, new orders for manufactured durable goods decreased 2.1%. This follows three consecutive monthly increases. Excluding transportation, new orders increased 0.2%.

On the other hand, excluding defense, new orders decreased 2.6%. Transportation equipment drove the decrease in new orders, falling 6.3% following three consecutive monthly increases.

Gas Prices Slide According to the U.S. Energy Administration

Retail prices for regular gasoline continued to slide last week. According to the U.S. Energy Administration, the national average retail price for regular gasoline was $3.120 per gallon on December 19, $0.119 per gallon below the prior week’s price and $0.175 lower than a year ago.

Also as of December 19, the East Coast price decreased $0.107 to $3.118 per gallon; the Gulf Coast price fell $0.086 to $2.641 per gallon; the Midwest price declined $0.123 to $2.911 per gallon; the West Coast price dropped $0.164 to $3.983 per gallon; and the Rocky Mountain price decreased $0.141 to $3.086 per gallon. Residential heating oil prices averaged $4.606 per gallon on December 19, $0.261 above the previous week’s price and $1.262 per gallon more than a year ago.

To discuss your portfolio management strategy for 2023, contact the financial advisors at IHT Wealth Management.

Want to read about the rest of the week ending on December 17th? Explore our additional resources below.

Information accredited to Broadridge.

Last week, the third-quarter GDP data came out. In the final estimate for third-quarter gross domestic product, the latest data told the story of an accelerating economy.

Third-Quarter GDP Exceeds Expectations

The final estimate for the third-quarter gross domestic product showed the economy accelerated at an annual rate of 3.2%. Thus, the third-quarter GDP figures exceeded expectations.

Earlier in 2022, GDP declined 1.6% in the first quarter. Similarly, it fell 0.6% in the second quarter of 2022. That said, this most recent report reflects a break in the pattern.

Exploring the Increase in Third-Quarter GDP Data

When exploring the increase in third-quarter GDP data, the story begins with advances in exports. Likewise, federal, state, and local government spending also rose alongside consumer spending. Last but not least, nonresidential fixed investment climbed.

However, these increases faced offsetting pressure by decreases in residential fixed investment and private inventory investment. Imports, which are a negative in the calculation of GDP, decreased. The personal consumption expenditures price index, a measure of inflation, increased 4.3% in the third quarter, lower than the 7.1% advance in the second quarter.

GDP Rises Alongside Stock Market Volatility

Overall, the stock market experienced a great deal of volatility in the penultimate week of 2022. However, investors keep their eyes on the latest inflation figures, which indicate that the Federal Reserve’s increases to the federal funds rate are reducing inflationary pressures.

Also worth noting, China experienced a surge in COVID-19 cases. This does indicate the possibility of another lockdown. Such an event would influence the global economy, potentially impacting the first-quarter GDP figures in 2023. However, after declines in the first two quarters of 2022, the third-quarter GDP report shows that the economy is once again beginning to accelerate heading into the new year.

To discuss your portfolio management strategy for 2023, contact the financial advisors at IHT Wealth Management.

Want to read about the rest of the week ending on December 17th? Explore our additional resources below.

Information accredited to Broadridge.

Last week, the latest real estate data revealed a weakening in the November 2022 housing sector. In the headline story, sales of existing homes fell for the tenth straight month.

Further complicating the United States real estate market, building permits and housing starts similarly declined. However, new single-family home sales increased for the second month in a row. This offers a beacon of hope to the real estate scene as 2022 comes to a close.

Existing Home Sales Plummet for Tenth Month in a Row

For the tenth month in a row, existing home sales plummeted, weaking the November 2022 housing sector. Statistically, home sales declined 7.7% in November. In addition, it reflects a 35.4% plunge in year-over-year home sales.

Similarly, existing single-family home sales experienced a 7.6% drop from the previous month. This marks a 35.2% drop since November 2021.

Reasons for Weaking November 2022 Housing Sector

According to the National Association of Realtors®, the rapid increase in mortgage rates coupled with low inventories hurt housing affordability. Furthermore, these factors brought sales activity to levels resembling those that existed during the COVID-19 lockdown.

Holistically, total housing inventory in November represented a supply of 3.3 months, unchanged from October. Naturally, this falls well below the equilibrium point of 6.0. The median existing home price for all housing types in November dropped to $370,700. Although this shows a decrease of 2.2% from October ($378,800), it does indicate a 3.5% increase from the November 2021 price of $358,200. The median existing single-family home price was $376,700 in November, down from $384,600 in October but up from the November 2021 price of $365,000.

Building Permits and Housing Starts Declined

Building permits and housing starts also fell amongst the November 2022 housing sector detractors. First, the number of issued building permits and housing starts declined in November from the previous month. Authorized building permits dropped 11.2% below the October rate. This marks a 22.4% decrease compared to the November 2021 pace. In November, issued building permits for single-family home construction also declined 7.1% under the October figure.

Meanwhile, November housing starts in November slid 0.5% below the October estimate. Statistically, this demonstrates a 16.4% a drop under the November 2021 rate. Notably, single-family housing starts fell 4.1% compared to the previous month’s tally.

New Home Sales Reflect Beacon of Hope for November 2022 Housing Sector

On a more optimistic note, home completions rose by 10.8% in November, 6.0% higher than the prior year’s total. In November, single-family home completions were 9.5% above the October rate.

Sales of new single-family homes increased for the second straight month in November, advancing 5.8% above the revised October rate. However, sales are down 15.3% from November 2021. Inventory of available single-family homes for sale stood at 8.6 months, down from the October rate of 9.3 months. The median sales price of new single-family homes sold in November was $471,200 ($484,700 in October), while the average sales prices was $543,600 ($533,400) in October.

For help with real estate investments, contact the financial advisors at IHT Wealth Management.

Want to read about the rest of the week ending on December 17th? Explore our additional resources below.

Information accredited to Broadridge.

For the week ending December 17th, 2022, unemployment insurance saw 216,000 new claims. This represents an increase of 2,000 compared to the prior week’s unemployment insurance claims.

Examining Prior Unemployment Insurance Claims in December

According to the Department of Labor, the advance rate for insured unemployment claims for the week ending December 10th was 1.2%. This figure remained unchanged from the previous week’s rate.

However, the advance number of those receiving unemployment insurance benefits during the week ending December 10th came in at 1,672,000. This marks a decrease of 6,000 from the previous week’s level. Later, analysts revised this statistic by 7,000.

Taking a Look at States with the Highest Unemployment Rates in December

For the week ending on December 3rd, Alaska led the pack of states with the highest unemployment rate. Alaska’s percentage came in at 2.3%. Following Alaska, the Department of Labor reported Puerto Rico (2.1%), California (2.0%), New Jersey (2.0%), Montana (1.7%), Minnesota (1.7%), New York (1.6%), Rhode Island (1.6%), Massachusetts (1.5%), and Washington (1.5%), respectively.

Notably, the week of December 10th had a different makeup for the states with the largest increases in initial claims for unemployment insurance. Connecticut led the roster with +471. Following Connecticut, we saw the District of Columbia (+237), Nevada (+157), Kentucky (+153), and Illinois (+138). On the decline, New York saw the biggest drop at -7,134. New York was then followed by California (-4,830), Georgia (-4,273), Texas (-3,954), and Pennsylvania (-2,669).

Unemployment Insurance Claims Rose for the Week Ending on December 17th

Conclusively, unemployment insurance claims rose for the week ending on December 17th. As 2022 winds down, investors expect to see a slowdown in trading activity.

To begin your financial planning strategy for 2023, contact the financial advisors at IHT Wealth Management.

Want to read about the rest of the week ending on December 17th? Explore our additional resources below.

Information accredited to Broadridge.