September 2022 Market + Economic Update

AUGUST RECAP

Now that September is here, it feels like summer is already in the rearview mirror. It went fast, didn’t? Beginning with the autumnal equinox on the 22nd of the month, we’ll start to see the days grow shorter and the weather get cooler.

Speaking of a change in the weather, we certainly had an abundance of weather-related news in August. Climate change worries continued as we saw historic flooding in South Korea and Pakistan, and record heat and drought in the UK and China. In addition, intense wildfires ravaged France and burned more than 18,000 acres in the Bordeaux region (you might want to stock up on Bordeaux reds, as wine prices and availability will undoubtedly be impacted).

In political headlines, FBI agents conducted a search for classified documents at Donald Trump’s Florida home. Joe Biden signed new legislation with $370 billion of spending and tax cuts intended to combat climate change. And Californians voted to ban the sale of all new gasoline-powered cars by 2035. Meanwhile, the stock market continued its down-then-up-then-down-again roller coaster.

On August 26, Federal Reserve (Fed) Chair Jerome Powell suggested the Fed would continue with an aggressive path of raising interest rates and tightening financial conditions to try and combat inflation. Markets reacted adversely to the news, sending the Dow Jones Industrial Average, Nasdaq Composite Index, and S&P 500 tumbling downward, resulting in the weakest August performance in seven years. The comments by Chairman Powell were nearly a complete reversal of his June comments, where he hinted at interest rate hikes possibly ending in the near future. This time around, Chairman Powell stated that they plan to keep. rates higher for longer, and that the Fed will continue to use its tools forcefully to bring down inflation.

There was a bit of good news in August, thankfully. We saw a sharp drop in gas prices, as the national average dropped below $4.00 a gallon for the first time in over a month. Similarly, airline fees and hotel fares plunged -7.8% and -3.2%, respectively, making travel more affordable for most folks.

The changing seasons mean kids are back in school, and the holidays are just around the corner. We hope you had a memorable summer, and we’re grateful to count you as a client. if there’s anything you need, please schedule some time with our office.

MARKET COMMENTARY

Stocks

US equities declined in August after Federal Reserve (Fed) chair Jerome Powell said the US central bank would need to keep monetary policy tight “for some time” in a bid to tackle soaring inflation. This dashed any market hopes that further interest rate increases would be more modest, which led to sharp declines in share prices and volatile trading. The S&P 500 rose in early August but reversed course at mid-month, resulting in an overall decline of 4.2%.

Sector Performance

Energy was the strongest performer at the sector level with a +2.8% gain; information technology was the weakest with a -6.1% decline. While oil prices pulled back in August, the U.S. energy industry had a banner second-quarter earnings season. Those results led to a 12% increase in the S&P 500 energy sector’s consensus earnings-per-share estimate for 2023.

Bonds

In late August the Federal Reserve (Fed) held its annual conference at Jackson Hole; it was set against a backdrop of multi-decade high consumer price inflation across major economies. While concerns of an economic downturn are rising, Fed Chair Powell nevertheless stuck to a hawkish message. Powell said the Fed would not “pivot” (shift course from raising rates), though the US may see slower growth for a sustained period. Some markets, particularly the labor market, have so far been remarkably resilient, although the housing market continued to deteriorate. The US 10-year Treasury yield rose from 2.64% to 3.13%, and the two-year rose from 2.90% to 3.45%. As a result, shorter term bonds outperformed longer term bonds.

ECONOMIC UPDATE

US inflation, as measured by the consumer price index (CPI), increased by 8.5% year-over-year in July, down from 9.1% in June. The US jobs market remains strong, with non-farm payrolls growing by a larger-than-expected 315,000 in August. With economic data looking good, we acknowledge that September is typically a volatile month for stocks. Counting back to 1994 from calendar year 2021, economists tallied 13 September that saw a negative return for the S&P 500 and 15  Septembers when the S&P 500 delivered a positive return.

News | September 12, 2022 | WMBC

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.

Economic Definitions

Consumer Prices – CPI: Consumer prices (CPI) are a measure of prices paid by consumers for a market basket of consumer goods and services. The yearly (or monthly) growth rates represent the inflation rate.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

Disclosures

PLEASE NOTE: When you link to any of the websites displayed within this email, you are leaving this email and assume total responsibility and risk for your use of the website you are linking to. We make no representation as to the completeness or accuracy of any information provided at these websites.

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.

The statements provided herein are based solely on the opinions of the Advisor Group Research Team and are being provided for general information purposes only. Neither the information nor any opinion expressed constitutes an offer or a solicitation to buy or sell any securities or other financial instruments. Any opinions provided herein should not be relied upon for investment decisions and may differ from those of other departments or divisions of Advisor Group or its affiliates.

Certain information may be based on information received from sources the Advisor Group Research Team considers reliable; however, the accuracy and completeness of such information cannot be guaranteed. Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information. Any opinions, projections, forecasts and forward-looking statements presented herein reflect the judgment of the Advisor Group Research Team only as of the date of this document and are subject to change without notice. Advisor Group has no obligation to provide updates or changes to these opinions, projections, forecasts and forward- looking statements. Advisor Group is not soliciting or recommending any action based on any information in this document.

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