September is historically a rough month for the stock market, and this year was no different. Fears of rising interest rates, high inflation, and downgrades in analyst earnings estimates have continued to shock equities and impact the American consumer. As we grapple with an economic slowdown, the housing and labor markets have shown signs of resilience, while a looming European energy crisis and war in Ukraine weigh on markets globally. The continued march higher on rates drove down the S&P 500 by 9.3% in September to its lowest point of the year. Central banks across the globe are hiking interest rates, which has heightened investor concern. Slow economic growth has further rocked markets and sentiment. In September, the Federal Reserve signed off on its third consecutive three-quarter point rate hike, lifting the benchmark federal funds rate to 3-3.25%. As most home buyers last month will tell you, rates are rising — rapidly. The Fed is raising rates faster than any time since it targeted the Effective Funds Rate in the 1980s, signaling its urge to get double-digit, record-high inflation under control. However, new home sales bounced back in August despite rising interest rates and high prices. Sales of newly constructed homes jumped 28.8% in August from July and were down just 0.1% from a year ago. About 685,000 new homes were sold in August at a seasonally adjusted annualized rate, up from a revised 532,000 in July. The rout in the global bond market continues, with bonds suffering mightily this year amid rising rates, inflation, and a strong dollar (more below). The Bloomberg Global Aggregate Bond Index is returning -18.7% YTD, by far the worst year in the index’s history. The US Dollar is still the strongest it has been in 20 years. As it strengthened, other currencies, such as the pound, weakened. The interest rate hikes are pushing up the dollar's value, but countries from Europe to Asia to Mexico have seen their currencies plunge. Despite numerous headwinds, the US labor market remains robust, with few signs of slowing down. US employers added 315,000 jobs in August as companies continued their hiring sprees. Meanwhile, the unemployment rate rose to 3.7% from a half-century low of 3.5% in July as more workers rejoined the labor force, the Bureau of Labor Statistics reported. There have been layoffs, notably in the technology and cryptocurrency spaces, but the overall labor market has held up well given the challenging economic backdrop. The inverse relationship between the US Dollar and US equities has continued, as a stronger dollar has coincided with declining stock prices. Declining earnings estimates for major companies such as Apple, FedEx, and Nike have contributed to falling prices. These markets aren’t for the faint of heart, so sticking to a plan is crucial. As always, mitigating your portfolio concerns is our priority. Please don’t hesitate to reach out to schedule a free consultation with us to discuss the current market, your investment portfolio, or your overall financial plan.
Action Steps Taken: Sold ½ of international growth fund given the uncertainty globally. For some investors, I have purchased T-Bills.
Arthur Strauss, CFP®
President & CEO
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