With Spring around the corner, we are sure everyone is ready for some warm weather and time outside. Sean and I have been thrilled to introduce our new associate Allison Johnston and we look forward to seeing everyone in our upcoming reviews. If you haven’t had the time to speak with her, please take a moment to reach out and welcome her to our team!
This month we wanted to share the market commentary from Signature Wealth Strategies’ CIO Scott Mitchell and give everyone the opportunity to listen to his conversation with the CEO of Signature Wealth, Chip Munn, on the new Signature Wealth podcast. - John
Greetings! I hope that you had a nice March and that you are ready for Spring. In Florence, we’re digging out from our pollen storm, and it’s been a beautiful time to be outside if your allergies can stand it!
In March, US stock was higher after two months of declines to start 2022. The S&P 500 gained on nine of eleven days late in the month to come close to its early January all-time high before pulling back at the end of the month. Bonds were in focus as yields continued their climb. That can be bad for stocks, at least in the short-term, as higher bond yields might entice some stock investors out of stocks and into the perceived safety of bonds.
I probably don’t have to tell you this, but oil and gas also had solid gains.
Inflation remained a critical concern, with a February report showing a year-over-year rise of 7.9%--the fastest pace since 1982. This may mean that the Federal Reserve will raise short-term interest rates aggressively, which in turn will stoke recession fears. The Fed announced the predicted liftoff of interest rates with a ¼% hike at their March meeting. Chairman Powell suggested there may be a need for the Fed to move "expeditiously,” meaning that more rate hikes could be coming, and perhaps ½% moves rather than ¼%.
I’ve written about this in the past, but the early stage of interest-rate tightening usually does not predict lower stock prices. On average, the opposite is true; stock prices move higher. It’s usually the end of the cycle, when the Fed announces that no more hikes are necessary (presumably because they have successfully slowed growth down), that marks the beginning of stock market pullbacks. Each rate-hiking cycle is different, but I don’t think that we are in immediate danger of a recession.
Rising interest rates, higher home prices, and thin inventories continued to weigh on the housing market, with February's data showing monthly declines in home sales, although housing starts recorded their highest annualized pace since 2006. I’m keeping a close eye on this, but I am of the opinion that we are facing a housing shortage, and that homebuilding could, and should, continue at a rapid pace.
While inflation is hot, interest rates have moved higher, and commodity prices are rising, consumer demand has remained very resilient. There is some recent evidence that consumers may be scaling back their purchases of staples, but consumers and corporations alike are in very good financial shape, with generally high levels of cash and generally low levels of debt (I think you could argue that this is because the debt has been transferred to governments in the form of stimulus). This has allowed sales growth to offset the higher costs from inflation, resulting in stable profits for corporations. The longer those pressures persist, however, the bigger the headwind will become to companies--and the economy. But for now, corporate earnings trends remain solid, which is supportive of higher stock prices.
The stock market moved above some key technical levels late in March, quickly rebounding from the Russia-Ukraine based correction. I think the market went from a “flashing red” signal (think of coming to a four-way stop at an intersection) to a “flashing yellow” signal. We no longer have to come to a complete stop before proceeding, but we’d be wise to slow down and look both ways. There is a lot of financial and economic data that is quickly changing, so I think being patient, and buying on stock pullbacks, is wise now.
If you’d like to hear me talk more about the market, I’ll be joining Chip and Jon Tait (a member of our Investment Committee) on their podcast, The Signature Life Show, every month beginning Friday, April 15. You can listen and subscribe anywhere you listen to podcasts. Here’s the link to Apple that I use: https://podcasts.apple.com/us/podcast/the-signature-life-show/id1615788012
Speaking of April 15th, the stock market will be closed that day in observance of Good Friday, so our offices will be, too. And don’t forget that April 18 is Tax Day – the deadline to file your return and pay taxes or request an extension. Also, first-quarter estimated tax payments are due, if required. That’s also the last day to contribute to traditional and Roth IRAs or health savings accounts for 2021.
Have a great April! Don’t hesitate to call your financial advisor should you need us.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss.
The forgoing is not a recommendation to buy or sell any individual security or any combination of securities.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Individuals cannot invest directly in any index. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott Mitchell and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.