June Market Update

June was a miserable month for investors as almost every asset class dropped in value. US Equity benchmarks are down between 25% and 35% off their 52-week highs. Bond prices dropped and fixed income yields rose as the Federal Reserve continued its hawkish stance on interest rates policy. At the beginning of this year the markets priced in three 25 basis point increases to the Federal Funds rate in 2022 with an expected overnight rate to be approximately 75bps. By mid-June, the market pricing in a rate of over 3.50%. Central banks around the world are now being forced rapidly increase interest rates to combat inflation.


Interest rate hikes along with soaring inflation, food shortages and energy prices shocks are weighing heavily on the market. University of Michigan’s Consumer Sentiment Index dropped to a 50 year low in June. The S&P registered its worse first half performance since 1970. The Russell 2000 Index recorded its worse first half performance since its inception. Only the energy sector recorded gains for the first 6 months of 2022.
The chart below illustrates total returns for the major domestic stock indexes.

Energy pressures, a tight labor market and rising input costs continue to weigh heavily on inflation. The year-on -year CPI (Consumer Price Index) is now 8.60%.

CPI measures both monthly and annual changes in prices paid by US Consumers. The U.S. Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices paid for a basket of goods and services representative of aggregate U.S. Consumer spending. CPI is one of the most popular measures of inflation. Given its overwhelming importance to the market, I thought it would make sense to give some insight on what components account for the composition. Detailed below are the current CPI weightings.

As one can see form the percentages noted above, shelter has a significant impact on CPI. Rent and Owners’ Equivalent Rent account for almost all of weighting. Owners Equivalent Rent (ORE) attempts to calibrate an amount of rent that would need to be paid to substitute a currently owned house as a rental property. Simply put, ORE estimates an amount of rent that would be equivalent to the monthly expenses of owing a property (mortgage, taxes...etc.). Given that this category weighs so heavily into the CPI Index we keep a keen eye on real estate values. There is little question that low interest rates and housing price appreciation has contributed to the rapid increase in CPI.

The Shelter component in CPI is something to keep an eye on. As the housing market stabilizes with higher mortgages rates, the level of price appreciation will moderate and could help to tame inflation. As an example, in July of 2008, CPI topped out at 5.60%. In just twelve short months after the housing meltdown, that same print in July of 2009 was negative 2.10%.

As we mentioned in our previous newsletters, short term volatility has little impact on long term investment results. A well-diversified balance portfolio is a time-tested strategy for long term capital. This market volatility is common.

As always if you have any questions feel free to reach out.

Best,
Bob


Opinions are those of the author and not necessarily those of Guardian or its subsidiaries


The S&P 500 Index is a market index generally considered representative of the stock market. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.


Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions.


Statistics sources from Central Bank Rates, Bloomberg, US BLS and Pew Research
2022-140562 EXP/ 7/24

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Jeremy has been in the financial advisory business since 2005 after graduating from Fordham University’s School of Business. He joined Tomoro as a managing partner in 2014. During his tenure, Jeremy has consistently excelled as an advisor in both the personal household and business planning arena. As a managing partner, Jeremy also serves as a mentor to all associates and is hands-on in supporting Tomoro’s growth planning. He has completed various curriculums and certifications, such as New York University’s graduate studies in financial planning, is a Certified Exit Planning professional, and Investment Advisor Representative. He and his family reside in Colts Neck, NJ.

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The S&P 500 Index is a market index generally considered representative of the stock market as a whole. The Index focuses on the large-cap segment of the U.S. equities market. The Hang Seng Index (HSI) is a market-capitalization-weighted stock market Index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.

Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit, and inflation risk. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.

Statistics sources from Central Bank Rates and Bloomberg.

2021-115741 Exp 2/23