The global markets struggled in the final month of the third quarter. Almost every financial asset underperformed with the notable exception of oil as inflation fears weighed on the market. As we continue to talk about, the market is very concerned inflation is not temporary or “transitory” as the Federal Reserve suggests.
In the US, the S&P 500, Nasdaq 100, and Russell 2000 growth indexes all fell in September dropping 4.80%, 5.62% and 3.62% respectively.
Internationally, the Hang Seng continued to underperform slipping another 5% in September and 10% year to date. European indexes also were down approximately 3-4%.
Crude Oil was up almost 10% in September touching a 3-year high close to $80 a barrel. Natural Gas was up another 30% in September. Natural gas is now at an 8-year high.
As we talked about in our August newsletter, home heating costs this winter will be appreciably more
expensive than last year as natural gas has now doubled in price since the fall of last year.
Prolongated inflation is problematic for the bond market as purchasing power erodes the value of cash flows generated from interest payments. Global bond investors are facing their worst year at this point in more than 2 decades. Bloomberg’s Global Aggregate Index, a benchmark for government and corporate debt, has lost over 4%. Currently, the market is pricing in the first-rate hike in the 4th quarter of 2022.
Below is a graph comparing US Treasury Bond rates from a year ago. As you can see 10-year rates are 80 basis points higher. This movement equates to a 7% price reduction. Also, interesting to note in how longer-term rates are increasing at a faster pace than short term rates. This is what is commonly referred to as a “steepening” yield curve and is a common bond market reaction to inflation.
As always, if you have any questions feel free to reach out.
This material is intended for general public use and is for educational purposes only. By providing this content, Park Avenue Securities LLC is not undertaking to provide any recommendations or investment advice regarding any specific account type, service, investment strategy or product to any specific individual or situation, or to otherwise act in any fiduciary or other capacity. Please contact a financial professional for guidance and information that is specific to your individual situation. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. The Hang Seng Index is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. 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. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Each company's security affects the index in proportion to its market value. 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 Opinions expressed are those of the author and not necessarily those of Guardian or PAS. 2021-124911 Exp 8/22
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.
Registered Representative and Financial Advisor of Park Avenue Securities and Financial Representative of Guardian, AR insurance license #8401385 CA insurance license #0F94382
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