Weekly Update 12/12/2022

Your Weekly Update for Monday, December 12, 2022.

Beacon Rock Wealth Advisors is a dba of BR Capital, Inc. a financial planning and registered investment advisory firm in Camas, Washington. We are always available to answer your finance questions. Give us a call at (800) 562-7096 or send an email to [email protected].

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Have a great week!

Mike Elerath
CERTIFIED FINANCIAL PLANNERTM
CERTIFIED IN LONG-TERM CARE
[email protected]

Bill Roller
NMLS #107972
CHARTERED FINANCIAL ANALYST
CERTIFIED FINANCIAL PLANNERTM
CHARTERED MARKET TECHNICIAN
[email protected]

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Weekly Videoi

Summary

It was a down week on Wall Street last week. The Dow Jones Industrial Average fell 2.77% to 33,476.46 while the S&P500 ended down 3.37% to 3934.38. The Nasdaq Composite fell 3.99% to 11,004.62. The annual yield on the 30-year Treasury fell 1.3 basis point(s) to 3.549

Economic data for the week included an unexpected gain in ISM services/non-manufacturing, higher-than-expected producer prices, and an improvement in consumer sentiment.

Global equity markets fell back last week, along with higher interest rates; however, Chinese stocks gained with new government measures designed to reopen the economy. Bonds fell back due to rising yields. Commodities were led lower by a sharp drop in crude oil prices.

Economic Notes

(+) The ISM Services/Non-Manufacturing index for November rose by 2.1 points to 56.5, further into expansion, and in contrast to an expected decline to 53.5. General business activity gained 9 points further into strong expansion (close to 65 on the diffusion index scale), while employment rose back from contraction to expansion. New orders, supplier deliveries, and prices paid all ticked down but remained in expansion as well. ā€˜Prices paidā€™ on the services side are largely focused within labor costs, as opposed to capital in the manufacturing survey. This was a uniquely strong report, and another example of a shift of activity continuing to move away from goods toward services. Again, contrary to normal, the data was not well-received by markets, as pockets of economic strength of any kind are assumed to tell the Fed that the economy still needs a stronger degree and pace of rate hikes.

(-) The producer price index for November rose 0.3% on a headline level, and 0.4% after removing food and energy; these were each a bit above median forecasts. Overall producer prices were affected by a 3% increase in food, while energy prices fell back by -3%. Other categories had largely similar results, with trade rising 0.7%. Year-over-year, headline PPI decelerated by -0.7% to 7.4%, continuing a trend of consistent declines after the March year-over-year peak of 11.7%. Over the past year, goods prices remain up 10% versus services up 6%. PPI remains higher than most policymakers want or expect, although progress has been steadily made. A wildcard in the PPI equation is energy prices, which global central banks have no control over, other than attempts to reduce demand, which can have mixed results.

(+) The preliminary December Univ. of Michigan consumer sentiment survey rose 2.3 points to 59.1, exceeding the 57.0 level expected. Consumer assessments of both current conditions and future expectations rose, with the latter a bit more than the former. Monthly anecdotes tend to be interesting, with higher sentiment reported from higher-income respondents and Democrats, which implied that the recent equity bear market rally and mid-term election results may have played a role in consumer happiness during the month. Of course, sentiment is very fickle in the short-term, and prone to reversal. Inflation expectations for the coming year fell by -0.3% to 4.6%, while those for the next 5-10 years were unchanged at 3.0%, as expected. The 1-year ahead inflation expectation number was a positive, notably as the Fed specifically looks at sentiment for signs of inflation becoming more embedded into the economy.

(0/-) Initial jobless claims for the Dec. 3 ending week rose by 4k to 230k, matching consensus expectations. Continuing claims for the Nov. 26 week rose by 62k to 1.671 mil., well above the minor rise to 1.618 mil. expected. Initial claims rose by 5k each in CA and GA, with minimal change in several other states in both directions. Seasonality likely continues to be a factor on the continuing claims side, as it often is at year-end.

Market Notes

Period ending 12/9/2022 1 Week (%) YTD (%)
DJIA -2.74 -5.95
S&P 500 -3.35 -16.17
NASDAQ -3.98 -29.10
Russell 2000 -5.06 -18.94
MSCI-EAFE -0.20 -12.96
MSCI-EM 0.48 -18.43
Bloomberg U.S. Aggregate -0.44 -11.84
U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2021 0.06 0.73 1.26 1.52 1.90
12/2/2022 4.34 4.28 3.67 3.51 3.56
12/9/2022 4.31 4.33 3.75 3.57 3.56

U.S. stocks pulled back last week, in a reversal of sentiment from the prior few weeks. Technically, the S&P 500 has met resistance several times at the point of the 200-day moving average, which is now around 4037. (Stocks rising above the 200-day has been considered a ā€˜buyā€™ signal by some investors, so trading around that level tends to be closely watched for changes in sentiment.) Every sector lost ground last week, with defensive utilities, health care, and consumer staples suffering minimal declines, while energy fell by over -8%, in keeping with a sharp oil price decline. Several financial executives also provided negative economic outlooks for upcoming quarters.

The U.S. Federal Trade Commission has blocked Microsoftā€™s acquisition of Activision Blizzard, citing anti-competitive concerns in the video gaming segment, now requiring a higher legal threshold to potentially determine the outcome in court. Tech has been under greater scrutiny from both sides of the political aisle, due to high oligopolistic power with pricing, as well as unresolved data capture and privacy considerations. This is another issue that is likely to continue into 2023.

The Georgia runoff election resulted in a victory for the Democrats, giving them 51-49 control in the Senate. While they already had effective voting control at 50-50, due to the tie-breaking ability of the Vice President, a clear majority offers nuanced benefits, such as stronger control over committees and the clear ability to issue subpoenas. The latter may have an effect on sectors under greater governmental scrutiny, such as technology. However, with Republican control of the House, the ability to pass more controversial or extreme legislation on either side appears limited over the next two years (a status quo financial markets have valued highly). Later in the week, Sen. Sinema (D-AZ) announced intentions to leave the Democratic party and become an independent. Ramifications for the tight, and now tighter, Senate power balance remain unclear.

Real estate also acted more defensively as one of the weekā€™s leaders. Increased pressure has been seen in the real estate sector, with cap rates falling back, due to lower net income, as well as rising financing costs. Accordingly, transaction volume in the private market appears to have fallen back, with buyers waiting for better clarity on 2023 rate conditions and a hoped-for pause in the upward path, and sellers not interested in accepting discounted prices. Unsurprisingly, the least amount of clarity rests in the hard-hit retail and office markets. In fact, several private real estate funds have limited investor redemptions due to this liquidity crunch.

Foreign stocks performed largely in line with each other last week, and outperformed U.S. names, despite a rise in the value of the U.S. dollarā€”normally a headwind. European economic data remains on the cusp of recession, but not completely negative yet. It may be of some surprise, but as of Friday, the MSCI EAFE index has again risen ahead of the S&P 500 in terms of year-to-date performance. In emerging markets, Chinese stocks emerged as one of the sole areas with a gain of several percent. The Chinese government unveiled a policy titled ā€˜10 measuresā€™ last week, outlining their loosening of tight Covid policies and eventual moving away from a zero-tolerance approach. This was likely for pragmatic reasons, but also to alleviate public dissatisfaction, which is at about the highest level in decades. Although not expected to be a fast process, it does start to remove the probabilities of harsh shutdowns, which have weighed on financial markets continuously during the pandemic and afterward.

U.S. bonds fell back last week as interest rates ticked higher across the yield curve, in keeping with economic reports that were assumed to keep the Fed hawkish next week, at least in tone. Treasuries fared slightly better than corporates, although differences were minimal. Foreign bonds fared a bit worse, held down by a rally in the dollar.

Commodities experienced a negative week, as a sharp decline in energy prices offset minor gains in metals. The price of crude oil fell over -11% to $71/barrel. As has been case as of late, sentiment has turned sour due to worries over a global economic slowdown negatively holding back demand, outweighing most other factors. Separately, crude oil from Russia came under a starting price cap of $60/barrel starting on Monday (and adjustable to 5% under the market rate to be revised every two months), as the West attempts to minimize their oil revenue via a level closer to the cost of production. Unfortunately, the sanctions and perhaps the price cap as well, have been or could be somewhat ineffective as a political punishment. While world market prices have reacted to these announcements, the non-transparent nature of physical crude oil trading lends itself to gaps for a good deal of Russian oil to be released to market.

Mortgage Rates

ā€œMortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth,ā€ said Sam Khater, Freddie Macā€™s Chief Economist. ā€œOver the last four weeks, mortgage rates have declined three quarters of a point, the largest decline since 2008. While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.ā€

The 30-year fixed-rate mortgageĀ averaged 6.33% as of December 8, 2022, down from last week when it averaged 6.49%. A year ago at this time, the 30-year FRM averaged 3.10%.

The 15-year fixed-rate mortgageĀ averaged 5.67%, down from last week when it averaged 5.76%. A year ago at this time, the 15-year FRM averaged 2.38%.

Mortgage Rates

Freddie Mac made a number of enhancements to the Primary Mortgage Market SurveyĀ®Ā to improve the collection, quality and diversity of data used. Instead of surveying lenders, the weekly results are now based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage. Additionally, the PMMSĀ®Ā will no longer publish fees/points or adjustable rates.

Freddie Macā€™s Primary Mortgage Market SurveyĀ® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit. Average commitment rates should be reported along with average fees and

points to reflect the total upfront cost of obtaining the mortgage. Borrowers may still pay closing costs which are not included in the survey.

Through our relationship with Prestige Mortgage Services Inc. dba Prestige Home Mortgage (NMLS#14216) in Vancouver, Washington we originate residential and reverse mortgages.

Selected Cryptocurrencies

Symbol Name Price 24h % 7d % Market Cap
BTC Bitcoin 17003.66 -0.88% -1.36% $327,035,069,203
ETH Ethereum 1250.84 -1.70% -2.91% $153,075,385,452
BNB BNB 276.86 -4.35% -5.70% $44,289,731,071
XRP XRP 0.3748 -3.19% -4.47% $18,890,807,965
DOGE Dogecoin 0.08862 -8.12% -15.46% $11,757,785,343
ADA Cardano 0.3051 -2.24% -6.27% $10,515,644,883
MATIC Polygon 0.8845 -2.54% -4.81% $7,725,680,639
DOT Polkadot 5.14 -2.60% -8.55% $5,891,986,806
LTC Litecoin 74.91 -3.06% -10.49% $5,379,288,366
SHIB Shiba Inu 0.000008858 -3.82% -7.87% $4,863,808,100
TRX TRON 0.05252 -3.68% -1.89% $4,834,617,528
SOL Solana 13.13 -3.72% -5.48% $4,811,013,940
UNI Uniswap 5.81 -3.56% -7.91% $4,427,257,143
AVAX Avalanche 12.78 -4.89% -8.45% $3,969,034,861
LEO UNUS SED LEO 3.82 2.10% -1.03% $3,639,457,973
WBTC Wrapped Bitcoin 16943.25 -1.05% -1.37% $3,391,099,535

Information current as of 6:15 AM PST, Monday, December 12, 2022. Source: https://coinmarketcap.com/

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Sources: Ryan Long, CFA, FocusPoint Solutions, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Citigroup, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Marketfield Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, PIMCO, Standard & Poorā€™s, StockCharts.com, The Conference Board, Thomson Reuters, T. Rowe Price, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wall Street Journal, The Washington Post. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.

Notes key: (+) positive/encouraging development, (0) neutral/inconclusive/no net effect, (-) negative/discouraging development.