July 2022 Market Insights
BY: RYAN P. JOHNSON, CFA, CFP® - Managing DIRECTOR OF Investments
The Federal Reserve raised short-term interest rates by 0.75% in mid-June and the Fed could raise rates by 0.75% again on July 27th. If a 0.75% increase is enacted, their short-term target would be in a range of 2.25% to 2.50%. In the past few weeks, expectations for this rate hike have oscillated between 0.50% to 1.00%.
CASH GETS INTERESTING
Now is a great time to pay attention to your cash. After so many years of paying nearly no interest, investigating what you earn on your checking, savings, CDs, money market accounts, and/or emergency fund is finally worth doing. For example, Treasury bonds ranging from 6 months to 30 years are currently yielding around 3%. In just a few weeks even the shortest maturity bonds could be paying more than 2.5% as well. Now is the time to pay attention and make changes if you are receiving very little interest on cash at your bank, for example. This opportunity could be worth hundreds or thousands of dollars in extra income over the next year. If you need help exploring your options, please ask your Buckingham advisor.
Due to current market volatility, inflation, and rising interest rates, we encourage you to focus on your current investment allocation. For retirees, we continue to suggest keeping 4-7 years of your cash needs in fixed income and cash. Doing so helps investors avoid selling equites during down periods in the markets to raise cash and provides an opportunity to participate as the market recovers. The dividend yield on stocks varies, of course, but the S&P 500 yield is currently around 1.6%.
As Lance Steiner, CFP® wrote in our Buckingham Advisors May newsletter, Series I Savings Bonds have an attractive yield, currently 9.62%, but purchases are limited to $10,000 per person per calendar year and can only be purchased directly through the United States Treasury at www.treasurydirect.gov. For additional details please reference his article here: https://mybuckingham.com/insights/cash-savings-options-to-meet-your-goals.
SIGNS OF A SLOWDOWN
U.S. stock prices have increased since our June 17th Market Insights through July 15th, while housing, employment, and commodity prices have shown signs of a slowdown. Home prices have increased this year, but the rate of change may be slowing. In the Midwest and Northeast, new listings have fallen from a year ago and nationally the share of homes selling with a price reduction has increased. Mortgage activity has also slowed compared to a year ago due to higher interest rates. The monthly unemployment rate remained at 3.6%, however, weekly jobless claims continue to creep up and job openings have come down from their recent multi-decade peak. Brent crude oil has fallen about 20% in the past five weeks and the price of oil went below $100 per barrel for the first time in several months. Gold came very close to a new 52-week low recently and is down about 17% from the spike seen in early March after Russia invaded Ukraine. From the June highs to the July lows, corn and soybeans have also fallen, each down more than 25% at their extremes.
EARNINGS AND OUTLOOKS
A few weeks into each new quarter is the prime time that companies give updates on the previous quarter’s profits as well as their outlooks into what the new quarter might bring. It is too early to report on second quarter results yet, but we suspect many full-year estimates will come down from prior expectations. However, this has been factored into the market to a certain degree through the lower stock prices we have already seen this year. If guidance is not as bad as feared, stocks could continue to climb through earnings season, though the Fed actions mentioned above could continue to limit gains in the near-term.
BUCKINGHAM IS HERE FOR YOU
Buckingham Advisors continues to grow thanks to introductions and referrals from our valued clients. All the while our focus remains on serving each family, each business, and each foundation with special attention to what matters most to them. If you found this edition of Market Insights informative, please send this issue on to others. To be in touch directly, here’s a link: https://mybuckingham.com/contact.
Thank you for your continued trust and support.
Ryan P. Johnson, CFA, CFP®
Managing Director of Investments
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.