Tucker Financial Weekly Market Review: November 18, 2022

Weekly Market Report: November 18, 2022

Markets last week skipped right past the FTX collapse and a missile strike in Poland, instead focusing on a more realistic view of future monetary policy reflecting FOMC resolve in fighting inflation with restrictive monetary policy. By week’s end, a full calendar of Fed speaking engagements along with a few upbeat economic reports combined to keep the animal spirits in check – likely the right sentiment until we start to see cracks in employment data and a clear downward trend in inflation. Global equity markets were relatively flat to slightly negative on the week leaving year to date equity markets down approximately 16%. Bond yields climbed inside of five years but fell outside of ten years while oil prices fell sharply (-10%), taking the commodity complex lower for the week. We saw a very rare -2% move in the USD, a strong rally across industrial metals, and a collapse in bond yields.

Market Anecdotes

  • Bullish talk points mostly revolve around the cooler than expected October inflation print and a cautious endorsement of a ‘stepped down’ path of rate hikes moving forward but labor market dynamics and trend inflation data will be the ultimate arbiter.
  • Twelve Fed speaking engagements reinforced forward policy expectations while making clear there are upside risks to terminal rate expectations and things are always subject to change.
  • Weekly jobless claims reports tend to be volatile but given the focus on the tight labor market is certainly on the radar and worth noting the current level of claims (222k) is right around pre-pandemic levels but continuing claims are clearly trending higher.
  • Anecdotal inflation data indications last week including import prices (-0.2%) and PPI (0.2% vs 0.5%) added to the peak inflation narrative last week.
  • The double-digit equity market rally over the past month (+10%) has garnered most of the headlines but emerging signals from the slope of the yield curve (2y/10y -69 and 3m/10y -52) are less encouraging as recession and policy tightness indicators.
  • The S&P 500’s 10% move since October 12th has pushed through the 50dma and is flirting with the 4,000 threshold but is still well short of the 200dma of approximately 4,070. Meanwhile AAII bullish sentiment jumped from 25.1% to 33.5% on the move last week.
  • The S&P 500 P/E of 17.84x sits right around average levels during the pandemic but well above recent cycle bottoms (GFC <10x, Tech bust 14x). Meanwhile higher interest rates, macro uncertainty, and margin pressures may put further pressure on valuations.
  • Bianco Research published an update to stock/bond correlation data illustrating the importance and key distinctions of an inflationary market mindset versus a deflationary market mindset and that the two-year correlation just turned positive.
  • Bespoke noted massive state, local, and federal (IRA) tax subsidies have triggered significant EV capex as evidenced by GM and Ford earnings reports last week noting large scale build outs of the U.S. EV and battery production manufacturing and technology development.
  • The U.K. is now expected to raise taxes and reduce government spending by £55b next year to assist the BoE in bringing inflation down and usher in a sharp decline in government borrowing and spending.
  • Never lose an opportunity for an “I told you so.”: 17th century Holland tulip fever; 18th century “South Sea Bubble”; early 20th century American banking crisis; late 20th century tech bubble; early 21st century housing market; and, more recently, the 2020s crypto market swinging from $800B to $3T to $800B.

Economic Release Highlights

  • October Retail Sales handily beat consensus estimates on the headline (1.3% vs 1.0%), Ex-Vehicles (1.3% vs 0.5%), and Ex-Vehicles & Gas (0.9% vs 0.2%).

  • October’s LEI declined by 0.8%, adding to the prior month’s 0.5% contraction.

  • October Industrial Production came in slightly below expectations on the headline (-0.1% vs 0.2%) and Manufacturing Output (0.1% vs 0.2%) measures.

  • October headline and core PPI data registered (8.0% vs 8.3%) and (6.7% vs 7.2%) YoY along with MoM readings of (0.2% vs 0.5%) and (0.0% vs 0.4%).

  • November’s Housing Market Index fell five points to 33, missing the consensus forecast of 36.

  • October Housing Starts & Permits of 1.425mm and 1.526mm respectively were slightly above consensus estimates as were Existing Home Sales of 4.43mm.

This communication is provided for informational purposes only and is not an offer, recommendation or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio.

The Family Banker

Millions of Americans are finding themselves in a bit of a quandary.  Years ago, they began designing a retirement plan in order to secure their future.  They chose strong retirement accounts, socked away a sizable sum of money, and didn’t overspend.  But even so, their retirement portfolio isn’t what they thought it would be.The Family Banker

Of course, there could be a number of reasons for this.  But for many, the reason is very simple: children.  Of course, the problem isn’t the fact that people had rasied children. No, this issue involves children that are well into adulthood.  The truth is, many Americans are finding themselves taking care of their kids far past the point they envisioned, and their retirement is being harmed because of it.
Recent Survey Shows Disturbing Trends
The recent Money Across Generations II survey, conducted by Ameriprise, aimed to discover where investor’s money was going, and what they found was both encouraging and disheartening.  The encouraging part is pretty simple to understand.  People love their families.  They want to take care of them no matter what.  After all, how many of us have given money to an adult relative in need, or gone above and beyond what would be considered common courtesy for the simple fact that we are related to them?
Unfortunately, this assistance can go too far.  More than half of those who took part in the study admitted that they had allowed their adult children to move back in with them and live rent-free.  Think about that for a moment: half.  While some think this will never happen to them, the truth is a number of people are one financial crisis away from granting their adult children the same opportunity.
The problem with this, of course, is the fact that many parents are damaging their own finances for the sake of their adult children.  Many parents are not stopping at simply a place to stay.  They are paying off their adult kids’ credit card debt and student loans, and some are even providing money for meals, car payments, medical bills, and various other needs.  While assisting loved ones sounds commendable, retirees should be aware that sacrificing their own retirement is a dangerous game to play.
The Numbers are Depressing and Getting Worse
The truth is, those approaching retirement have enough to worry about without bringing the needs of their adult children into the mix.  When the first Money Across Generations survey was conducted in 2007, it found that 44% of baby boomers were putting money away for their retirement.  But the new survey demonstrated that only 24% were currently doing the same.  This drop is alarming, to say the least.  In addition, 24% also said that they were simply attempting to maintain what savings they have.  The needs of your adult children notwithstanding, these numbers are reflective of a society that doesn’t appreciate the negative effects they will feel from their actions.
Saying no to family can be a difficult thing.  In addition to adult children who need assistance, many people approaching retirement also have an elderly parent to care for.  According to the survey, almost 70% indicated that they planned to put money toward their retirement rather than pay off a child’s credit card.  But more than 50% stated that they would choose to assist a parent with long-term care over their own savings.  Plus, nearly 90% said they didn’t regret their decisions and would do it all over again, if needed.
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