Financial Intel Monthly

The Markets (as of market close November 30, 2022)
A late rally at the end of the month helped push stocks higher in November, marking the second monthly advance in a row. Each of the benchmark indexes posted solid monthly gains, led by the Global Dow, which advanced nearly 11.0%. The large caps of the S&P 500 and the Dow rose more than 5.0%. The Nasdaq climbed 4.4%, while the Russell 2000 added 2.2%.

Investors welcomed news from Federal Reserve Chair Jerome Powell, who announced that the pace of interest-rate hikes can slow as soon as December, which likely means a 50-basis point increase, ending the string of 75-basis point rate hikes. The Fed may be taking note of the fact that the labor market has begun to cool (see the employment report below), while consumer price increases are showing signs of moderation. Nevertheless, prices remain elevated entering the holiday shopping season. However, business conditions remained generally positive, and consumers continued to spend, despite rising interest rates and decreasing levels of confidence (see report below).

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. For those in Fortune 500, it is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

Tax deduction for charitable gifts
If you are employed in Fortune 500 and itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. This may also help increase your gift.

If you are employed at Fortune 500, it is imperative to consider exchange rates as an opportunity to capitalize and better plan your finances. In late September 2022, the U.S. dollar hit a 20-year high in an index that measures its value against six major currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. At the same time, a broader inflation-adjusted index that captures a basket of 26 foreign currencies reached its highest level since 1985. Both indexes eased slightly but remained near their highs in October.^1–2

Intuitively, it might seem that a strong dollar is good for the U.S. economy, but the effects are mixed in the context of other domestic and global pressures.

Many employees who are waiting to commence their pension lump-sums, are now seeing a significant decrease in their value. When these interest rates move up or down, your lump sum amount will move in an inverse direction, so if interest rates increase, your lump sum amount will decrease and vice versa. Through the pandemic, interest rates dropped dramatically which greatly increased many lump sum payments. However, since then this trend has shifted, as interest rates have been increasing rapidly, causing a large reduction in pension lump-sum values.

Nearly three quarters of workers and 77% of retirees in a recent survey said they remain at least somewhat confident that they will experience a comfortable retirement, according to the Employee Benefit Research Institute. Nevertheless, a third of workers and a quarter of retirees felt less confident this year due to the economic effects of the COVID-19 pandemic, with many respondents citing inflation as the reason.

Not surprisingly, those feeling less confident were also more likely to report poor health, lower income and saving rates, and higher debt. Women were much more likely than men to report lower confidence levels.

Interest rates are a key driver of most financial assets. While most often referenced in relation to the bond market, rates are also a key input in traditional equity valuation models, which incorporate market interest rates to determine the appropriate rate to discount future cash flows. Interest rates are an essential element in bond pricing and the yield that investors require to own a particular fixed-income security. Since hitting an all-time low in 2020, interest rates increased in 2021 and have continued that climb higher thus far in 2022. This has put pressure on fixed incomes and certain areas of the equity market, which has led to stress in certain areas of the stock market, such as growth stocks, which can be sensitive to interest rate shocks. With that in mind, let’s examine why rates have been moving up, and whether this should be a cause for concern for Fortune 500 employees.

DON’T PANIC

Both stocks and bonds are off to one of their worst starts to the year in history. The S&P 500 Index declined -12.92% through the end of April 2022, and other broad market indices were similarly down double digits.¹

What’s worse, investors, like those living in Texas or New York, are losing nearly as much on the fixed income side of their portfolios as they are on the equity side. The Bloomberg U.S. Aggregate bond index, a broad measure of domestic fixed income, suffered its largest quarterly loss (-5.93%) since 1980 to start the year² and is down -9.50% through the end of April. The current environment has left investors feeling like there is nowhere to hide, and even prompted some to exit markets or go to cash, which is why we find it important to discuss this with our clients from Fortune 500.

Such a rash response could lead investors to miss out on an eventual rebound since historical equity performance post-corrections, as well as strong underlying economic fundamentals, suggest a bounce back in stocks will occur sooner rather than later. If you are unsure about your specific situation, feel free to speak to one of our retirement-focused advisors today!

“Don’t put all your eggs in one basket”.

You’ve likely been seeing headlines about the recent volatility in the market. While historically this is nothing new, it can be difficult to watch your account values fluctuate.

As investors, we find that maintaining a long-term perspective helps keep us grounded. We know that the market goes up more often than it goes down and that short-term fluctuations in price indicate a healthy market of buyers and sellers.

As the economy continues to recover from the effects of the pandemic over the past year, you may have noticed the term ‘inflation’ coming up in the news. But don’t let it scare you! The fact is, some inflation is good because it means the economy is bouncing back.

“Bouncing back” is exactly what it sounds like; stock and bond prices may show some volatility in the short term, as the market and the economy adjust to find a new equilibrium. That’s why, like always, it’s best to stay focused on your long-term financial goals rather than worry over any short-term noise.

Recently, you may have seen some headlines talking about an "inverted yield curve" and what it may mean for the economy. An inverted yield curve is just one indicator of the economy's possible direction, so let's put these headlines into context.

First, what is the yield curve, and what does it show? The yield curve is a graphical representation of interest rates (yields) paid out by US Treasury bonds. A normal yield curve shows increasingly higher yields for longer-dated bonds, creating an upward swing. An inverted curve has a downward slope, indicating that shorter-dated bonds yield more than longer-dated bonds, which isn't typical.