Staying Patient: Market Commentary

Kris Venezia, Market Strategist

I wanted to dig into inflation. Unfortunately, inflation is still running hot.

We had the CPI report, consumer price index, which is put out monthly. It gives us that inflation number we quote, right now it's 8.2%. The number reflects an 8.2% increase in what Americans spend on an average basket of goods.

The goal from policymakers is to have inflation around 2%. You can see we're miles away from two-percent.

The hotter areas of September inflation included airfare and medical services. The cost of buying a plane ticket is up 42% from the same time last year. Medical services, which includes health insurance and visiting the doctor, rose at its fastest pace since 1984.

Food at grocery stores and restaurants continues to rise at about 1-percent a month. There has been no cooling down there. The report showed rents rising more than half-a-percent. It's been up between half-a-percent and one-percent each month this year.

The biggest concern I have, which bleeds through into this entire hot inflation report, is on the labor market. Restaurants, airlines, and medical facilities are still having a difficult time staffing. In order to lure workers, they are having to raise wages. When they raise wages, they pass on some of that cost to prices.

Until the labor market improves in these service jobs, it's difficult to see some of this inflation come down. You create a spiral of higher wages, leading to higher prices that continues until demand breaks. Eventually, prices get so high that people just can't afford the plane ticket, the dinner at Outback, or that physical therapy. And that's when you see real economic pain.

Daryl Eckman, President

The point I want to make is that we have dealt with volatility like this before.

Inflation really comes from an overheating of a variety of factors. Some of the stimulus that went into the global system certainly triggered, or was a factor, in the current inflationary environment.

We're seeing some concerns in the real estate market. There's some difficulties as activity slows down in that space. Real estate plays a big role in the U.S. and global economy. Jobs, economic activity, and other items stem from the real estate industry.

We have put cash on the sidelines to do buying in our clients accounts. We have been fortunate to be out ahead of some of this downturn.

We have started nibbling a little bit, but we're still not feeling like now is the time to be very aggressive. The Fed has been aggressive trying to combat inflation and that has an impact on stock prices.

I want to encourage you to call in if you're feeling uneasy. We get paid to talk to you during the tough times. If you're looking at your statement and not feeling well, give us a call. The good times outweigh the bad times, but the bad times obviously do not feel good.

Clint Carpenter, Director of Operations

I’d like to just give a brief update on the eventual transition that is taking place after Charles Schwab’s acquisition of TD Ameritrade. Combining two companies like this takes quite a bit of time, and it sounds like a lot of work has been going on mostly behind the scenes up until this point. Schwab and TD have begun to outline the transition process to advisors like us and we now know that the transition will take place in Spring of next year, 2023.

We know that in almost 99% of cases, this will be a completely hands-off transfer. No paperwork will be required and accounts will simply move to the Schwab platform. The biggest difference clients will notice will be new account numbers and that statements will come from Schwab instead of TD Ameritrade. There are no changes to our relationship with clients whatsoever, and it will be very much business as normal. We do understand that you may have questions about this transition, however, and of course invite you to reach out with any questions ahead of next year. We’ll be sure to communicate more firm dates as we receive them.

Sticky Inflation: Market Commentary

Kris Venezia, Market Analyst

The market took a spill on Tuesday. The major U.S. indexes had their worst day in over two years. The Nasdaq lost more than 5%.

The catalyst for the decline was the CPI report or Consumer Price Index. It's a way to measure a basket of good that's designed to make up the average cost of what Americans spend money on. When people quote inflation, it's the CPI number that is commonly used.

The expectation was for inflation to decline from July to August, but it actually rose .1%. This caught investors off guard and.. prompted a wave of selling.

Gasoline prices, as many of you have probably noticed, have dropped since the summer highs. That's terrific. But, there's sticky inflation in other places. Food continues to rise at about a percent a month rate. Rent is also a major issue pushing inflation higher.

Outside of CPI, other data shows the cost of manufacturing goods in the U.S. is starting to flatten or decline. But, the services part of the economy is way too hot. Medical care, going out to eat, transportation services, are all steadily rising.

The main issue hitting services is higher labor costs. Employers, especially at restaurants, medical centers, transportation like truck drivers, have been really struggling to hire people. It's forced them to raise wages which get passed on in some form to the consumer.

So it's great that gas prices have fallen, and it certainly helps the average American. However, the stickiness of inflation in other parts of the economy is a major challenge.

Clint Carpenter, Director of Operations

As we’ve mentioned, with the Fed staying committed to raising interest rates to combat inflation, this has the effect of making short-term bonds an attractive investment again.

What we have been doing with the conservative portions of a lot of client portfolios has been introducing laddered positions in short-term treasury notes. These are bonds that are purchased directly from the U.S. treasury, so, backed by the full faith and credit of the U.S. government. So far, we’ve just been interested in bonds that have a maturity date about one year out.

The idea is to purchase these bonds in stages, spreading out the purchases every few months so that we’re not locking all of it up in a single bond at one time. This means we can continue to take advantage of rising rates each time we purchase a bond, without having to wait and try to time the peak of interest rates.

Staggering the bonds this way also means that around this time next year, that first bond matures, and then a few months later the second one matures, and so on. So eventually you can see there is a cycle where bonds are coming up on their maturity and can either be reinvested into a new bond, or allowed to remain in cash, or perhaps used for stock purchasing.

As I mentioned, this is something we have already been doing in our client investment portfolios, but if this sounds like something you might be interested in for cash you have sitting around in a bank account or some other sort-of short-term investment, we’d be happy to discuss whether this is a good strategy for you as well.

Daryl Eckman, President

Real estate is something I am watching closely. We'll see what happens with home prices over the next 12 months.

Real estate has a big effect on the economy. If we see a real estate pull back, that would certainly have an impact on the overall state of things.

We want to buy stocks low so we want to start nibbling with dollar cost averaging into the market with stocks tumbling.

We will look at funds that have performed well and have come down in prices. We will dollar cost average there.

The times are difficult right now, but we are savvy investors, and we know that there are long term opportunities by being smart.

We will be monitoring and getting some cash to work where it is appropriate.

Real Estate Softening: Market Commentary

Clint Carpenter, Director of Operations

2022 has continued its volatile streak with swings both up and down. The NASDAQ has seen the most action and is currently down just over 22% YTD. The more broad S&P 500 is down 15% YTD and the DOW sits at negative 11% so far this year.

Treasuries continue to move around, the 1-year is currently paying 2.9%, and the 10-year is yielding 2.7%. We saw the average rate for a 30-year mortgage go briefly over 6% last month, but it has settled now around 5.4%.

The price of gold has retreated a healthy amount, currently at $1,754/oz. The price of brent crude oil has also dropped, although it has recovered somewhat to about $107/bbl.

Kris Venezia, Market Analyst

I want to talk about some of the commentary we're getting from businesses when it comes to inflation. There's some early positive signs. I want to emphasize early. Commodity prices have declined from extreme highs. Commodity prices filter into a lot of this economy, with food and gas being the two obvious ones. We are also getting some positive deflationary commentary from a few retailers. Walmart and Target have noted big inventory build ups with electronics and clothes. They're marking those items down. It hurts the stock price, but if you've been waiting to buy a TV or were thinking of getting a jump on those fall/winter clothes, now is a good time to look for deals in those areas. That's the positive. The negative is we still have companies talking about trying to "take price." Take price is a nice way of saying, "We're raising prices." Coca-Cola, Pepsi, McDonald's and Chipotle have all recently discussed continuing to raise prices in the back half of 2022. The tech sector and industrial companies fall into the negative camp as well. Honeywell has discussed raising prices which squeezes the numerous businesses they work with around the world. 3M is another one who has pointed to more price increases in the second half of 2022. Microsoft, on the tech side, recently talked about future price increases with their products. So while we're seeing some positives in commodity prices and retailers, there's still negatives and headwinds facing the economy with inflation.

Daryl Eckman, President

The real estate market is seeing signs of slow down. I have been keeping my eyes on that. I think that will be an area to have concern. It will have a big impact and could be another negative in the economy. Real estate has an impact on the economy because it involves so many different aspects. I've been reading data from realtors to investment groups, and there's clearly been a leveling off in real estate prices. We are seeing signs of inventory building up in the housing market. We are also seeing some buyers drop out because of the higher cost of a mortgage with higher rates. There's also evidence of people deciding not to buy a home for fear of buying into or before a downturn. I hate to anticipate or forecast the housing market, but we are prepared for a scenario where real estate gets hit. We are sitting with a lot of cash in the portfolios. We have also started to do a little bit of short term bond buying. We're holding and staying conservative with the economy sitting the way it is. We are asking you to be patient as we manage risk with the economy in a tricky spot.

Clint Carpenter

I think by this time of the year, especially when markets are down, there can be a great deal of burn out among investors when it comes to talking about the stock market or the economy. Rest assured that we’ve got our eagle eyes on the markets and your portfolios.

During this time of year, however, it’s a great time to start taking advantage of some of the other things we do here at Eckman Wealth Management. The third-quarter is a great time to start looking at your tax situation for the year, seeing if there is any room for capital gain efficiencies, or maybe planning for some Roth conversions, or even just making sure you’re withholding enough from your salary or portfolio distributions.

It’s also a good time for those of you over or near the age of 65 to start thinking about Medicare, whether it’s signing up for the first time or just reviewing what you currently have.

Also, It’s always a good time to think about your estate plan, but especially now in late summer when you might have a bit more time on your hands to get it taken care of. Do you have a trust? Is it up-to-date? How about your powers of attorney should something happen to you or your family?

These are all things you can lean on us for assistance with. Not to mention just any sort of one-off financial question you can think of, like, “Should I buy or lease a car, or is it time to sell a property,” etc. We enjoy working through these types of questions for you and encourage you to reach out with anything we can help you with.