Last week, the market rallied for the second week in a row, finishing the week up +1.8%, up +3.9% for March thus far, but still down -4.7% for the year. The big story of the week, however, was a major move in interest rates. Learn just how much interest rates are increasing, what’s driving it, and more in this week’s market update! Catch it all on this week’s podcast, along with a deep dive with Nicholle Overkamp, MBA, ChFC, CDFA, a Financial Planner and Retirement Planning Specialist, who will walk through the distinctions between planners, advisors and what to expect when you meet with one for the first time!
Confession… I’ve fallen woefully behind on getting these weekly market updates out in a timely manner, and I’m committed to doing better. Because it’s important. And because it keeps you all (and myself) informed. To do that, I’m aiming to streamline and focus on market data, with deeper dives here and there on data points that warrant here. So, here’s to the first pithier, more streamlined Monday Market Update…
Monday Market Update
Last week, the market continued to rally, ending the week up +1.8%, March thus far up +3.9%, and now down just -4.7% year-to-date. The more volatile, tech-heavy NASDAQ is down further, -9.4% for the year. Day to day market movements continue to remain elevated – an indication of the more volatile, uncertain economic and geopolitcal environment. Last week saw 3 days with market moves exceeding 1% in either direction, while historically, about 70% of trading days see market moves below +/-1%.
Last week also saw bond yields rise dramatically. Following the Fed’s first rate hike mid-month, with the promise of more to come this year, and further public discourse from Fed Chairman Jerome Powell indicating a 50bps increase was not off the table, many investors are now predicting a 50bps increase at the Fed’s May meeting. Recall, the Fed is starting to raise interest rates in an effort to reduce inflation.
The yield on 10-Year Treasury bonds just surpassed 2% earlier in March, but has since powered forward, ending last week at 2.49%. That is nearly a full 100bps, or 1%, increase from where 10-year treasury yields ended 2021.
Market Update by Asset Classes and Industry Sectors
Through the end of of last week, all asset classes except Commodities were flat to down. Commodity prices continue to rise, especially those most impacted by Russia, including oil and wheat. For 2022YTD, the Commodity index is up over 30%. For perspective, it was up just 15% at the end of February, with much of March’s increase driven by uncertainty from the European conflict around oil, wheat and metal prices.
All stock market sectors and industries are flat to down year-to-date as well. The only exception is the Energy sector, now up over 40% year-to-date, driven by skyrocketing energy prices, though Financials and Utilities are just now in positive territory as well. Financial stocks are beneficiaries of rising interest rates and spreads, while Utilities are beneficiaries of higher energy prices.
In the bond market, remember that bond prices and interest rates are inversely related. As market interest rates increase, which has been the general trend over the start of this year, bond prices fall. As such, all major bond indices are down year-to-date. Rising interest rates have a greater impact on bonds with longer dated maturities. As such, long-term treasury bonds of 20+ year maturities are down most (-12.9%), Investment Grade bonds which tend to have longer term maturities than high yield bonds are down -9.6% year-to-date, while high yield and short-term treasury bonds are down less.
Interest Rates Update
With the rise in interest rates, there has been more focus and discussion on the yield curve. The yield curve is simply a plot of the current market interest rates, or yields, on the bonds of a single issuer, most often, the US government. The current yield curve for US treasuries has jumped significantly in recent weeks, especially for mid-term interest rates, those on bonds ranging in maturity from 2 to 10 years. All rates for 2 years and beyond are now significantly above pre-pandemic levels.
Of more concern, and what I will be watching closely in the coming months is the spread, or difference in rates, between varying maturities. Typically, in normal economic environments, the yield curve slopes up and to the right, with longer-dated maturities, like 10 and 30-year treasuries, having higher yields than shorter-term maturities. Right now, the yield curve is relatively flat. Historically, an inverted yield curve, when shorter-term rates are higher than long-term rates, has been an almost perfect predictor of a coming economic slowdown.
Most specifically, investors watch the 2 and 10-year yields for signs of inversion, or when the 2-year yield exceeds the 10-year yield. It also is not an immediate indicator. Historically, on average, the inversion occurs 12-18 months before the recession begins. The yield curve inverts because investors are predicting an economic slowdown, which typically results in the Fed dropping interest rates – so they are essentially pricing in that expectation of a future drop in interest rates.
The rise in interest rates (and the Fed’s end of buying mortgage backed securities) has already had a major impact in the rates you and I pay for credit… especially in the mortgage market.
While mortgage rates are still low by historical standards, they have increased significantly since the start of 2022. From the low 3s in late 2021, to last week, a national average of 4.42%.
Daily Commodity Watch
One area you will see daily updates from me on Instagram in the current environment is commodity prices – the market sector most impacted and seeing the greatest volatility as a result of the Russian invasion of Ukraine.
Note these prices are based on one-month forward futures contracts. Oil prices are based on barrels of oil, while wheat futures prices are based on 5,000 bushels per contract. As of the end of February, oil had surpassed $100 per barrel for the first time in over a decade. Wheat prices have also spiked, surpassing $1,000 per contract, or over $0.20/bushel. This is the highest wheat prices have been since a global food crisis in 2007-2008, which was caused by weather, high oil prices (the last time oil prices were over $100/barrel), as well as increasing demand for biofuels and trade restrictions.
As of Friday, March 25th, oil was at $113 per barrel, and wheat contracts were trading at $1,092. Both have come down from their early March peaks, but remain extremely elevated, up more than 80% from this time last year, and 40-50% since the start of 2022.
This increases inflationary pressures not only here in the US, but globally, just when we were hoping actions from the Fed would start to cool things off, and the pressure is definitely on the Fed to act.
Working with Financial Planners, Advisors and Coaches
This week’s podcast deep dive features Nicholle Overkamp, MBA, ChFC, CDFA ,a Financial Planner and Retirement Planning Specialist. She walks through the distinctions between a financial coach, financial planner and financial advisor. From how they are alike to how they are different, what you should expect in your first meeting, what fees should be, and more. If you’ve never worked with a financial expert before and are considering it, I highly recommend this week’s episode to arm you with knowledge to be more confident in your meetings.
Nicholle Overkamp, MBA, ChFC, CDFA, Founder and CEO of Wilcox Financial Group, LLC
Nicholle Overkamp, MBA, ChFC, CDFA, is a Financial Planner and Retirement Planning Specialist. She’s the Founder and CEO of Wilcox Financial Group, LLC, and is on a mission to Empower Women and couples to own their Financial Future!
Nicholle and her team make the planning process FUN (promise!), simple, and practical. They believe in providing advice that’s in your best interest and complete alignment with your goals. They will hold you accountable throughout the process with all the support you need to ensure financial success!
Staying true to her mission of empowering women, Nicholle serves the community by sitting on the Board for the Girl Scouts of WNY, SheCAN and The WNY Center for Hope. Nicholle is the Co-Author of the #1 best-selling book: Money Bitch! A No-BS Guide for Smart Women Who Want to Own their Financial Future.
When Nicholle isn’t working you can catch her doing just about anything outside from hiking, boating, snowboarding, snowmobiling, or working out! Fitness and being active in nature keep her motivated and sane!
Nicholle achieved her Retirement planning specialist designation from Wharton and her MBA with a concentration in Finance from the University of Phoenix. In 2013 she was the Woman of the Year recipient for the American Business Woman’s Association of WNY, 2016 Courageous person award recipient. Throughout her career, she’s received multiple top agent awards. She holds her FINRA Series 7 and 66 registrations and holds life insurance and health insurance licenses.