Providing Context on Recent Market Volatility

Monthly Market Summary

  • The S&P 500 Index returned -4.1% during August, underperforming the Russell 2000 Index (-2.0%) for a second consecutive month.
  • Energy (+2.7%) was the top-performing S&P 500 sector during August despite oil prices falling -9.7%. Utilities (+0.5%) was the only other sector to produce a positive return. Technology (-6.2%) was the worst performing sector as interest rates rose, followed closely by Health Care (-5.8%) and Real Estate (-5.6%).
  • Corporate investment grade bonds generated a -4.4% total return, slightly underperforming corporate high yield bonds’ -4.3% total return.
  • The MSCI EAFE Index of global developed market stocks returned -6.1% during August, underperforming the MSCI Emerging Market Index’s -1.3% return.

Stock & Bond Markets Endure a Bumpy August After July’s Gains

The S&P 500 produced a -4.1% return during August, but the headline number doesn’t tell the full story. Equity markets initially rallied during the first half of the month, with the S&P 500 gaining +4.2% through August 16th as July’s market rally continued. However, the second half of August marked a sharp reversal as the S&P 500’s gave back all its gains plus more. Credit markets also experienced a reversal during August as interest rates reversed higher and bonds produced negative returns. The increased volatility across stock and bond markets is being attributed to a wide range of investor views creating a tug of war effect in markets, as well as uncertainty regarding how long the Federal Reserve will continue to raise interest rates.

Federal Reserve Chair Pushes Back Against Hopes for Policy Pivot

The Federal Reserve held its annual August Jackson Hole meeting, and Chair Powell used his speech to forcefully push back against the notion the Fed will pivot and cut interest rates if economic data starts to weaken. Powell emphasized the central bank’s “overarching focus right now is to bring inflation back down to our 2 percent goal” and cautioned, “Reducing inflation is likely to require a sustained period of below-trend growth … [and] will also bring some pain to households and businesses.”

Investor hopes for a Fed pivot were one of the primary catalysts that propelled the stock market higher during July and August. Chair Powell’s speech dashed those hopes and sent the S&P 500 down more than -3% on the day of his speech. Why? Two lines from Chair Powell’s speech underscore the Fed’s goal, “There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.” This focus on lowering demand for goods and services may increase portfolio volatility during the months ahead as investors debate how long it will take the Fed to achieve its goal and the impact tighter policy will have on the economy.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Declining Labor Productivity & Rising Labor Costs

This month’s chart looks at a trend not seen in decades – declining labor productivity and rising labor costs. Figure 1 shows labor productivity, which is measured as economic output per hour worked, declined -2.5% year-over-year during the second quarter. The -2.5% decline in labor productivity is the largest decline in the data series, which began in the first quarter of 1948. Hourly compensation rose +6.7% year-over-year as a tight labor market drove strong wage growth.

A look at the underlying data provides additional context on declining productivity. Total output rose +1.5% compared to the same quarter a year ago, while hours worked rose a bigger +4.1% year-over-year. The data indicates workers produced more goods and services less efficiently. Why is productivity declining? One potential explanation is pandemic-related themes, such as remote work and inflation, make the process of measuring productivity more difficult and distort the data.

Thematic changes may also explain the productivity decline. The labor market experienced significant turnover during the pandemic, and it takes time for workers to learn new jobs. As an example, Delta’s CEO pointed to labor turnover as a cause of the airline’s recent operational issues: “Since the start of 2021, we’ve hired 18,000 new employees, and our active head count is at 95% of 2019 levels, despite only restoring less than 85% of our capacity. The chief issue we’re working through is not hiring, but of training and experience bubble.” In addition, capacity constraints may also be weighing on productivity. The capacity utilization rate, which measures the amount of potential output that is actually being realized, was 80% during June 2022. The peak utilization rate over the past 20 years was ~81%, suggesting businesses may be running up against the limit of how much capacity they can use efficiently.

The combination of declining productivity and rising compensation costs is a notable trend, and it remains to be seen whether it is a short-term phenomenon or start of a longer-term trend. One trend we will be monitoring in coming quarters is whether decreased efficiency and rising labor costs negatively impact profit margins.

Important Notices & Disclaimer

The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results.   Investing   involves   risk,   including   the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS   SHOULD   VERIFY   ALL   CLAIMS   AND   COMPLETE    THEIR    OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Ep 50: Can You Get An A+ On Our Retirement Planning Quiz?

On This Episode

Don’t dread this as much as you hated hearing these words as a kid, but it’s time for a pop quiz! We’re putting retirement planning preparedness under the microscope with 5 critical questions to which you need to know the answers. So sharpen those pencils and let’s see how ready you are for retirement.

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More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

 

Speaker 1: Welcome into the podcast. It’s Retirement Planning Redefine with John and Nick and it’s pop quiz time. We’re going to have a little fun here with a retirement pop quiz. And don’t worry, it’s only five questions and it’s multiple choice. So we make this pretty easy. Guys, did you enjoy pop quizzes? When you hear that phrase, do you automatically get filled with dread or with joy? Nick, I’ll start with you. How you doing buddy? What’s going on?

 


Nick: Oh, pretty good. Fortunately, I was a pretty good test taker, so never bothered me that much.

 


Speaker 1: Okay.

 


Nick: But, so I luck out that way, but I know a lot of people dread it.

 


Speaker 1: Oh, for sure. Well, you know what? You are the first person, congratulations that I’ve talked to when I’ve doing the pop quiz that have said, all right, let’s do it. I have no problems with it.

 


Nick: I don’t know if I can go that far, but yeah.

 


Speaker 1: Oh, there you go.

 


Nick: At least not depressed.

 


Speaker 1: Not depressed. Okay. John, what’s going on my friend? How you doing?

 


John: Ah, doing all right.

 


Speaker 1: Yeah.

 


John: I was in between, it depended on the class.

 


Speaker 1: Okay. Okay.

 


John: If was something I enjoyed,

 


Speaker 1: Yeah.

 


John: It was, let’s roll. If it was something I dreaded, I was like aw man.

 


Speaker 1: I think that’s fair. I think, well, this,

 


John: Got to throw this at me right now.

 


Speaker 1: Yeah. I think that’s fair. But this should be pretty easy, because this is right up your guys’ alley obviously. Right. So this is retirement planning, pop quiz. So folks can play along with us here. I’m going to basically give you guys the question, give you the multiple choice answer. Let you give us the best answer from the choices. And then if you’d like to elaborate on something different or why none of them are a good idea feel free to do that as well. And I can never hear pop quiz anymore without thinking of the movie Speed from the 90s now. I only hear the Dennis Hopper going pop quiz, punk.

 


Nick: Great movie.

 


John: That was just on TV the other day. I was scrolling and I saw, and I’m like, oh man, like Nick just said, this is a really good movie.

 


Speaker 1: It’s a remote dropper. Yeah.

 


John: Yeah.

 


Speaker 1: Yeah. You’ll drop the remote and watch it. So, pop quiz for the guys here. Let’s see how we do. This is kind of just a retirement pop quiz, just five basic questions to check your preparedness or what you might have done and see if we should do things differently or whatever. So number one, I’ll give this one to you, John. At what age should people start saving for retirement A, when they begin working B, after they buy their first home or C, once they’ve paid off all their debt?

 


John: I’m going to have to go with A, when you begin working. Everyone probably has a different situation, but I’ll say that as soon as you start making income, it’s good to start saving towards retirement or saving in general. And yeah I’ll use one of my clients as an example, started out young, I think started with me when he was 24. And a big question was, Hey, I’m making money. What should I do? And we just started overfunding his retirement accounts. And seven, eight years later life happened, two or three kids.

 


Speaker 1: Sure.

 


John: Bought a house, all this stuff. And with all the expenses, he can’t save as much, but he’s built up such a nice nest egg from his 20s that he’s really in an excellent spot. So we just really started out strong and,

 


Speaker 1: That’s a good idea. Yeah.

 


John: Everyone’s seeing those charts where the sooner you start, the more you have at the end, but yeah, there’s a lot of truth to that. So I would say as soon as you start an income and have some money, I would definitely sock it away because you don’t know what the future’s going to hold.

 


Speaker 1: Now that’s a great idea because then when you do, when life does happen, which I was thinking about that with the home thing, it gets tougher. So then if he’s only able to put just a little bit away from time to time or on each paycheck or whatever, from the job getting the match or whatever, then you’re already up on the game a little bit. So I like that. Nick, want to chime in at all?

 


Nick: Yeah. I think the answer is just yes. As soon as you can start saving, you should even, and I know it’s something that’s talked about a lot, but even if you can just save up to the match and kind of get some free money from your employer,

 


Speaker 1: Right.

 


Nick: The sooner because it’s more about habits than necessarily the amount and just kind of getting used to creating smart habits is really a positive thing that last a long time.

 


Speaker 1: Yeah. That’s a good point too. And let’s be honest. See, come on, when you paid off all your debts, does that ever happen? Like we’d always be chasing something. Right. Somewhere through life.

 


Nick: Yeah. There’s always something.

 


Speaker 1: Yeah. Well I’ll do it after I this or I’ll do it after I that. Right. So you don’t want to go that route. All right, Nick, I’ll give you this one here. Number two, which of these is the best estimate of how much income you’ll need in retirement, A 50% of your income, current income, B 85% of your current income, C, 100% of your current income or D, none of the above.

 


Nick: This is one of those questions that I’ll probably annoy people with on the answers. There should maybe be like another option that lets you pick multiple. So the key kind of word in this is need. So in theory, 85% is probably the number for a lot of people.

 


Speaker 1: That’s kind of what we hear, right? That’s the term we hear. Yeah.

 


Nick: But at the same time, from the standpoint of many people that we talked to, they’re looking to, especially after the massive market run that we’ve had over the last 10, 12 years, even including this pull back recently, a lot of people have ended up with more money than they expected, and they’re wanting to do things and travel and enjoy, and it becomes less about need more about what actually do you want to do? So I would say somewhere between 85 and 100%. One other thing that we’ve seen for some people is, especially those that work at large employers. We’ve had a couple people pointed out recently in the last six months. We’ve got some people that were used to paying 100 to maybe $200 a month for health insurance per person. And now when they see what they’re going to pay with Medicare and so to supplement things like that, there’s some expenses that maybe are higher than what they expected. So I would say somewhere between that 85 and 100% is where a lot of people end up.

 


Speaker 1: Yeah. Yeah. I think we hear the 85. John, I used to hear this comedian. It was pretty funny a way of looking at it. If you’ve ever been on puddle jumpers. Right. Any of us that have gotten on a plane where you go to little island hopping or whatever, they ask how much you weigh. Right. Because then they say, well, you go, well, why? And they go, well, because we want to know how much fuel to put in. And this guy goes, well, fill it up. Here’s my credit card. Right. It’s on me, I’ll pay because the idea is, so you don’t want to just get sort of to retirement and then say, well, 85% enough. I would say 100% is what a lot of people are hoping for because they typically don’t want to go backwards in their lifestyle. Is that a fair assessment?

 


John: Yeah, I would say so. The big thing that typically where I think most people assume 85% is the mortgage might be gone or maybe you were saving 15% into your retirement account. So, that’s a spend that’s gone, but 100% is you want to maintain the lifestyle. But everyone as Nick kind of stated earlier, everyone’s different and everyone’s situation’s different. So very important to do a plan and make sure that you’re living off the income you want to live off of versus just needing, so.

 


Speaker 1: What you need. Yeah. Okay. Fair enough. All right, John, back to you and I’ve kind of basically just going back and forth with you guys a little bit here.

 


John: Yep.

 


Speaker 1: Number three, which of these do you find that retirees fear the most, pretty easy one here I think A, not leaving enough to the kids, B running out of money or C nursing home care? John, what say you?

 


John: I’m going with B, running out of money. That seems to be the biggest fear, because I think most people don’t want to go back to work. And then we hear a lot of times where we’re doing plans and it’s Hey, I don’t want to be old greeter at Walmart at some point. So, let’s make sure that the plans solid. So, one thing to alleviate this fear when we’re doing planning is, we try to be conservative with the rate of return we’re using, the expenses to make sure, Hey, it’s better to air on the side of caution versus be aggressive with these things because last thing we want to do is hit your mid 80s and you’re looking at your accounts and you starting to get a little nervous, so.

 


Speaker 1: Exactly, exactly. And I think that’s, everybody’s going to say B, although Nick, C is right behind it for many people. I mean like neck and neck.

 


Nick: Yeah. Yeah. There’s definitely in theory, I think a lot of times B and C, C can lead to B, realistically in other words, Hey, is there going to be enough money left over for me to have respectable care towards the end of my life? So ultimately it ends up leading to do I have the money, sort of thing, or have I planned properly and do I understand how that ties together? But yeah, I’ve got a few clients. What I’ve seen that a little bit more too is in a lot of single clients that they’re heavily focused on that, especially women oftentimes,

 


Speaker 1: For the long term care, you mean?

 


Nick: Yeah, for sure. And a lot of men like to use the line, just take me out back and that whole thing.

 


Speaker 1: Yeah.

 


Nick: Hear that plenty as well. But there’s so many people that are living longer and it’s, I was just up North and we were kind of, I was talking with friends and kind of seeing some long time friends and their parents that I haven’t seen in a while. And there was a bunch of friends who parents still had one of their parents alive, usually the mom and they were all in their 90s and,

 


Speaker 1: Right.

 


Nick: Still doing pretty well. And, but the circle of care needed to help make sure that they maintain. And my grandmother was with my parents and I know how difficult that is. And it’s a lot of work. So that’s definitely something that people are concerned about.

 


Speaker 1: Yeah. It’s got to be on the radar. It’s got to be part of the plan. And if you plan right, hopefully you won’t have to worry about either one of those. And then if there’s something left over, then you can do A as well and leave some money to the kids. So it’s all possible, but it’s got to have some strategizing going on there. It’s got to have some retirement planning redefined if you will. All right. So let’s see. Nick back to you here for the lead answer. Number four, which of these examples best represents a diversified retirement plan, A, a mix of 60% stocks and 40% bonds, B three rental homes and a good amount of cash in the bank. So rental income there. C, 10 to 12 different mutual funds or D, none of the above.

 


Nick: My answer is D none of the above. A lot of people, I think they think about like a 60, 40 mixes.

 


Speaker 1: Traditional, right.

 


Nick: A pretty traditional answer, but in our minds, this is the emphasis on the plan. For example, I’ll just use two sets of family members. So you’ve got one set of family members where there’s a pension involved. So that pension, between pension and social security live within their means, expenses are covered. They never saved as much as maybe they would have if they had had higher income and were able to save more. And they’re in a very comfortable position from a retirement standpoint whereas maybe another set of family members, a sibling earned more money over time, but also spent more money and don’t have as many kind of income producing assets going into retirement. And there’s a lot more stress there. And so, really the plan from a diversified plan standpoint, it’s really ends up being a function of people’s risk tolerance and how much sort of risk they’re willing to take. You can tell somebody that, Hey, 60, 40 mix of stocked bonds is great till you’re blue in the face, but if they don’t have market tolerance, then it’s never going to work.

 


Speaker 1: Right. Yeah.

 


Nick: And so, you have to adapt and adjust, and that’s our job as advisors.

 


Speaker 1: Yeah. And John, typically those 10 to 12 different mutual funds, they’re probably large cap. Right. So there’re probably a ton of overlap in there and 40% in bonds, I mean, bonds aren’t doing so great.

 


John: Yeah. I think, to kind of back when Nick’s saying here, when you look at what’s going on today in this market year to date with equity stocks being down and then rates going up, which in turn fixed income markets are down. So both of those at this point in time are down 10 plus percent. So that’s not a very good,

 


Speaker 1: Yeah.

 


John: Diversified strategy for this period.

 


Speaker 1: Yeah. 60, 40 is that traditional portfolio split. And it had its place for a long time, but it just doesn’t seem to be the case for many people, more and more people right now. So it’s always best again, to get it kind of customized. So yeah, I would say none of the above, or at least maybe a little bit of each of these three kind of sprinkled in is more diversified than just one of them. All right. Last question, John will lead off with you here. To make sure you do not run out of money in retirement, only withdrawal blank percent from your portfolio each year A, 1%, B 4%, C 6% or D just find a different strategy altogether.

 


John: Yeah. I’m going to go with D on this. The rule of thumb typically we hear is 4%, but I’m going to say this is one you definitely don’t want to live by the rule of thumb and you want to customize a plan to yourself because everyone’s going to be different. And if you just live by a rule of thumb on this one, there’s a good chance that you’re going to hit that fear of most retirees and that’s running out of money. Or if you’re just doing 1%, you might not be living to the best of your ability. So, definitely here it’s D and do a plan and figure out what’s your strategy.

 


Speaker 1: Yeah. Nick, do you concur with that one?

 


Nick: Yeah. I think an example from this is the last really seven to 10 years where a lot of people that were maybe risk averse, avoided some of the market. And we know that it was very, very difficult to get any sort of return on conservative money. So whether it’s cash in the bank, CDs,

 


Speaker 1: Right.

 


Nick: Bonds, those sorts of things. And so it made it difficult for people that were conservative to be able to sustain that sort of withdrawal rate and really it kind of emphasize the importance of having an overall balance. But yeah, again, one of the things that we tell people oftentimes is that one of the good things about kind of planning in the financial world is that there’s something for everybody, and that can be one of the bad things too, because it makes it hard for people to navigate. But usually, once you really kind of drill down and figure out what people are comfortable with, there’s some sort of solution out there, or combination of solutions to kind of get them to the point that they need to be. And that’s kind of the importance of planning.

 


Speaker 1: Yeah, definitely. And the 4% rule, it was a fine rule of thumb for a while, maybe back of the napkin. But most of the time you hear people say it’s more like maybe 2.9 or 3.1. And so it’s just better to find a specific strategy altogether versus relying on in general. Again, if you’re out to dinner and you’re just doing some quick math and you say, Hey, we’ll use 4% or something like that. Maybe that’s one thing, but really at the end of the day, getting it dialed in for what you actually need to do, get a strategy, get a plan and get started if you’re not working with a qualified professional, like the team at PFG Private Wealth. So reach out to John and Nick, if you need some help and you’re not already working with them and your checking out the podcast. You can find them online at pfgprivatewealth.com. That’s the website, lot of good tools, tips, and resources.

 


Speaker 1: You can contact them that way. You can subscribe to the podcast, whatever you’d like to do. Find all the information again at pfgprivatewealth.com or reach out to them at 813-286-7776. Guys, you did well. You passed. So thanks for hanging out and playing the game with us here on the show. And we’ll see you next time on Retirement Planning Redefined with John and Nick.

Stocks & Bonds Both Decline More Than -10% During 2022

The scatter plot below compares annual stock and bond returns since 1989. The dots represent the intersection of the S&P 500’s total return and the Bloomberg U.S. Bond Aggregate’s total return for each calendar year. The analysis highlights the challenging and unusual start to 2022. The ‘YTD 2022’ dot is the only dot in the lower left quadrant with stocks and bonds both declining more than -10% this year. If 2022 ended today, it would mark the S&P 500’s third worst year, and bond’s worst year, since 1989.

How unique is the current market environment? You will notice every year since 1989, except for 2022, is outside of the lower left quadrant. This indicates it is rare for both stocks and bonds to produce negative returns during a calendar year. Why are stocks and bonds declining together? The Federal Reserve is raising interest rates and shrinking its balance sheet by selling bonds, which pressures both stock and bond valuations. On the credit side, most bonds pay a fixed interest rate, which means bond prices must decline to offer a higher interest rate. On the equity side, interest rates represent the cost of money and are used as an input to value company shares. A higher interest rate typically decreases stock prices.

This year’s parallel stock and bond selloff highlights the importance of portfolio diversification not only across asset classes, but within asset classes. When you diversify your portfolio, you aim to invest in different asset classes that may react differently to the same event. The same principle applies within stocks and bonds. On a price return basis, S&P 500 Growth stocks are down -25.5% through May 11th, while S&P 500 Value stocks are only down -8.4%. In the corporate investment grade bond universe, Long-Duration (+10 Years) bonds are down -22.1% through May 11th on a price return basis, while Short-Duration (1-5 Years) bonds are only down -6.1%.

Important Notices & Disclaimer
The information and opinions expressed herein are solely those of PFG Private Wealth Management, LLC (PFG), are provided for informational purposes only and are not intended as recommendations to buy or sell a security, nor as an offer to buy or sell a security. Recipients of the information provided herein should consult with their financial advisor before purchasing or selling a security.

The information and opinions provided herein are provided as general market commentary only, and do not consider the specific investment objectives, financial situation or particular needs of any one client. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor.

The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. PFG is not soliciting any action based on this document. Investors should consult with their financial adviser before making any investment decisions. There is no guarantee that any future event discussed herein will come to pass. The data used in this publication may have been obtained from a variety of sources including U.S. Federal Reserve, FactSet, Bloomberg, Bank of America Merrill Lynch, iShares, Vanguard and State Street, which we believe to be reliable, but PFG cannot be held responsible for the accuracy of data used herein. Any use of graphs, text or other material from this report by the recipient must acknowledge MarketDesk Research as the source. Past performance does not guarantee or indicate future results. Investing involves risk, including the possible loss of principal and fluctuation of value. PFG disclaims responsibility for updating information. In addition, PFG disclaims responsibility for third-party content, including information accessed through hyperlinks.

No mention of a particular security, index, derivative or other instrument in the report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security, index, or derivative. The report is strictly an information publication and has been prepared without regard to the particular investments and circumstances of the recipient.

READERS SHOULD VERIFY ALL CLAIMS AND COMPLETE THEIR OWN RESEARCH AND CONSULT A REGISTERED FINANCIAL PROFESSIONAL BEFORE INVESTING IN ANY INVESTMENTS MENTIONED IN THE PUBLICATION. INVESTING IN SECURITIES AND DERIVATIVES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK, AND READERS MAY LOSE MONEY TRADING AND INVESTING IN SUCH INVESTMENTS.

PFG Private Wealth Management, LLC is a registered investment advisor.

Stocks & Bonds Both Selloff During April

Monthly Market Summary

  • The S&P 500 Index produced a -8.8% total return during April, outperforming the Russell 2000 Index’s -9.9% total return.
  • Consumer Staples was the only S&P 500 sector to produce a positive return during April’s market selloff. Energy was the second-best performing sector as the price of crude oil traded around $100 per barrel. In contrast, the ‘Growth-style’ sectors, including Communication Services, Consumer Discretionary, and Technology, each traded more than -10% lower as interest rates soared higher.
  • Corporate investment grade bonds generated a -6.7% total return, underperforming corporate high yield bonds’ -4.2% total return.
  • The MSCI EAFE Index of global developed market stocks returned -6.7% during April, underperforming the MSCI Emerging Market Index’s -6.1% return.

Federal Reserve Policy Remains a Headwind for Equity & Credit Markets

April was another difficult month for both stock and bond markets. The S&P 500 Index traded -8.8% lower during the month, while the Bloomberg Bond U.S. Aggregate Index traded -3.8% lower. Federal Reserve policy remains the driving force as the central bank raises interest rates and prepares to shrink its balance sheet to ease inflation pressures. It is a difficult and delicate balancing act to pull off. Low interest rates and bond purchases stabilized the U.S. economy during the Covid pandemic, but removing the two pandemic-era monetary policies is proving to be enormously disruptive.
Interest rates rose again during April as the 10-year U.S. Treasury yield surged +0.57% to 2.89%. While 0.57% may seem small on an absolute level, it significantly impacts how investors position portfolios. Why? Interest rates represent the cost of money and are used as an input to value company shares. A higher Treasury yield offers investors a higher rate of return. To incentivize investors to own riskier assets, such as stocks, the expected return must increase. Buying an asset, such as a house or stock, at a lower valuation should increase the expected return, which means the theoretical value of the asset should be lower as rates rise. On a conceptual level, this is the messy valuation process the market is currently working through. It is trying to find the correct theoretical fair value of a company’s shares as interest rates rise. This is in addition to dealing with geopolitical tensions, new Covid lockdowns in China, and surging inflation.

What Can You Expect Moving Forward?

There is no easy answer or definitive path forward. This year’s selloff indicates some degree of tighter Federal Reserve policy is already priced into the market – we just do not know how much. In addition, the list of market uncertainties remains long, including corporate earnings quality, economic strength, and the path of Federal Reserve interest rate hikes. Until the market receives clarity on these uncertainties, volatility is likely to remain elevated. The bumpy ride may not be done yet.

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