The Financial Realities of Elder Care & Long-Term Care Insurance
The ramifications of stamping down rising inflation dominated the markets in the third quarter. Investors weighed the balance between an aggressive government policy aimed at curbing price pressures against the possibility of those very policies leading to an economic recession. That dichotomy was not lost on Federal Reserve officials, who stoically made clear that "a sustained period of below trend growth" may be a necessary byproduct as part of the effort to bring down inflation. Ultimately, investors moved away from risk, sending stocks lower for the third straight quarter of 2022, while putting an exclamation point on the worst decline in the first nine months of a year in 20 years. By the end of the quarter, the Dow, the S&P 500, and the Nasdaq had entered into bear market territory. All three benchmark indexes are down at least 21.0% on the year. Crude oil prices declined sharply in the quarter for several reasons, including waning fuel demand, China's ongoing COVID lockdown policy, the unexpectedly benign impact of sanctions against Russian oil exports, rising inflation, and the strength of the U.S. dollar. The strength of the dollar often weighs on oil and other commodities that are priced in that currency, making them more expensive to purchasers using other currencies. Bond prices declined during the quarter, pushing yields up. The 10-year Treasury yield jumped 83 basis points since the end of June and nearly 230 basis points on the year. Gold prices struggled to maintain any momentum, ultimately falling more than 7.50% in the quarter.
Wall Street rebounded in July as investors saw a glimmer of hope that inflationary pressures were easing. An increase in consumer discretionary shares helped drive the S&P 500 up over 9.0%, the best monthly gain since the end of 2021. The Nasdaq led the benchmark indexes listed here, climbing 12.4%, followed by the Russell 2000, which rose 10.4%. The Dow added 6.7%, while the Global Dow gained 3.8%. Long-term bond prices advanced, driving bond yields lower. Ten-year Treasury yields fell 33 basis points to close the month at 2.64%, their lowest level in nearly four months. Crude oil prices slid over 7.0% to $98.23 per barrel, while prices at the pump fell on waning demand. The dollar continued to strengthen, while gold prices lost more than 1.5%. The Federal Reserve hiked interest rates 75 basis points, despite several inflationary indicators showing a slowdown in price pressures. The second estimate of the second-quarter gross domestic product showed the economy retracted by 0.6%. While industrial production rose 0.5%, durable goods orders slid 0.1%. The housing sector retracted, impacted by rising mortgage interest rates, as both existing home sales (-5.7%) and sales of new single-family homes (-9.4%) declined.
August saw stock markets give back July gains, as investors grew increasingly worried that the economy was headed toward a recession. Large-cap stocks were hit particularly hard, pulling the major benchmark indexes lower. The Nasdaq, the Dow, and the S&P 500 lost more than 4.0%. The small caps of the Russell 2000 performed best, despite closing down 2.2%. Long-term bond yields jumped higher as prices slid. The yield on 10-year Treasuries rose nearly 50 basis points to 3.13%. Crude oil and gas prices continued to fall. The dollar rose nearly 3.0% against a basket of global currencies. Gold prices declined more than 3.0%. After adding over 500,000 new jobs in July, the labor sector continued to advance, albeit at a slower pace, with the addition of 315,000 new jobs. Although the Federal Open Market Committee did not meet in August, Fed Chair Jerome Powell's comments at the Jackson Hole gathering were definitely hawkish, confirming the Committee's stance that inflation had to be tamed, despite some economic hardship. Adding fuel to the fire, inflationary indicators in August showed prices reversed course from the month earlier. The Consumer Price Index rose 0.1%, while the personal consumption expenditures price index rose 0.3%.
Stocks soured in September as investors worried about an impending economic recession, despite an uptick in consumer spending (personal consumption expenditures), which accounts for nearly 70% of economic activity. The Federal Reserve increased the target range for the federal funds rate 75 basis points, while anticipating ongoing increases in the target range will be appropriate. Despite a surge in stock values early in the month, each of the benchmark indexes ended September in the red. Crude oil prices fell in September for the fourth consecutive month. The yield on 10-year Treasuries rose by 67 basis points. The dollar advanced, while gold prices slid lower.
|MARKET/INDEX||2021 CLOSE||AS OF SEPTEMBER 30||MONTHLY CHANGE||QUARTERLY CHANGE||YTD CHANGE|
|FED. FUNDS||0.00%-0.25%||3.00%-3.25%||75 bps||150 bps||300 bps|
|10-YEAR TREASURIES||1.51%||3.80%||67 bps||83 bps||229 bps|
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
The fourth quarter is expected to continue the trends from the previous three months. Inflationary pressures are likely to slow as the Federal Reserve continues its aggressive policies until inflation settles at the target 2.0% rate. The market will probably continue exhibiting roller coaster turbulence in response to the Fed's moves. Employment should remain strong, although rising mortgage interest rates will almost certainly impede the housing sector. As we enter the final three months of 2022, questions remain as to the direction of the war in Ukraine, oil and gasoline prices, and whether the economy will remain relatively positive or head toward a recession.
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); http://www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
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