On a day when the Unemployment Rate for March dipped to 3.6%, the yield on the 2-year Treasury note rose above that of the 10-year Treasury note, a somewhat unusual circumstance which has often presaged an economic recession in the U.S. With the Federal Reserve poised to continue with a series of interest rate hikes throughout 2022, the odds of a recession, or at least a measurable slowdown in economic activity are rising.
The Fed raised the short term Fed Funds rate in March for the first time since slashing it to 0% at the onset of the Covid-19 pandemic. Chair Powell has signaled higher short-term interest rates lie ahead, with the prospects for a 50 basis point bump at the May meeting on the table. The bond market has seen short-term rates surge (more on that in the Fixed Income section), however, the latest CPI print (for February) showing prices climbed +7.9% from a year ago, indicating yields need to rise further.
While broad consumer prices surged +0.8% MoM in February, so-called Core CPI (ex food and energy) climbed +0.5% month-over-month. Producer prices gained +0.8% MoM which translated into a stunning +10.0% gain year-over-year. All these readings are the highest seen since the early 1980’s. The PCE Deflator gained +0.6% MoM and +6.4% YoY. While rising energy prices are often blamed for price hikes, wages, rent and housing are all seeing steep gains. The Fed is clearly behind the curve with regard to inflation.
Home prices, as measured by the S&P CoreLogic CS 20-City Index rose +1.79% in January for a +19.1% year over year gain. Housing Starts rose +6.8% in February while New Home Sales dipped -2.0% MoM, Existing Home Sales fell -7.2% MoM and Pending Home Sales dropped -4.1%. Mortgage rates are rising as bond yields trend higher, with a 30-year mortgage rate now approaching 5.0%, the highest rate seen in years. Despite demand for housing far outpacing current supply, the rising cost of borrowing should provide some headwind the further home price appreciation.
The Federal Reserve has at last admitted its “transitory” inflation thesis was flawed and that it now must try and aggressively hike interest rates to help balance supply and demand in the U.S. economy. Short rates are rising while longer term interest rates have remained stubbornly low, suggesting that many feel a period of slowing economic growth lies ahead, and quite possibly a recession. For now, however, the U.S. economy remains strong and as the pandemic evolves into an endemic, the consumer is returning as the main driver of U.S. GDP.
To read further about domestic and international equity, fixed-income, alternative investments, and ESG please open the full paper below:
Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.
For more information about Nottingham’s offerings, visit www.nottinghamadv.flywheelstaging.com or call 716-633-3800.
Nottingham Advisors, LLC (“Nottingham”) is an SEC registered investment adviser located in Amherst, New York. Registration does not imply a certain level of skill or training. Nottingham and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Nottingham maintains clients. Nottingham may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. For information pertaining to the registration status of Nottingham, please contact Nottingham or refer to the Investment Advisor Public Disclosure Website (www.adviserinfo.sec.gov). Any subsequent, direct communication by Nottingham with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
This newsletter is limited to the dissemination of general information pertaining to Nottingham’s investment advisory services. As such nothing herein should be construed as the provision of personalized investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Adhering to the assumptions, theories and principles serving the basis for the information contained herein should not be interpreted to provide a guarantee of future performance or a guarantee of achieving overall financial objectives. As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. Furthermore, this newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. As such, there is no guarantee that the views and opinions expressed in this article will come to pass. This newsletter should not be construed to limit or otherwise restrict Nottingham’s investment decisions.
This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Some portions of this newsletter include the use of charts or graphs. These are intended as visual aids only, and in no way should any client or prospective client interpret these visual aids as a method by which investment decisions should be made. We have provided performance results of certain market indices for illustrative purposes only as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any benchmark index. A description of each index is available from us upon request.
Investing in the stock market involves gains and losses and may not be suitable for all investors. Past performance is no guarantee of future results.
For additional information about Nottingham, including fees and services, send for our Disclosure Brochure, Part 2A or Wrap Brochure, Part 2A Appendix 1 of our Form ADV using the contact information herein.
