Strength in Houses

July 7, 2022

Housing:

   The extended strength of the US housing market prompted households to withdraw $82 billion of home equity in Q1, the largest amount in 15 years. Going forward, refinancing will likely be subdued as the average mortgage borrower has already locked in an interest rate over 200 bps below current rates. We believe that record-high levels of untapped home equity may add to the sizable savings buffer that households hold.

Market Summary:


Global Equities:

   US stocks struggled last week, unable to continue the rebound seen the week prior. Recession fears remained in focus as weak consumer confidence prints lowered investor optimism, driving the S&P 500 lower -2.18% last week, after the index notched its worst first half of any year since 1970. In the UK, the FTSE 100 hit a two-week high mid-week as China’s easing COVID-19 stance boosted risk sentiment, though ultimately ended lower -0.54% amid slowdown fears.


Commodities:

   Oil prices rose last week as Saudi Arabia and the UAE, two major producers, signaled near-term capacity limits. The rise was slightly offset as economic data showed crude oil inventory gains, though WTI and Brent ultimately closed last week at $108.43 and $111.63 per barrel, respectively.


Fixed Income:

   Global sovereign yields fell last week as banks at the ECB annual summit took a unified hawkish stance in targeting inflation. In the US, the 2-Year and 10-Year Treasury yields fell to 2.84% and 2.90%, respectively, as inflation printed lower than consensus expectations. Similarly, the German 10-year Bund yield dropped to 1.23%, primarily driven by higher than expected unemployment data.


FX:

   The U.S. Dollar index closed 1.02% higher against a basket of currencies last week following Chairman Powell’s comments around rising recession risks and general safe-haven demand. Meanwhile, the euro fell to 1.0424 against the US dollar, primarily driven by investor concerns on anti-fragmentation and lower-than-expected inflation in Germany. Similarly, the pound fell to 1.2096 against the US dollar as the BoE forecasted slow GDP growth through 2022.


Economic Summary:


Inflation:

   US PCE remained unchanged at 6.3% on a year-over-year (YoY) basis, though US Core PCE fell by 20 bps to 4.7% YoY, its third consecutive monthly decline, demonstrating potential signs of easing inflation. Personal spending rose lower than consensus expectations by 0.2%, demonstrating softer consumer spending amidst higher price pressures and looming recession fears. Meanwhile, the Euro area June flash HICP rose 8.6% YoY, above expectations and up 0.5pp from the month before, as geopolitical tensions continued to intensify existing price pressures in the energy and food sectors.


Manufactoring:

   June’s Chicago PMI fell below consensus expectations to 56.0, softening from a 60.3 reading in May. In China, private sector activity showed signs of recovery in June with the headline Caixin manufacturing PMI rising to 51.7 from 48.1 in May, on resumption of production as Covid-19 restrictions eased.


Labor:

   US initial jobless claims totaled 231k for the week ended June 25th, higher than consensus expectations but lower than the week prior. The four-week moving average, used to smooth out weekly fluctuations, rose by 7k to 232k, the highest level since December. Similarly, despite weakening activity, the Euro area unemployment rate fell to a new record low at 6.6% in May, suggesting a stronger labor market. With vacancy rates at all-time highs, we expect wage pressures to persist.


Source: Goldman Sachs

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Strength in Houses

The extended strength of the US housing market prompted households to withdraw $82 billion of home equity in Q1, the largest amount in 15 years. Going forward, refinancing will likely be subdued as the average mortgage borrower has already locked in an interest rate over 200 bps below current rates. We believe that record-high levels of untapped home equity may add to the sizable savings buffer that households hold.‍

Your 2022 Half-Year Planning Checklist

As 2022 draws to a half, it’s time to begin organizing your finances for the second half of the year. To help you get started, we’ve compiled together a list of key planning topics to consider. Your Verus Financial Advisor can help you rebalance, review and reset your course, if necessary, for this year and beyond.

Where are we now in the market?

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Estate Planning 101

A good estate plan helps ensure the right people will receive the right property at the right time. When you die, your assets are subject to a number of expenses that can significantly reduce the size of your estate left to your heirs. Proper estate planning can minimize these expenses and determine how the costs that remain will be paid.

Using Taxes to Your Advantage

Tax planning is the analysis of a financial situation or plan from a tax perspective. It is the reduction of tax liability by the way of exemptions, deductions, and benefits. The purpose is to ensure tax efficiency. Tax planning includes making financial and business decisions to minimize the incidence of tax.

Protecting Your Greatest Asset

To put it in simple terms, disability insurance is insurance for your income. It allows you to protect your most valuable asset, your income, in the event you become too hurt or sick to work. There are two options: Short-term and long-term. Analyze your existing coverage to find the plan that best fits your lifestyle! It can be more affordable than you think and the benefit can be used for different things such as medical expenses, household expenses, or help with household tasks. Most people protect their home, car, phone, and identity so why not protect your income.

Protect Your Loved Ones With Life Insurance

If you were to die unexpectedly, would your spouse have enough money to cover funeral expenses and daily living expenses? Would there be enough money to pay for everything your family relies on you for, if you were suddenly not around? Would your family have to move and change their lifestyle if you were to die prematurely? If your spouse were to outlive you by 10 or 20 years or more, would they be able to make ends meet? Life insurance pays cash to your loved ones after you die, allowing them to remain financially secure.

College is Right Around the Corner

Why Start Planning Now? A child that is born now will face tuition costs that are three to four times higher than what they are now. It is never too early to start planning for your child's future. There are many ways to save for college. Some you might have heard before, some you might not have. This article easily sums up different college saving plans that you can potentially think about using.

The Basics of Investments

What is Investing? Investing is the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit. Making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime, or look for a higher-paying job. There are many ways you can invest which include putting money into stocks, bonds, mutual, real estate, or starting your own business. It does not matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional income.

Why You Should Keep Investing Even When Markets Are Down

As investors during a decline in the market, it is difficult to remember why we decided to take the risk of investing. In its best days and its worst days, the stock market draws the most attention, but there is one surefire way to keep trading worth your time: Stick it out for the good and the bad. If you plan for the long-term, don't panic. Instead, here are 3 reasons to keep investing, even in the worst of times.

What does Fed rate hike mean for the market?

The big news today is that Chairman Jerome Powell and the Federal Reserves announcing a 25 basis point hike in interest rates. Let's see how this could potentially affect the market. If we take a look back at historical data, the S&P 500 has averaged a 3.7% growth, 12-months following the first rate hike of each cycle from 1971 to 2004. 24 months after the first hike, it has seen an average of 16.3% growth and averaged 31.0% after 36 months.

August Market Summary

GLOBAL EQUITIES: Q2 earnings data kept Delta variant concerns at bay, initially reversing the S&P 500’s mid-week decline. However, despite US Q2 GDP posting above its pre-pandemic peak, it came in lower-than expected, leading the S&P 500 to end the week lower by -0.35%. Meanwhile, Chinese stocks saw significant volatility as investors grappled with Beijing’s tighter financial regulations. The MSCI China Index ended the week lower at -6.06%. In the UK, a drag in the mining sector and variant concerns left the FTSE 100 up only 0.10%.

Mega Roth IRA: What It Is And How It Can Work For You!

Roth IRAs have been a popular topic as of late. For a long time, it was an unspoken secret used by retirement planners. However, the IRS released guidance that specifically addressed both backdoors Roth IRA conversions, and the so-called Mega Roth IRA. As a result, it has gained even more traction and interest.

Where Will Your Equity Profile Be in a Year?

The market is disengaged from financial fundamentals and all reality. Remember December 2018when the market fell 20% (over three months) over a “potential” China trade war? And remember the big rally in 2019 – and you’re saying to yourself “If only I had bought back then!” Surprise! You're getting a second chance!

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