UPDATES
Weekly Wrap-Up – Asti Financial
We’ve added a new feature to our website – the Weekly Wrap-Up. Each week we highlight some of the economic and financial news that affects investors. We give a brief overview of mortgage, investment and CD rates for the week. We also feature any notable news of interest. Visit us at here to get weekly updates.
Year-end considerations
We all know the stock market has been down this year. One bright spot may be Roth conversions. Given account balances have fallen, now may be the time to consider converting some or all of your pre-tax retirement accounts to a Roth IRA.
Tax rates remain at 40-year lows and will stay there until current tax laws sunset in 2025. Now may be the time to consider converting to a Roth IRA and get a bit of a break on the taxes given market values are down.
If you’d like to ‘crunch the numbers’ on if a Roth conversion might make sense for your situation, you can schedule an hourly meeting with us to review.
THE MARKET
Things have been changing lately and we see some positive trends. In early November the Federal Reserve decided to increase the key Federal Reserve rate once again by 0.75%. This brings the Fed Funds rate to 3.75%-4%.
In October we also saw inflation decline to 7.70% for October. This is a much larger decrease than anyone had been expecting. It gave hope that the Federal Reserve’s rate increases are actually dampening inflation.
It is important to note that the 7.70% inflation rate is an average of all prices. We saw notable decreases in prices in the following sectors – appliances, smartphones, natural gas and health insurance. We also saw notable increases in the following prices:
- Fuel/oil +19.8%
- Eggs +10.1%-
- Hotel rooms +5.6%
Mortgage rates actually inched up a bit to 7%, on average, for a 30 yr. fixed rate loan. A 15 yr. loan is now about 6.50%.
We also saw CD rates briefly flirt with 5% for a 1 yr. CD before starting to decline slightly after the new inflation data was released. The market is now factoring in that inflation has moderated so we may not see as aggressive rate hikes in the future. Banks pulled back their aggressive CD offerings and the 1 yr. CD rate is now about 4.80%.
*The best CD rates can be found on brokerage platforms like Fidelity, Schwab, Vanguard, etc. CD rates directly from banks are much lower ~ in the 2% range.
What a week!!!
On November 10, following the inflation report showing a decline in the inflation rate, the Dow Jones Industrial Average soared 1200 points or almost 4%. The S&P 500 increased 5.5% the same day. This is the biggest rally we have seen in over 2 years.
We also saw massive fallout in the crypto space with FTX, one of the largest players in the crypto universe, collapsed and the CEO, Sam Bankman-Fried (age 30) filing for Chapter 11 bankruptcy. He is being called the Bernie Madoff of the cryptocurrency world. His firm, domiciled in the Bahamas, reportedly transferred $10 billion of client funds to another firm he owned. Mr. Bankman-Fried supposedly created a ‘back door’ in the books which allowed him to alter the firm’s financial records without raising any alerts.
Bitcoin has significantly fallen from its high of $75k BTC to its current value at roughly $16k BTC.
Despite finally receiving some good news, across the board most major market indices are still in negative territory YTD:
- Bond Market Index -14.21%
- Mid Cap Index -10.55%
- Small Cap Index -11.89%
- International Index -15.82%
- Technology Index -28%
- Real Estate Index -25.17%
Why it makes sense to stay the course…
Throughout the year we have recommended clients do not rebalance and stay invested. The one-day spike of 1200 points in the DJIA is the perfect reminder. Market recoveries never feel like a recovery while they are happening. There are many days of volatility with high swings up and down. Its only after time has passed that investors look back and realize the market was indeed slowly improving over time.
This year the S&P 500 Index has been in bear market territory – defined as a loss of 20% or more. Currently we are not in a bear market and have made back 5% – although it certainly doesn’t feel like that. In fact, the S&P 500 Index posted a 7.99% return for the month of October! The DJIA returned 13.95% during the same period with the S&P 400 Midcap Index increasing 10.42% and the S&P 600 SmallCap Index returning 12.27%.
Selling off or rebalancing investments at this time will be locking in losses. As we’ve said in the past, market volatility is one risk factor that a solid financial plan with good diversification will help insulate you against. For those who have been working with us for a while, remember we have a plan!! When we build our portfolios, we take into account asset allocation, so your portfolio is diversified.
For those investors near/in retirement or who have conservative risk tolerances, we have built your portfolio with a bond and cash cushion for exactly this type of market.
We all remember pain more than pleasure. Remember are coming out of an 11 yr. bull market and last year the S&P 500 Index ended the year up almost 29%. While we are down year to date, these losses are still lower than last year’s gains. You are still winning over the long term!