Market View Weekly

ECONOMIC REVIEW¹

Retail sales for the month of October came in above expectations of a 1.4% increase, the actual increase was 1.7% on a month-over-month basis.
Housing starts for the month of October decreased by -0.7%, compared the consensus which was an expectation of an increase of 1.5%.
Building permits for the month of October increased above estimates. The actual increase for the month was 4% whereas the estimate was an increase of 2.8%.

INSIGHT: With the holiday season fast approaching, the month of October looked strong in terms of retail sales with a surge in Halloween spending. The retail sales numbers, which are adjusted for seasonal variations but not for inflation indicate consumers are willing to pay the higher prices, despite a recent indication that sentiment is at its lowest level in 10 years. Next, while housing starts did decrease overall, the decrease can be attributed solely to single family starts. The single-family segment decreased by -3.9% for the month whereas the multifamily segment increased by +7.1% for the month. For the year, multi-family starts have increased by 36.6% compared to a decrease of -10.6% for single family starts. Despite the decrease in the headline number for starts, housing demand remains strong. However, the market is facing increasing housing affordability issues after a run-up in new and existing home prices which is why we are seeing a surge in the typically more affordable multi-family segment of the market.

A LOOK FORWARD¹

The second reading for Q3 Gross Domestic Product (GDP) growth will be announced on Wednesday, the expectation is an increase to 2.2% from the preliminary reading of 2.0%.
Personal Income for the month of October will be released on Wednesday, the expectation is for personal income to increase by 0.2% increasing from the previous month’s decrease of -1.0%
The PCE Deflator for October will be announced on Wednesday, economists expect an increase of 0.7% on a month-over-month basis and 5.1% on a year-over-year basis.

INSIGHT: With the impact of the Delta Variant and supply constraints weighing on economic growth in the third quarter, there is a strong possibility that the lost growth has been pushed forward into the fourth quarter and even into early 2022. If PCE comes in at economists’ expectations, this will be the highest reading since 1990. Heightened inflationary readings have added to investors' concerns that rising prices could ultimately dampen the economic recovery by curbing consumer spending. Though retailers' quarterly results so far have largely reflected better-than-expected sales trends, consumers have been reporting increasing worries over the impacts of inflation on their day to day activities.

OBSERVATIONS

U.S. equities moved higher this week as indicated by the S&P 500 which was up +0.36% on the week.
In the U.S., smaller sized companies underperformed their larger-sized counterparts, as the Russell 2000 index decreased by -2.83% on the week.
International stocks as measured by the MSCI EAFE were negative on the week, down -0.78%, underperforming domestic stocks.
Emerging market stocks were negative on the week with the MSCI EM down -1.25%.
U.S. investment grade bonds were positive last week with the Bloomberg Barclays U.S. Aggregate Bond index up +0.09%.

BY THE NUMBERS

WHEN THE FED LAST RAISED RATES - Between 12/14/16 and 12/19/18, the Fed raised short-term interest rates 8 times (0.25 percentage points each time). Between 12/14/16 and 12/19/18, the S&P 500 increased +15.8% (total return) in aggregate over the 2-years. The S&P 500 consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock's weight in the index proportionate to its market value (source: BTN Research).

TAXES - HR # 5376, aka “The Build Back Better Act,” is estimated to raise taxes on the top 1% of US taxpayers and lower taxes on the other 99% of taxpayers. The top 1% of taxpayers, approximately 1.4 million tax returns, would see an average annual federal tax increase of $54,360 (source: Tax Policy Center). HAVE TO MOVE QUICKLY - For the 12 months ending 6/30/21, US homes for sale were on the market for a median period of just 7 days before going under contract. That’s the shortest period recorded nationwide in data that has been tracked since 1989 or more than 3 decades (source: National Association of Realtors).

JUST AN AVERAGE CAR - The average new car purchased in the United States in September 2021 cost $45,031, a record price and up +12.1% from $40,159 as of September 2020 (source: Kelley Blue Book).

Matthew J. Lawler, Financial Advisor

[email protected] 402-412-5008

Securities offered through Securities America, Inc. Member FINRA/SIPC Advisory Services offered through Securities America Advisors, Inc. Matthew J. Lawler Representative F&M Wealth Management and F&M Bank are not affiliated with the Securities America Companies May Lose Value - Not FDIC-Insured - No Bank Guarantee - Not a Deposit - Not Insured by any Government Agency

Economic Definitions

The Federal Reserve System: The central bank of the United States. It performs several general functions to promote the effective operation of the U.S. economy and, more generally, the public interest.

Retail Sales: Retail sales (also referred to as retail trade) tracks the resale of new and used goods to the general public, for personal or household consumption. This concept is based on the value of goods sold.

Building Permits: This concept tracks the number of permits that have been issued for new construction, additions to pre-existing structures or major renovations. These statistics are based on the number of construction permits approved.

Housing Starts: Housing (or building) starts track the number of new housing units (or buildings) that have been started during the reference period.

GDP: Gross domestic product (GDP) measures the final market value of all goods and services produced within a country. It is the most frequently used indicator of economic activity. The GDP by expenditure approach measures total final expenditures (at purchasers' prices), including exports less imports. This concept is adjusted for inflation.

Personal Income: Consumer or Household Income (often referred to as personal income) tracks all income received by households including such things as wages and salaries, investment income, rental income, transfer payments, etc. This concept is not adjusted for inflation.

PCE (headline and core): PCE deflators (or personal consumption expenditure deflators) track overall price changes for goods and services purchased by consumers. Deflators are calculated by dividing the appropriate nominal series by the corresponding real series and multiplying by 100.

Index Definitions

S&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index.

Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.

MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.

MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.

Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

Disclosures

Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

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¹Data Obtained from Bloomberg as of 11/19/2021