1. Today's blog post features the total return performance figures for the major global stock indices over four specific periods since the start of 2020.
2. The first column of total returns in the table above indicates that, with the exception of the S&P SmallCap 600 Index, U.S. equities were outperforming their foreign counterparts prior to the peak in the S&P 500 Index on 2/19/20. 
3. Due largely to the onset of coronavirus (COVID-19), a major shift in sentiment occurred after the close of trading on 2/19/20. The second column of total returns captures the depth of the sell-off in the stock market in the U.S. and abroad. 
4. The S&P 500 Index actually crossed over into bear market territory (a 20% or more price decline from the most recent high) at the close of trading on 3/12/20. It only took 16 trading days, the fastest path to a bear market ever. The sell-off did not cease until 3/23/20. 
5. The third column of total returns shows the rebound in progress. This includes the market (S&P 500 Index) dipping into bear market territory again, selling off 23.96% on a price-only basis (dividends not included) from its all-time closing high on 1/3/22 through its 2022 bottom on 9/27/22. U.S. equities significantly outperformed their foreign counterparts over that period.   
6. The fourth column reflects the year-to-date total returns through 9/27/22. With the exception of the Nasdaq 100 Index, it has been more of the same with respect to U.S. stocks outperforming most of the foreign stock indices, albeit by a much narrower margin. Latin America has benefitted from the rise in commodity prices in 2022, including oil.
7. The fifth column reflects the total returns since the start of 2020. Again, the U.S. equity indices are dominating their foreign counterparts. 
8. From 12/31/19-9/27/22, the U.S. dollar rose by 18.38% against a basket of major currencies, as measured by the U.S. Dollar Index (DXY), according to Bloomberg. The surge in the U.S. dollar has provided a drag on the performance of unhedged foreign securities held by U.S. investors over the period, in our opinion. 
9. Foreign stocks look less expensive than U.S. equities based on their forward-looking price-to-earnings (P/E) ratios. Bloomberg's 2022 year-end P/E estimates for the major indices in the table are as follows (9/28/22): 16.62 (S&P 500); 12.16 (S&P MidCap 400); 11.65 (S&P SmallCap 600); 21.29 (Nasdaq 100); 11.53 (MSCI BIC); 10.76 (MSCI Emerging); 10.57 (MSCI Europe); 6.53 (MSCI Latin America); and 11.05 (MSCI World ex-U.S.).   

1. The yield on the 10-year Treasury note (T-note) closed at an all-time low of 0.51% on 8/4/20, according to Bloomberg.  
2. From 8/4/20 through 9/23/22, its yield rose from 0.51% to 3.69%, or an increase of 318 basis points, based on the close of trading.    
3. As indicated in the chart above, the only debt category in positive territory for the period was leveraged loans (senior loans), which are floating-rate speculative-grade securities.  
4. Emerging market bonds and intermediate-term global government bonds were deep into negative territory for the period captured in the chart. The strength in the U.S. dollar definitely had a negative impact on the performance of foreign bonds, in our opinion. The U.S. Dollar Index (DXY) rose by 21.21% over the same period, according to Bloomberg.   
5. Inflation remains elevated. The trailing 12-month CPI (Consumer Price Index) stood at 8.3% in August 2022, up from 1.3% from August 2020. The CPI is at a level not seen since 1982, according to data from the Bureau of Labor Statistics.
6. As of 9/23/22, the federal funds target rate (upper bound) stood at 3.25%, up from 0.25% this past March. The Federal Reserve has signaled via its dot plots that it is prepared to raise rates another 75 basis points at its next meeting scheduled for November 1-2. 
7. For comparative purposes, the federal funds target rate (upper bound) averaged 2.46% for the 30-year period ended 9/23/22, but did climb as high as 6.50% on 5/16/00. Stay Tuned! 

Stocks traded lower by over 4% last week, measured by the S&P 500. Hawkish comments from Federal Reserve Chairman Jerome Powell followed a 75-basis point interest rate increase that had investors continuing to take a risk-off approach through the end of the week. The Fed’s goal is to lower inflation with higher interest rates after increasing the money supply during the pandemic. Consecutive weekly negative 4% moves in the benchmark S&P 500 had the index testing its June lows through trading on Friday. All eleven sectors were lower, with Energy losing -9% as the value of crude oil slipped past $80 per barrel. Consumer Staples bellwether General Mills was a bright spot on the trader’s screens as the company posted over a 5% return last week. The company has been able to keep costs under control while increasing prices, therefore expanding its profit margin during the last quarter. Fellow food producers Kellogg, Campbell Soup, and Hormel Foods tagged along with the positive sentiment in the sector with each company trading higher by about 2%. Market sentiment is at its lowest since 2008 according to a report from Bank of America released this week. The swell of news will be processed over the weekend and investors will look to the coming corporate earnings reports after the third quarter comes to a close next week. On the economic front, releases on mortgage applications, home sales, GDP, and employment will give the market a prelude to the coming fourth quarter of 2022.

Treasury yields increased significantly last week amid interest rate hikes from central banks around the world. In the US, the Fed raised interest rates by 0.75% for the third consecutive meeting, as expected. The Fed also signaled it would raise rates more aggressively going forward while lowering this year’s median economic growth expectations from 1.7% to 0.2%. Fed Chairman Jerome Powell said the Fed is “strongly resolved” to bring inflation down to its 2% target and showed an increased willingness to accept slower growth and a softening labor market to achieve that goal. The prospect of slower growth sent oil prices below $80 per barrel to the lowest level since January. In the eurozone, S&P Global’s composite purchasing managers index showed the eurozone’s economic downturn deepened in September, falling to a 20-month low as higher energy prices continue to increase costs. Meanwhile, the UK announced significant tax cuts to stimulate its economy, which added to the risk-off sentiment on Friday due to fears the cuts could be inflationary. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: September Conf. Board Consumer Confidence (104.5, 103.2), August Preliminary Durable Goods Orders (0.0%, -0.1%), August New Home Sales (500k, 511k); Wednesday: September 23 MBA Mortgage Applications (N/A, 3.8%); Thursday: September 24 Initial Jobless Claims (215k, 213k), 2Q GDP Annualized QoQ (-0.6%, -0.6%); Friday: September Final U. of Mich. Sentiment (59.5, 59.5), August Personal Income (0.3%, 0.2%), August Personal Spending (0.2%, 0.1%), September MNI Chicago PMI (51.7, 52.2).  

1. Today's blog post shows the yields on a couple of benchmark government bond maturities from key countries/economies around the globe.
2. Bond yields are up from their historic lows and it looks like they have the potential to trend higher based on yesterday’s guidance from Federal Reserve (“Fed”) Chairman Jerome Powell signaling continued rate hikes moving forward to combat stubbornly high inflation. 
3. The yield on the U.S. 10-year Treasury Note (T-note) stood at 3.53% at the close on 9/21/22, 302 basis points (bps) higher than its all-time closing low of 0.51% on 8/4/20 (not in table), but 39 bps below its 3.92% average yield for the 30-year period ended 9/21/22 (not in table), according to Bloomberg.
4. The yield on the U.S. 2-year T-note stood 52 bps higher than the yield on the 10-year T-note at the close on 9/21/22 (see table), which means the yield curve is severely inverted. Over the past 30 years, the yield on the 10-year T-note exceeded that of the 2-year T-note by an average of 111 bps, according to Bloomberg.  
5. As of 9/21/22, the federal funds target rate (upper bound) stood at 3.25%, above its 30-year average of 2.46%. The Fed hiked rates by 75 bps in June, July and September, the fastest pace since 1994. 
6. With the rise in government bond yields throughout much of the globe over the past year, the amount of negative-yielding debt has declined significantly, as measured by the Bloomberg Global Aggregate Negative Yielding Debt Index. The total value stood at $1.90 trillion on 9/21/22, down from $14.53 trillion a year ago. 
7. We will continue to monitor the situation to see if high inflation plus any tapering the Fed does to its balance sheet of assets is enough to push bond yields higher in the months ahead.  

1. Year-to-date through 9/16/22, the S&P 500 Index was down 17.80% on a total return basis. The question is: Could robust inflation and rising interest rates pose even more of a threat to the broader stock market (S&P 500 Index) if sustained? 
2. We looked back to 1990 and selected those calendar years where inflation, as measured by the Consumer Price Index (CPI), rose by 3.0% or more on a trailing 12-month basis. 
3. Why 3.0%? From 1926-2021, the average CPI rate was 3.0%, according to data from the Bureau of Labor Statistics.
4. For comparative purposes, we selected three defensive sectors (Health Care, Consumer Staples and Utilities) to see how their returns matched up with those of the S&P 500 Index. 
5. The premise being that defensive sectors tend to be less cyclical in nature than their counterparts and can potentially offer investors better performance results in volatile markets.     
6. As indicated in the chart, these defensive sectors posted a good showing relative to the S&P 500 Index overall, and all three outperformed the broader market in 1990, 2000, 2007 and 2011.
7. While all three of the defensive sectors are outperforming the S&P 500 Index so far this year, Health Care and Consumer Staples have significantly lagged Utilities (see table).
8. From 12/29/89-9/16/22 (period captured in the table above), the average annualized total returns posted by the four equity indices in the table were as follows (best to worst): 11.70% (S&P 500 Health Care); 10.56% (S&P 500 Consumer Staples); 9.85% (S&P 500); and 8.57% (S&P 500 Utilities), according to Bloomberg.

The S&P 500 Index returned -4.73% last week, posting its worst return since the week ending June 17. Stocks started the week positively and were up 1.06% on Monday but shifted direction on Tuesday and trended negative the remainder of the week. Equities opened lower on Tuesday on the release of CPI data early that morning. Year-over-year CPI came in at 8.3% which was higher than the expected 8.1%, and month-over-month came in at 0.1% for August which was higher than the expected 10 basis point decline. The S&P 500 Index declined 4.32% on Tuesday as markets digested the CPI data holding to the assumption that the Federal Reserve will remain aggressive in their rate hike response to combat high inflation. The upper bound of the Fed Funds Target Rate currently sits at 2.50% and is expected to be raised another 75 basis points this week at the Federal Open Market Committee meeting as the Federal Reserve attempts to slow growth at the risk of pushing the US economy into recession. U.S. initial jobless claims were reported at 213K which were lower than the consensus estimate of 227K and the previous week’s claims of 222K. All sectors were in negative territory last week with health care and energy losing the least and crude oil prices declining 1.94%, closing at $85.11 per barrel on Friday. Cruise line operator Royal Caribbean Cruises Ltd. was the best performing stock in the S&P 500 Index last week with a 6.77% return as air fares and fuel costs declined last month, though year-over-year both air fares and fuel costs are up significantly. The other two large cruise line operators Norwegian Cruise Line Holdings Ltd. and Carnival Corp also performed well. Software company Adobe Inc. was the worst performing stock in the index returning -24.13% last week. While the company had a good earnings announcement, they also announced a $20 billion acquisition of Figma Inc. which was not well received. Shipping company FedEx Corp warned of a significant decline in package deliveries around the world causing the stock to drop sharply on Friday, returning -22.98% for the week. Earnings announcements expected this week include Costco Wholesale Corp, General Mills Inc., AutoZone Inc., Lennar Corp, FactSet Research Systems Inc., among others. 

Higher-than-expected inflation data early last week sent ripples through the capital markets. U.S. Treasury bond yields rose across the yield curve as a broad selloff hit the equity markets. The Consumer Price Index (CPI) rose 0.1% in August, above the consensus expectation of -0.1%. The CPI is up 8.3% versus August of last year. Though energy prices fell 5.0%, food prices increased 0.8% last month. Core CPI (ex-energy and food) was 0.3% higher than the consensus expectation, led by persistent price increases in rents, which accounts for over 30% of overall CPI. Last week’s inflation data clears the path for the Federal Reserve to resume aggressive rate hikes the September 21st Federal Open Market Committee (FOMC) meeting. According to the CME’s FedWatch Tool, there’s an 84% chance of a 75 basis point rate hike and a 16% chance of a 100 basis point hike next week. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: August Building Permits (1609k, 1674k), August Housing Starts (1450k, 1446k); Wednesday: September 16 MBA Mortgage Applications (N/A, -1.2%), August Existing Home Sales (4.70m, 4.81m), September 21 FOMC Rate Decision (Lower Bound) (3.00%, 2.25%), September 21 FOMC Rate Decision (Upper Bound) (3.25%, 2.50%); Thursday: 2Q Current Account Balance (-$260.0b, -$291.4b), September 17 Initial Jobless Claims (217k, 213k), September 10 Continuing Claims (1398k, 1403k), August Leading Index (-0.1%, -0.4%); Friday: September Preliminary S&P Global US Manufacturing PMI (51.3, 51.5), September Preliminary S&P Global US Services PMI (45.5, 43.7), September Preliminary S&P Global US Composite PMI (46.0, 44.6).

1. Today's blog post compares the performance of energy-related stocks to the broader market, as measured by the S&P 500 Index, over an extended period. 
2. Why target energy-related stocks? First, oil/gasoline, natural gas and electricity are basic necessities for most people and they are all relatively expensive at the moment. Second, there is a strong push by the Democrats, in particular, to get consumers to opt for electric vehicles (EVs) over combustible-engine vehicles moving forward. Some car manufactures are gearing up to emphasize EV models as well. If this scenario comes to fruition, one would expect a shift in demand away from Energy (oil and gasoline) to Utilities (electrical grid). We will see. 
3. Utilities outperformed Energy in five of the eight periods in the table above, but not the three most recent periods. 
4. Utilities outperformed the S&P 500 Index in four of the eight periods, including the two most recent periods.
5. Energy outperformed the S&P 500 Index in three of the eight periods, all of which were recent.
6. The 50/50 split between Energy and Utilities outperformed the S&P 500 Index in five of the eight periods, including the three most recent periods.  
7. For the 25-year period ended 9/13/22, the cumulative total return on the S&P 500 Utilities Index was 668.28%, compared to 576.14% for the S&P 500 Index and 507.61% for the S&P 500 Energy Index, according to Bloomberg. The 50% Energy/50% Utilities split posted a cumulative total return of 587.95%, which outperformed the S&P 500 Index over that span. 
8. As of 9/14/22, Energy and Utilities had a combined weighting of approximately 8% in the S&P 500 Index, according to Bloomberg. 

1. We update this post every few months so that investors can see which of the two styles (growth or value) are delivering the better results. 
2. The most recent results show that value stocks have significantly outperformed growth stocks on a 1 year and year-to-date basis.  
3. Having said that, the S&P 500 Pure Growth Index outperformed its value counterpart in four of the six periods featured in the chart above.  
4. The total returns through 9/9/22 were as follows (Pure Growth vs. Pure Value): 15 year avg. annual (11.59% vs. 8.69%); 10 year avg. annual (14.01% vs. 12.14%); 5 year avg. annual (12.08% vs. 8.89%); 3 year avg. annual (12.29% vs. 10.64%); 1 year ( 17.80% vs. 6.92%); and year-to-date (-20.79% vs.  0.33%).
5. As of 8/31/22, the largest sector weighting in the S&P 500 Pure Growth Index was Information Technology at 36.6%, according to S&P Dow Jones Indices. The largest sector weighting in the S&P 500 Pure Value Index was Financials at 29.8%.
6. From 12/31/21 through 9/9/22, the S&P 500 Information Technology Index posted a total return of  20.97%, compared to  11.21% for the S&P 500 Financials Index, according to Bloomberg. The S&P 500 Index was down 13.72% over the same period. 
7. At a combined weighting of 27.3%, the S&P 500 Pure Value Index's exposure to Energy, Utilities and Consumer Staples was significantly higher than the 10.3% combined weighting in the S&P 500 Pure Growth Index as of 8/31/22, according to S&P Dow Jones Indices. They are the three best-performing sectors so far in 2022.  
8. From 12/31/21 through 9/9/22, the S&P 500 Energy, Utilities and Consumer Staples Indices posted total returns of 48.99%, 9.81% and  2.92%, respectively, according to Bloomberg. 
9. Value stocks have tended to outperform growth stocks when the yield on the benchmark 10 year Treasury note (T note) rises, and vice versa. For the 12 month period ended 9/9/22, the yield on the 10 year T note rose 201 basis points to 3.31%, according to Bloomberg.