Monthly Market UpdateSubmitted by TLWM Financial on March 1st, 2023
After a strong start to the year February brought with it some volatility as the S&P 500 ended the month down about 2.5%, but is still up roughly 3.4% for the year. We were not surprised to see volatility, and think that we could see more choppiness in the months ahead as investors continue to digest recession risk and potential Fed policy changes.
The impact of these factors is not limited to stocks, but also affects the bond market. In February the 10 Year US Treasury Yield jumped from 3.52% at the beginning of the month, to 3.92% at month’s end. For perspective the 10 Year Treasury was yielding 1.83% at this time last year. (YCharts)
Below, we’ll highlight two key groups that are impacted by higher rates:
- Borrowers: higher interest rates make borrowing more expensive for businesses and individuals. For example, we’ve seen the recent jump in mortgage rates make home purchases more expensive which has led to a cooling housing market.
- Investors: for individuals investing in bonds, higher rates present both headwinds and opportunities. Higher rates usually lead to a decrease in bond prices, but give investors allocating new money to bonds a great opportunity.
We recently took advantage of this for clients by reinvesting maturing bonds at higher yields.Our philosophy of laddering fixed income with maturity dates has been beneficial as rates have climbed.
Moving forward we’ll continue to monitor the impact of higher interest rates on economic growth, while monitoring our bond allocation for opportunities. Over the last few months, we’ve re-allocated some of our defensive allocation within growth portfolios. From here, we plan to continue to be opportunistic in putting additional cash back to work.
Please don’t hesitate to reach out if you have any questions and please feel free to pass this email along to any friends, family, or colleagues that you feel would benefit.
Your Team at TLWM
* Investment advice offered through TLWM, LLC., a registered investment advisor.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.
* Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
* Stock investing involves risk including loss of principal.
* This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where TLWM Financial and its representatives are properly licensed or exempt from licensure.
* No strategy ensures a profit or protects against a loss.