July, 2022
*Semi-Annual Update from GTS*
This month’s Market Snapshot is an abbreviated version. During the month of July, GTS clients will receive their semi-annual update which will dive deeper into how their portfolios have performed so far in 2022 as well as some additional information about the markets.
Some Thoughts on the First Half of 2022
Stock and bond correlations remained positive in the second quarter, as both equities and fixed income delivered negative returns through the end of June. Tighter monetary policy from the Federal Reserve along with persistently high inflation, continued supply chain bottlenecks and the conflict in Ukraine hurt investors across both asset classes. In contrast, commodities finished the first half of 2022 up 18.4% due to the surge in food and energy prices.
U.S. fixed income markets declined 10.3%, as the Federal Reserve hiked rates by 75 basis points at its June meeting in response to the higher-than-expected inflation. Similarly, global high yield struggled during the first six months of the year, with the sector down 16.9% as corporate credit quality weakened amidst rising costs and a potential pullback in demand.
Turning to equities, U.S. large and small caps decreased 20.0% and 23.4%, respectively, in the first half of 2022 due to higher interest rates normalizing multiples and a slowdown in profit growth. In international markets, emerging market and developed market equity decreased 17.5% and 19.3%, respectively. The conflict in Ukraine continues to weigh more heavily on the developed European markets, with the region seeing significantly higher energy prices in addition to tighter monetary policy from the ECB and Bank of England.
As we enter the back half of 2022, for bond investors, the move higher in Treasury rates and the widening in credit spreads has led to some of the most attractive yield levels in recent history. For equity investors, the S&P 500 forward P/E ratio is now below its long-term average – potentially representing an attractive buying opportunity. However, investors should remain selective and look at companies that will be able to preserve profitability in the current macro environment, as earnings growth looks set to be the key driver of returns going forward.
Source: Bloomberg, FactSet, FTSE Russell, MSCI, NAREIT, Standard and Poor's, J.P. Morgan Asset Management
Stand Up to "Shrinkflation"
Whether you are filling up your gas tank or watching the news, it is not very hard to see that the annual inflation rate in the United States is the highest it has been in over 40 years.1 But what about the inflation manufacturers are hiding in plain sight?
"Shrinkflation" is the practice of reducing the size or quantity of items in a product while keeping the price the same. It can mean fewer chips in the bag or squares on the toilet paper roll, but effectively, it comes down to an increase in price per unit. It is not a new phenomena, this is a strategy seen often in times of inflation to help manufactures offset the rising cost of ingredients, packaging materials, and transportation.2
Companies are hoping their price-conscious consumers might not notice. We are hoping you read the following tips for steeling yourself against shrinkflation.
Be Wary of Packaging Ploys
Have you purchased a bottle of Gatorade lately? You may have noticed it's sleek new bottle design that curves inwards at the middle. Representatives of the brand say the company redesigned the bottles to be "more aerodynamic" and "easier to grab", but savvy shoppers might also notice the volume of the container is has also been reduced from 32 to 28 oz.3
Now is the time to be especially mindful of packaging changes and marketing tricks. Watch out for bright new labels, redesigned packaging, and even products touting "lower calories" - these are all strategies companies might use to distract you from smaller volumes of their product within those packages.3
Level the Playing Field
A lot of 'smart shoppers' might tell you they know exactly how much a box of Cascade dishwashing pods should cost, but when Cascade reduce the quantity of pods inside from 78 to 63,3 we can no longer count on the sticker price to tell the whole story.
Instead, seek out the smaller print unit-price that is listed on store shelves, and compare your options on a level playing field.
Embrace the Alternatives
No matter the inflation rate, store brands and larger "family size" packaging tend to offer a lower price per unit. This trend may be especially accentuated during times of high inflation because according to experts, store brands are typically the last to downsize.4 Now might be an excellent time to branch out to test those comparable alternatives.
Shrinkflation could also serve as inspiration to consume less packaged foods altogether. It is a lot harder to disguise a price increase in a pound of apples, which makes it much easier to track what you are getting for the price you pay.3
While no one can avoid the impacts of inflation altogether, we hope these tips will help you make the most of your money at the grocery store.
Caring for Aging Parents
Thanks to healthier lifestyles and advances in modern medicine, the worldwide population over age 65 is growing. In the past decade, the population of Americans aged 65 and older has grown 36% and is expected to reach 94.7 million in 2060. As our nation ages, many Americans are turning their attention to caring for aging parents.5
For many people, one of the most difficult conversations to have involves talking with an aging parent about extended medical care. The shifting of roles can be challenging, and emotions often prevent important information from being exchanged and critical decisions from being made.
When talking to a parent about future care, it's best to have a strategy for structuring the conversation. Here are some key concepts to consider.
Cover the Basics
Knowing ahead of time what information you need to find out may help keep the conversation on track. Here is a checklist that can be a good starting point:
- Primary physician
- Specialists
- Medications and supplements
- Allergies to medication
It is also important to know the location of medical and estate management paperwork, including:*
- Medicare card
- Insurance information
- Durable power of attorney for healthcare
- Will, living will, trusts and other documents
Be Thorough
Remember that if you can collect all the critical information, you may be able to save your family time and avoid future emotional discussions. While checklists and scripts may help prepare you, remember that this conversation could signal a major change in your parent's life. The transition from provider to dependent can be difficult for any parent and has the potential to unearth old issues. Be prepared for emotions and the unexpected. Be kind, but do your best to get all the information you need.
Keep the Lines of Communication Open
This conversation is probably not the only one you will have with your parent about their future healthcare needs. It may be the beginning of an ongoing dialogue. Consider involving other siblings in the discussions. Often one sibling takes a lead role when caring for parents, but all family members should be honest about their feelings, situations, and needs.
Don't Procrastinate
The earlier you begin to communicate about important issues, the more likely you will be to have all the information you need when a crisis arises. How will you know when a parent needs your help? Look for indicators like fluctuations in weight, failure to take medication, new health concerns, and diminished social interaction. These can all be warning signs that additional care may soon become necessary. Don't avoid the topic of care just because you are uncomfortable. Chances are that waiting will only make you more so.
Remember, whatever your relationship with your parent has been, this new phase of life will present challenges for both parties. By treating your parent with love and respect–and taking the necessary steps toward open communication–you will be able to provide the help needed during this new phase of life.
*Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.
Permanent Change is Evolutionary, not Revolutionary
Most Americans know the fundamentals of good health: exercise, proper diet, sufficient sleep, regular check-ups, and no smoking or excessive alcohol. Yet, despite this knowledge, changing existing behaviors can be difficult. Look no further than the New Year Resolution, 80% of which fail by February.6
Generally, negative motivations are inadequate to effect change. (“I need to quit smoking because my spouse hates it.”) Motivation needs to come from within and be positively oriented. (“I want to quit smoking so I can see my grandchildren graduate.”)
Goals must be specific, measurable, realistic and time-related. In other words, “I am going to exercise more” is not enough. You need to set a more defined goal, e.g., “I am going to walk 30 minutes a day, five days a week.”
As a rule, individuals travel through stages on their way to permanent change. These stages can’t be rushed or skipped.
Phase One: Precontemplation.
Whether through lack of knowledge or because of past failures, you are not consciously thinking about any change.
Phase Two: Contemplation.
You are considering change, but aren’t yet committed to it. To help you move through this phase, it may be helpful to write out the pros and cons of changing your behavior. Examine the barriers to change. Not enough time to exercise? How could you create that time?
Phase Three: Preparation.
You’re at the point of believing change is necessary and you can succeed. When making plans it’s critical to begin anticipating potential obstacles. How will you address temptations that test your resolve? For instance, how will you decline a lunch invitation from work colleagues to that greasy spoon restaurant?
Phase Four: Taking Action
This is the start of change. Practice your alternative strategies to avoid temptation. Remind yourself daily of your motivation; write it down if necessary. Get support from family and friends.
Phase Five: Maintenance.
You’ve been faithful to your new behavior. Now it’s time to prevent relapse and integrate this change into your life.
Remember, this process is not a straight line. You may fail, even repeatedly, but don’t let failure discourage you. Reflect on why you failed and apply that knowledge to your efforts going forward.
Try Something New for 30 Days - Tell Us How it Goes!
Is there something you've always wanted to do or meant to do, but just….haven't? Or maybe there is something you'd like to remove from your daily routine?
While there is much debate about how many days it takes to create a new habit, everyone agrees, the key is to get started!
In this TedTalk, Matt Cutts, a technologist for the U.S. Digital Service, talks about his experience with taking on various 30-day challenges for himself. Let this short video inspire you to try a challenge of your own!
"What are you waiting for? I guarantee you, the next 30 days are going to pass, whether you like it or not. So why not think about something you have always wanted to try, and give it a shot - for the next 30 days." Matt Cutts.
When you've completed 30 days of trying something new, please email us at hello@gtsfinancial.com and let us know how it went!