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Supply Chain Issues: Market Commentary











Kris Venezia, VP of Investments


I have been getting a lot of questions recently from clients about the housing market.


Mortgage rates have risen a lot from 8 months ago, with the average 30-year above 5%.


There has been indications of a small cooling off. We are seeing some evidence from Zillow and Redfin of price reductions which is new.


Real estate agents are also reporting that things are getting a little more normal. In 2021, homes were being snapped up in bidding wars and sometimes without inspections.


Agents are reporting that bidding wars are less intense. With less bidders, things like inspections are becoming more common.


While there's evidence of some softening in the housing market, it's still a tough environment for buyers. The main issue is a lack of supply.


There is not a big incentive at the moment to sell a home. Many people are now in homes with a sub 3.5% mortgage rate. With a mortgage that low, it's difficult for them to find a reason to sell. If they sell their home, they have to find a new place to live. The new place to live will come with a plus-5% mortgage rate.


Home builders are trying to get more supply, but supply chain problems are causing delays. Builders have reported having trouble getting garage doors, windows, and cabinets. A tight labor market has also caused challenges for home builders.


It's a positive to see the housing market start to behave more normal, but like I said before, it's still a tough situation for people who want to go out and purchase a home. And that doesn't appear to be changing any time soon.


Daryl Eckman, President


We can expect the trade deficit to remain volatile from month to month. It'll stay large for months ahead as the U.S. as recovered faster than other countries from Covid-19. Europe and the shutdowns in parts of Asia have been headwinds for global trade. The stimulus that was implemented and reopening will mean demand most likely exceeds supply. The supply chain challenges are making it difficult for supply to catch up to that demand. Supply chain problems are robust right now. There is reporting coming out that the ports are still having a tough time catching up to unloading ships. I did not realize how much Ukraine impacts food supply. Globally, unfortunately, it looks like there may be food shortages in parts of the world. Oil prices also continue to be high. We're looking at over $5/barrel at the bump and diesel fuel prices keep going up. We have a number of things pointing in the wrong direction. The conflict in Ukraine is having large global trade issues. It's really having an impact on the supply chain in various ways. The stock market is serving as an indicator for the future. It's showing that a slowdown is anticipated and happening right now. The market very recently has been very indecisive. It's been flip flopping and bouncing around a little bit. We anticipate analysts lowering their guidance because of the global challenges. We have been sitting on cash positions and are looking for opportunities to put that to work. It still feels premature to really get that cash to work in a meaningful way.


Clint Carpenter, Director of Operations


I thought I’d just end our conversation today by touching on the subject of Midterm elections - something we’ve just recently started getting some questions on. It’s interesting, we typically see the midterm conversation start much earlier, but with all that’s going on in our world, this particular news cycle has really just now started to churn.

We know we can’t rely completely on the past to inform our future decisions, but it can be interesting to look at patterns. -I’ll be brief here and then I’ll be happy to share any details with clients that are more curious. Basically, looking back at about 80 years of elections and market data, we can start to see a pattern: stock markets tend to drop before midterm elections and volatility is elevated for most of the year, before and after the actual election. This is true without regard to the current level of political infighting or the president’s approval rating, it seems to happen regardless because elections simply exacerbate uncertainty.

What’s also interesting is that after this period of volatility, we typically see markets bounce higher in the two quarters after the midterm election. Average returns on the S&P 500 in the 4th quarter of a midterm year are 6.1%, followed by an average gain of 7.5% in the first quarter and 4.2% in the second quarter of the following year. It seems that a lot of time is spent worrying about the uncertainty of the outcome, and once the result are in investors relax.

So, there’s just a very high-level overview of how midterms effect the markets. As I said, I’ve been looking into these patterns and would be happy to share more detail with anyone that’s curious.

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