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Markets in a Minute: Why Commodities and Housing Are Impacting Your Portfolio and the Global Economy
As the S&P 500’s bear market completes its ninth month, two areas of the economy have experienced rapid changes: commodity price spikes coupled with impending shortages and a housing boom that is quickly petering out. How serious are these risks to the global economy and markets? Let’s discuss in this week’s Markets in a Minute.
While both are serious economic headwinds, there are important mitigating factors that distinguish this cycle from previous cycles.
From Commodity Price Spikes to Shortages
Countries and consumers around the globe are facing commodity shortages and rising prices. In the US, food prices have soared, up 11.4% this year which has been the highest annual rise since the late 1970s. Across the pond, Europe is confronting daunting energy shortages.
These challenges have prompted several alarming predictions, from a severe recession in Europe and further weakness in the euro. In 2021, the EU imported around 155 billion cubic meters (bcm) of natural gas from Russia—which supplied 40% of Europe with natural gas, particularly Germany. With the virtual halt of Russian shipments through the Nord Stream 1 pipeline, some fear Europe could face energy rationing and blackouts.
As serious as these shortages are, there is hope:
Surprisingly, many commodity prices have already retreated from their recent highs.
Housing Boom to Bust
For the first time since 2008, mortgage rates have climbed over 6%. They’ve been rising throughout the year as the Federal Reserve has held firm on its commitment to raise rates to fight rapidly rising consumer prices. Last September, the average rate of a 30-year fixed-rate mortgage was only 2.86%.
These higher rates have dramatically raised the costs of buying a home. Rising interest rates and materials costs have also impacted homebuilders—causing builders to lose confidence in their ability to sell newly constructed homes.
While home prices and building activity will surely slow because of higher interest rates, there are a few reasons for optimism:
National Association of Home Builder/Wells Fargo Housing Market Index
Source: Kestra Investment Management, National Association of Home Builders, and FactSet. Data as of September 19, 2022.
What This Means for You
With both stocks and bonds in negative territory for the year, many financial headlines appear grim. But those headlines often gloss over key details that would make these headlines seem less bleak. And remember that there will never be a headline that provides the all-clear: “The trouble ended today. Tomorrow stocks and bonds will go up again!” In fact, markets usually bottom when the headlines are most grim.
So, what’s an investor to do? It may sound trite, but a properly diversified portfolio built with your advisor who knows your financial hopes and dreams can help guide you through the turmoil.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC does not offer tax or legal advice.