Does your portfolio match the current financial conditions? Are you confident that your holdings are secure? Where can you make the moves to stay ahead of the game?
Let’s review the top investment stories from June 2022.
Make the right decisions going forward, with BAI Capital.
The biggest stories in June 2022 revolve around market uncertainty; rising inflation and mortgage rates; COVID evolution; supply chain, gas prices, and war in Ukraine.
War in Ukraine
Settling in for an unfortunate long conflict is the main takeaway from the War in Ukraine this past month.
NATO’s deputy secretary-general cast doubt on the possibility that a diplomatic solution would be found to the war in Ukraine in an interview with Euronews Romania.
“Probably, the destination and the finality of the war will be decided on the battlefield,” said Mircea Geoană.
“The political conditions between the two sides are too far apart today for us to see political conditions for a diplomatic solution, for the time being. So, more war, unfortunately, more destruction.”
Geoană added however that they hope eventually the “conditions will be met for a political solution to be identified.” His remarks come amid intense fighting in Ukraine, both in the Donbas and in the southern area of Kherson.
Most of the war, however, is about the control of the Black Sea, according to Geoană.
The sea is vital for Ukrainian trade with the country’s government accusing Russia of blocking its access to impede the departure of grains needed to feed developing countries.
Ukraine recaptures Snake Island
Ukraine retook the island known as Serpent Island or Snake Island a the end of June. The Island was taken by Russia on the first day of the invasion, back in February.
“This is also very important for the whole of the Black Sea. It’s only 40 kilometers outside of the port of Constanza and the mouth of the Danube. That’s a strategic piece of property,” said Geoană.
For NATO’s Deputy Secretary-General, Russia was “forced to abandon the island because of the massive, vigorous attacks by Ukraine” something that “is a very good sign”.
Russia has argued that they “fulfilled their objectives” there and withdrew as a “sign of goodwill”.
But Geoană believes that it was a “tactical victory also for the morale of the Ukrainians. That’s a lot. And of course, for the navigation, for freedom of navigation, in the Black Sea.”
US gas prices eased in the US for the first time in months as the summer vacation season starts.
The national gasoline price average declines a bit from the June highs, after peaking above the $5.00 mark shortly after Memorial Day weekend.
July has traditionally been the heaviest month for demand, AAA notes, even if the big holiday travel weekends usually see the highest price spikes.
There is some disagreement among industry analysts regarding the trajectory of the price of oil later through the end of 2022, due to different expectations regarding Russian oil sales.
Further out, there is disagreement among industry watchers regarding oil prices in the near term, with some predicting a catastrophic rise in the price of oil due to the implementation of counter-sanctions by Russia later in the year.
To be sure, there is still quite a bit of uncertainty surrounding the European Union’s position on halting most imports of Russian oil by the end of 2022, as well as interruptions in the flow of Russian gas to several western European countries occurring in Europe. Beyond that, there is now some uncertainty regarding the supply of oil in Saudi Arabia as well—a possibility that was recently highlighted by French President Emmanuel Macron days ago, suggesting that there isn’t as much excess capacity in some Middle Eastern countries as previously thought. This revelation rattled energy markets just a few days ago as the White House has attempted to convince more oil-producing countries to increase output, promising plenty more uncertainty through the rest of the year on both sides of the Atlantic.
New Omnicron variants becoming more prominent with forecasts of a new booster in fall to combat effectively.
A new version of omicron is dominant in the U.S.
The coronavirus subvariant known as BA.5 accounted for nearly 54% of the country’s Covid cases as of Saturday, according to the Centers for Disease Control and Prevention. A similar subvariant, BA.4, makes up 17% more.
“They’re taking over, so they’re more contagious than earlier variants of omicron,” said David Montefiori, a professor at the Human Vaccine Institute at Duke University Medical Center.
The two subvariants also appear to evade protection from vaccines and previous infections more easily than most of their predecessors.
Montefiori estimated that BA.4 and BA.5 are about three times less sensitive to neutralizing antibodies from existing Covid vaccines than the original version of the omicron variant, BA.1. Other research suggests that BA.4 and BA.5 are four times more resistant to antibodies from vaccines than BA.2, which replaced the omicron variant as the U.S.’s dominant version of the coronavirus in April.
Homeowners and investors are asking alike if selling prices will cool down now that mortgage rates are rising.
Housing Market Predictions 2022
What is the effect of rising mortgage rates on the housing market? Freddie Mac’s regression research indicates that a 1 percent rise in mortgage rates reduces home price increases by around four percentage points (for example, moving from 11 percent home price growth a year to 7 percent ). In contrast, analysts at J.P. Morgan expect a greater impact of around six percentage points lower home price increase.
Since home values are so high, the housing market may be more susceptible to rate increases than in the past; therefore, the greater estimate appears realistic. While it seems apparent that rising interest rates will reduce housing demand by reducing affordability, the past is a significantly less reliable indicator of what will occur because of a huge balancing impact – interest rates often rise when the economy is expanding.
The government-sponsored enterprise forecasts that for every one percentage point increase in mortgage rates, house sales would decrease by around five percent, and price growth will slow by four to six percentage points. If mortgage rates stabilize at current levels, and all other factors remain constant, their analysis predicts a much slower, but still positive house price rise with a wide regional range depending on migration trends.
As work-from-home becomes increasingly popular, it is anticipated that the housing market will continue to be undersupplied and that migration to lower-cost areas will continue to rise. This is significant since most booming cities have a major housing shortage due to a previous inflow of population.
Finally, favorable demographics suggest that the robust demand for first-time homebuyers will persist. This is since there are still a substantial number of younger renters with sufficient income to sustain homeownership, and they should continue to be a formidable force for the foreseeable future. As the economy faces various headwinds in the next months and years, these variables should continue to exert a substantial influence on the housing market.
The quarterly housing outlook pulse poll conducted by Freddie Mac assesses public attitude on housing-related problems. Since the beginning of the epidemic, market confidence has reached its lowest point in the second quarter of 2022. In addition, as a result of the impact of growing inflation on the cost of living, they found an increase in housing payment difficulties, particularly among renters.
• 51% are confident the housing market will remain strong over the next year.
• This is down 7 percentage points from last quarter.
• 56% of renters and 24% of homeowners spend more than 30% of their monthly income on housing.
• 51% are concerned about making housing payments, up 4 percentage points from last quarter.
• This is true for 68% of renters (a 10-percentage point increase from last quarter) and 38% of homeowners (a 3-percentage point decrease from last quarter).
• 24% are likely to buy a house in six months.
• 17% of homeowners are likely to sell in the next six months.
• 23% of homeowners are likely to refinance in the next six months.
Inflation is affecting consumer spending habits as the cost of living is increasing in the first half of 2022.
A key economic indicator closely watched by the Federal Reserve shows inflation continues to increase at a record clip and real dollar wages are falling further behind those upticks even as higher prices start to show some signs of slowing consumer spending.
Meanwhile, the $2 trillion in excess savings bolstered by federal pandemic stimulus distributions — money that has helped keep spending rates high — is likely to be mostly gone by the time fall rolls in.
What’s happening: According to a Thursday report from the U.S. Commerce Department, the personal consumption expenditure price index jumped 6.3% in May over the same time last year, reflecting the continued upward trajectory of the cost of goods and services.
While overall consumer spending inched up by 0.2% in May, when adjusted for inflation the figure falls to a 0.4% decrease from the previous month. Disposable personal income for U.S. workers also bumped up in May, according to the Commerce Department, but the 0.5% increase, after adjusting for inflation, registers instead as a 0.1% decrease for the month and a 3.3% drop over the same time in 2021.
“It should come as no surprise that U.S. consumers are paring their spending due to the high costs of, well, almost everything,″ Jennifer Lee, senior economist at BMO Capital Markets, wrote in a research note.
Market uncertainty continues as stocks fell for consecutive months amidst speculation of rapid and drastic Federal Interest Rate hikes.
A myriad of related factors explains the widespread rout in markets—June saw another spike in a critical inflation report after prices have been rising at the fastest pace in decades. The Federal Reserve is aggressively ratcheting up interest rates to tame that inflation. There are continued supply chain issues stemming from Covid-19 disruptions and the ongoing war in Ukraine, all of which have contributed to increased worries another recession is coming.
These factors add up to a dizzying amount of uncertainty for professional investors, who largely dictate the stock market’s direction and generate volatility for the rest of us.
You may need to brace for more of the same in the month ahead.
“We think July is going to be very reflective, or similar, to what we’ve seen in June,” says Greg Bassuk, CEO of AXS Investments. “The uncertainty and volatility that’s been happening in the market, and the underlying factors driving that, are very likely to continue.”
Even so, the start of the second-quarter earnings season, a fresh batch of economic reports, and the next Fed meeting could offer some much-needed clarity to market participants.
We recap the top investment stories every month to help you with your capital holdings. Most wealthy investors like you diversify across a range of asset classes and stocks, finding the individual balance that works best.
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2022 is quickly passing and is already half over, but we feel the best part is yet to come.
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