It’s Time for Some Good News…
Although this year’s market returns and inflationary pressures have made it a challenge to be optimistic, there are significant positive economic indicators to factor in. The stock market is often considered one of the most widely followed leading economic indicators. Stock prices are generally based on expectations of what companies are expected to earn, but also may forecast the overall economic environment. Through October 21, 2022, the S&P 500 Index is down 21.3% year to date and is currently trading below its 200-day moving average. However, there is room for optimism.
3rd quarter GDP in the U.S. won’t be released until December 2022. GDP growth or contraction is widely considered to be the most important economic indicator. The GDP rate has declined for the previous two quarters. Absent the Q3 GDP 2022 numbers, there are other significant positive economic indicators. It may be encouraging to see a summary of several good indicators the economy and markets are producing.
1. Unemployment remains historically low. The national unemployment rate in September 2022 was 3.5%.1 This level remains well below the historical average of 5.74%.2
2. Consumer spending in the U.S. remains strong and increased from the second quarter of 2022. 3 Consumer confidence – as measured by the Consumer Confidence Index – improved for the second consecutive month. “Consumer confidence improved in September for the second consecutive month supported in particular by jobs, wages, and declining gas prices,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. 4
3. Recent market results have brought down equities valuations to more moderate levels. These reduced pricing levels may prove to be attractive entry points for investors. The forward 12-month P/E ratio for the S&P 500 is 15.6. This P/E ratio is below the 5-year average (18.5) and below the 10-year average (17.1). 5
4. Retirement savings contribution amounts have increased and been indexed for inflation.
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500, up from $20,500.
The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000. IRS.gov
5. Gas prices have significantly declined since the 2022 summer highs. The average price of gas has declined from $5.10 on 6/13/22 to $3.99 on 10/17/22. 6
While there is no shortage of economic headwinds and it is easy to focus on the negative, there are several positive indicators to be optimistic about. If you would like to discuss investing strategies for your clients, please contact ESI Business Development, 800-344-7437.
Dan Randall, CFP®, CLU, ChFC
Vice President – Product Management, Equity Services Inc
1 September Unemployment results, Bureau of Labor, September 2022
2 United States Unemployment Rate, Trending Economics, September 2022
3 U.S. Bureau of Economic Analysis, September 2022
4 U.S. Consumer Confidence, 9/27/22
5 Earnings Insight, Factset, 10/21/22
6 US Retail Gas Prices, 10/24/22, YCharts
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