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Clarity Capital Management Notables - October 2022 Thumbnail

Clarity Capital Management Notables - October 2022

Quarterly Market Review


Happy Fall, everyone! With rain in the forecast (finally!), we hope that you and your families are settling into October. We can’t believe we are already heading into year-end. As always, if you need any assistance with anything as we close out the year, we are here. Knowing that it’s open enrollment season for a lot of us, this is especially true! For this months’ Notables, we figured we’d provide a quick market update, provide a reminder to anyone with Federal Student Loans, and finally, provide some updates for those of you making adjustments to your open enrollment options. And of course, if you want to hear Eric’s fun fact for the month, feel free to listen to the Audio Version. Let’s get the challenging news out of the way first:

Market Update:

First off, for those who don’t know, we produce a quarterly report on the markets and the economy. You’ll see the link below and right here if you’re interested. We’ve bumped into a lot of folks that didn’t know this is something we produce!

As you’ve no doubt heard or noticed, the third quarter of this year was a tough one for equity markets. With continued uncertainty around the economy and specifically inflation, investors took a risk off approach to investing in stocks which put downward pressure on prices. With inflation being more persistent than expected, the Federal Reserve continues their rate hiking cycle. This has continued to put downward pressure on stocks while investors are watching for a potential slowing of the economy. 

While the inflation numbers continue to look ugly, the effects of monetary tightening take time. We should expect to see continued volatility in the markets as financial conditions adjust. We are seeing some indications that the Fed’s efforts are bearing some fruit as some of the main sectors seeing higher than expected inflation start to slow. We heard this week that used car prices are down more than 10% year over year…and for those who remember, this was one of the big issues last year. 

In the fixed income world, we know that a rising interest rate environment also puts pressure on bond prices. That being said, as rates go up and new bonds are issued, we get an opportunity to invest at higher yields. We are happy to see some opportunities here while considering interest rate risk especially further out on the yield curve. 

As always, we’ve attached some links below to other articles we’ve been reading. Check out the below image from Blackrock’s Student of the Market on what average returns have looked like after “peak” inflation rates after 12 months. Although every cycle is different and we may not be at “peak” inflation quite yet, an average return of over 20% sounds pretty good! For long-term investors, we are still quite optimistic around investing in the stock market…especially for those moving from cash. When moving cash into the market, we of course want to be thinking about a diversified portfolio, but we talk enough about the importance of diversification that we don’t need to go too deep again here! 

Student Loans

Although not everyone on our mailing list has student debt, there’s a good chance that you know someone who does (please forward!). Here’s a quick reminder to anyone who holds Federal student debt to apply for debt relief. The process is very easy. You can visit this link to put in your application. Anyone holding Federal student debt within some income requirements should see $10,000 of relief. Those under the income requirements and who had some Pell grants could see an additional $10,000 of relief. 

Although we are unclear on whether the administration will get through the dozens of lawsuits, we’d suggest applying as soon as possible to get in line if it goes through! So far, most of the suits appear to be unsuccessful…including one that made it all the way to the conservative leaning Supreme Court yesterday. 

IRS Update

This week, the IRS announced its annual inflation adjustments for 2023. As inflation is elevated currently, we saw some pretty big changes to most numbers. We saw the standard deduction climb to $27,700 for those filing jointly (an increase of $1,800) and pretty large increase to the income thresholds within the marginal tax bracket system. Here are some other important numbers as you work through your open enrollments:

  • Employee salary reduction medical Flex Spending Account (FSA) maximum contribution: $3,050
  • Health Savings Account (HSA) maximum contribution: individual - $3,850 and family - $7,750
  • Annual exclusion for gifts: $17,000

We’ll keep you in the loop as other numbers are released. For those who want to take bets, we are expecting the 401(k)/403(b) maximums to increase to $22,500 (from $20,500) and IRAs to increase to $6,500 (from $6,000)…a pretty big increase!

Rest assured that we will remain dedicated to helping you successfully navigate this market environment. Please do not hesitate to contact us with any questions, comments, or to schedule some time with us.

Further Reading: