November 2021 Market Insights

A periodic newsletter from Idaho Trust Bank

The U.S. economy seems to be past the post-pandemic rebound, as growth rates are returning to more normal levels. Despite this slowdown in growth, economic activity appears set to remain well above the pre-pandemic levels. The Federal Reserve is likely to keep its interest rate policy unchanged at least until 2022, similar to the accommodative position of most other major central banks. Inflation may continue to stay at elevated levels over the next year but this does not appear to be a long-term issue, at this point.

The Domestic Economy

During the third quarter, Gross Domestic Product (GDP) grew by 2.0% on an annualized basis, according to the Commerce Department’s initial reading, which is subject to revision. The report follows a second-quarter GDP increase of 6.7%. The most recent reading was the slowest growth rate since the second quarter of 2020, as the benefit of government stimulus continued to fade and global supply constraints weighted on consumption and production.

Consumer spending, which makes up 69% of the $23.2 trillion U.S. economy, increased at just a 1.6% pace for the most recent period. This represents a significant slowdown from the 12% rise experienced in the prior quarter. Spending on goods dropped by 9.2%, primarily due to a sharp reduction in expenditures on appliances and autos,

while services spending increased 7.9%. These comparisons were negatively affected by the strong postpandemic rebound in prior quarters, which makes comparisons exceptionally difficult.

Personal disposable income shrank by 0.7% in the third quarter, following a 25.7% drop in 2Q reflecting the end of government stimulus payments. While still strong, the personal saving rate declined to 8.9% from 10.5%. Federal government spending fell by 4.7%, which the Commerce Department said was due to a halt in services and processing for the Paycheck Protection Program, a pandemic-era initiative aimed at providing bridge funding to businesses impacted by the shutdown.

The Federal Reserve Bank

At the November meeting, the Federal Reserve Bank (Fed) decided to

keep interest rates unchanged. The target range of the Fed funds remains at 0.0% – 0.25%. In a highly anticipated move, the committee announced it plans to taper its net asset purchases by $15 billion per month beginning in mid-November. U.S. Treasury and agency mortgage-backed securities (MBS) purchases will be reduced by $10 billion and $5 billion per month, respectively. At this pace, the strategy suggests that the Fed will conclude tapering in June of next year and begin reinvesting maturing bond securities in order to maintain its current balance sheet level.

Chairman Jerome Powell acknowledged the challenges this highly uncertain outlook presents policymakers. Several important points were made during the press conference. First, tapering does not imply rising interest rates are imminent. The committee appears to be putting a bigger emphasis on reaching maximum employment next year as a necessary condition to consider interest rate increases. This condition has not been met as of yet. Second, the committee appears to want to see an increase in the labor force participation rate before rate liftoff. Third, the transitory inflation pressures are not necessarily “short-lived”. Consequently, higher inflationary pressures could last longer than many initially thought. Transitory means temporary price fluctuations that are not expected to transfer into a permanent shift long-run inflation. Finally, supply-side constraints are expected to last well into 2022 and the committee expects inflation should begin to normalize in the second half of next year.

This change in policy did not surprise most investors. The Fed has been

transparent in its communication around when the committee could begin tapering. It should be emphasized though, that tapering is not tightening, and while purchases will slow in the months ahead, the balance sheet will still expand by roughly $400 billion from now until mid-2022 and settle at around $9 trillion. (see chart below)

Monetary policy is expected to remain accommodative and the Fed intends to keep rates low for an extended period of time. Citing the most recent economic estimates, most members of the FOMC do not see a need to raise interest rates this year and may think this is possible toward the end of next year. Powell has stated that higher inflation is likely to continue as the economy reopens.

Conclusion

Many uncertainties remain and there could be some volatility going into the spring. However, we believe that the long-term investment outlook remains solid with the stronger economic picture likely to continue into next year.

Idaho Trust Bank offers total wealth solutions including its LifeNeeds™ investing process. LifeNeeds™ utilizes proven strategies and techniques delivered by a highly trained staff of wealth management professionals.

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^Disclosures:

^{1. Consult an Idaho Trust Bank financial consultant for more details. Securities and insurance products are offered through LPL Financial and its affiliates, Member FINRA/SIP. Idaho Trust Bank is not a registered broker/dealer and has a brokerage affiliate arrangement with LPL Financial. Idaho Trust Bank is a separate company from LPL Financial. Investment accounts generally under $300,000; Insurance and Annuities of all sizes.}

^{2. Please see the Idaho Trust Bank Schedule for Fees. Investment accounts generally over $300,000.}

^{3. Please see the Idaho Trust Bank Schedule of Fees. Investment accounts generally over $500,000. Certain products may be provided by a Financial Consultant of Idaho Trust Financial is utilized: (1) Securities and insurance products are offered through LPL Financial and its affiliates, Member FINRA/SIPC; (2) Idaho Trust Bank is not a registered broker/dealer and has a brokerage affiliate arrangement with LPL Financial; and, (3) Idaho Trust Bank is a separate company from LPL Financial, Idaho Trust Bank does not provide tax or legal advice. Overlay Asset Management utilizes external and/or internal managers selected by Idaho Trust Bank.}

^{4. Certain products may be provided by a Financial Consultant of Idaho Trust Financial. Securities and insurance products are offered through LPL Financial and its affiliates, Member FINRA/SIPC. Idaho Trust Bank is not a registered broker/dealer and has a brokerage affiliate arrangement with LPL Financial. Idaho Trust Bank is a separate company from LPL Financial. Idaho Trust Bank does not provide tax or legal advice.}

^{5. Exchange Traded Funds (ETF), mutual funds and individual stocks are subject to risks and fluctuate}

^{in value. Neither asset allocation nor diversification assure a profit or protect against loss. International investing involves special risks including increased volatility, political risks, and differences in auditing and other financial standards. Small-cap stocks have historically experienced greater volatility than average. High yield, lower-rated securities generally entail greater market, credit and liquidity risks than investment grade securities and may in-clude higher volatility and higher risk of default. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Past performance is no guarantee of future results. No represen-tation is hereby made of the risk and/or return of any particular portfolio. There is no guarantee that any suggested investment strategy will work in any market. You should fully and carefully consider all objectives, risks, expenses and fee before you invest.}

^{6. Portfolios are illustrative only. ActualLifeNeedsTM Portfolios will vary from time to time as determined by Idaho Trust Bank. No representation is hereby made of the risk and/or return of any particular portfolio. There is no guarantee that any suggested investment strategy will work in any market. You should fully and carefully consider all objectives, risks, expenses and fees before you invest. Past performance is no guarantee of future results.}

^{Exchange Traded Funds (ETF), mutual funds and individual stocks are subject to risks and fluctuate in value. Neither asset allocation nor diversification assure a profit or protect against loss. International investing involves special risks including increased volatility, political risks, differences in auditing and other financial standards. Small-cap stocks have historically experienced greater volatility than average. High yield, lower-rated securities generally entail greater market, credit and liquidity risks than investment grade securities and may include higher volatility and higher risk of default. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Past performance is no guarantee of future results. For more information about performance of Idaho Trust Strategies and our performance calculation methodology, please contact us. Actual client performance may vary from the performance of model portfolios and/or any strategy. No representation is hereby made of the risk and/or return of any particular portfolio. There is no guarantee that any suggested invest-ment strategy will work in any market. You should fully and carefully consider all objectives, risks, expenses and fees before you invest.}

^{Portfolios are illustrative only. Actual LifeNeeds™ Portfolios will vary from time to time as determined by Idaho Trust Bank. The Idaho Trust investment strategies will vary from time to time as determined by Idaho Trust Bank. The information and analysis expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Information contained herein has been obtained by sources we consider reliable, but is not guaranteed. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice.}

^{NOT A DEPOSIT • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT GUARANTEED BY THE BANK • MAY GO DOWN IN VALUE}

Blog

November Market Insights

November 2021 Market Insights

A periodic newsletter from Idaho Trust Bank

The Domestic Economy

The Federal Reserve Bank

Conclusion

Idaho Trust Bank offers total wealth solutions including its LifeNeeds™ investing process. LifeNeeds™ utilizes proven strategies and techniques delivered by a highly trained staff of wealth management professionals.

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Blog

November Market Insights

November 2021 Market Insights

A periodic newsletter from Idaho Trust Bank

The Domestic Economy

The Federal Reserve Bank

Conclusion

Idaho Trust Bank offers total wealth solutions including its LifeNeeds™ investing process. LifeNeeds™ utilizes proven strategies and techniques delivered by a highly trained staff of wealth management professionals.