This Week in Review:
Have Interest Rates Peaked?
Here’s what we’ve been watching this week:
- Another Fed rate rise. The central bank remains steadfast in its focus on fighting inflation, increasing interest rates by another quarter point. While Federal Reserve Chair Jerome Powell said policymakers considered a break in the current rate-hike cycle given recent instability in the banking sector, prices still need ballast in some sectors of the economy. However, central bankers hinted that a potential pause in the action could be coming. In the meantime, bonds have been benefiting of late despite the Fed’s interest-rate policy—see the Bonds Are Back in Vogue story below.
- Banking contagion contained. Powell called the recent collapse of Silicon Valley Bank (SVB) “an outlier” in terms of the bank’s high percentage of uninsured deposits and its well-above-average exposure to interest-rate risk. What’s evident, he said, is that policymakers need to strengthen regulation and supervision in banking. That will mean safer banks for consumers but could also mean fewer profits for bank investors.
- Housing bouncing back. The economic impact of the banking crisis remains unclear, but one offsetting factor could come from the beleaguered housing market, which is showing strength heading into the spring selling season: Sales of existing homes jumped 14.5% in February from January, reversing 12 months of declines. Meanwhile, the median cost of existing homes fell 0.2% in February from the same time last year, and the jolt to banks has nudged mortgage rates lower.
Bonds Are Back in Vogue
When bond prices were falling along with stock prices in 2022, many clients asked, “Why do I own bonds?” The banking shake-up this month highlights the value of bonds in a diversified portfolio. As fear and uncertainty spiked, investors fled to safety, sending the price of high-quality bonds higher.
The chart below shows the month-to-date and year-to-date returns for a handful of bond-market benchmarks tracking investment-grade and government-issue bonds. So even though the “falling yields” you may have been hearing about in recent weeks seem like a negative short-term outcome for bond investors, the opposite is true.
We wouldn’t be surprised if the upward momentum slows as the banking situation resolves, but it’s a good reminder that even the placid bond market can move quickly in response to current events.
Do You Need Disaster Insurance?
Our advisors think through worst-case scenarios—even ones that are impossible to predict, like natural disasters. So please call us if you or your loved ones are ever impacted by such an event. Meanwhile, here are some ways we can be ready when lightning (or another natural disaster) strikes.
- Understand what is covered. Your home insurance policy likely covers many types of disasters and weather events, including wind, fire and lightning strikes. However, it does not always cover damage from floods or earthquakes. Talk to us if you live in a flood zone or are at high risk for other types of natural disasters so we can discuss the need for a separate policy.
- Take inflation into account. If you haven’t updated your homeowners policy since completing a major renovation, it’s time to make sure your cost to rebuild is covered in today’s dollars. Your policy may have been suitable when you first moved in, but rising costs for materials and labor may mean your payout level is insufficient today.
- Act fast to process your claim. Always file an initial claim with your insurance company as soon as you can after a disaster, even if the claim is incomplete—you want to secure your place in the queue. Report big-ticket items first to open the claim, then add to your file as you continue to document lost items. Depending on the language in your policy, filing fast may qualify you for an immediate payout to help with living expenses.
- Navigate mortgage snags and property-assessment issues. Depending on the severity of the damage or loss, talk to your lender about a temporary break on your mortgage—they may work with you to waive payments for a limited time. And check with your town to see if your property taxes will decrease, assuming you believe the damages may lower the resale value of your home.
- Get ahead of tax considerations. The IRS may extend certain tax deadlines for affected taxpayers if the losses are grave enough. And in some cases, you can take a casualty deduction.
- Revamp your financial plan. If you find yourself underinsured in the wake of a disaster, we can help by reviewing your financial plan to examine the effects and suggest next steps. We would also be happy to discuss your homeowners insurance policy to make sure it meets your needs.
Don’t hesitate to call on us to help you prepare for and respond to natural disasters or any event that could change your financial picture. We’re here for you.
Recent Polaris News & Insights
Next week delivers a bounty of economic data to examine, including on house prices, consumer confidence, retail and wholesale inventories, personal income and spending, consumer sentiment, and the February personal consumption expenditures index (PCE), the Fed’s preferred inflation gauge.
Remember to visit polariswealth.com for our timely and ongoing wealth management commentary.
Please note: This update was prepared on Friday, March 24, 2023, prior to the market’s close.
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