August 5, 2022, Weekly Equity Market Recap. On positive corporate earnings news along with Nonfarm payrolls beating expectations in July, the S&P 500 rose 0.4%, the Dow was largely flat, as the Nasdaq jumped 2.2%. However, from a broader perspective, the equity markets appear to cheer slowing economic news, an important driver for receding inflation, given this could be a catalyst for a less hawkish Federal Reserve. July Manufacturing Purchasing Managers' Index ("PMI") showed a slowdown in new orders and demand. US ISM Manufacturing PMI is at a current level of 53.00, down from 56.10 last month and down from 60.60 one year ago. This is a change of -5.53% from last month and -12.54% from one year ago. Further, "Job Openings and Labor Turnover Summary" (JOLTS) revealed there were 605,000 fewer job openings in June than in May, implying slumping economic growth may be starting to impact the labor market. Finally, Federal Reserve Bank of Richmond President Thomas Barkin said the central bank will get inflation growth back under control, but a recession may be inevitable
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July 29, 2022, Weekly Equity Market Recap. The U.S. equity market continued to rally with all sectors up this week on corporate earnings growth and renewed expectations the Fed has (perhaps) only one more rate hike ahead. Also, early signs in the earnings season indicate that investors are seeing slowing growth that is not as bad as feared. The Federal Reserve delivered another 75-basis-point rate hike at the July Federal Open Market Committee (FOMC) meeting, while economic news demonstrated that the rate hikes are achieving their aim of slowing the economy with data released this week by the Bureau of Economic Analysis showing GDP shrinking at an annual rate of −0.9% in Q2 2022 after contracting −1.6% in Q1 2022. Technically, two quarters of declining GDP is considered a recession, however, many are pointing to the labor market remaining unusually strong, with 2.74 million jobs added to payrolls year-to-date.  July 15, 2022, Weekly Equity Market Recap. US equity markets were poised to post another round of sharp losses on the week until Friday’s strong rally, leaving the US stocks in the red: The S&P 500 finished down 0.9% and the Dow was off 0.2% while the Nasdaq dropped 1.6% on the week. Equity markets dropped on news that U.S. inflation growth for June came in higher than expected with the Consumer Price Index rising 9.1% year-over-year. Investors fear that this could prompt the Fed to consider raising interest rates by as much as 1.0%, instead of the previously anticipated 0.75% increase, later this month. This also moved the benchmark U.S. Treasury yield curve (two-year vs 10-year), which is a strong historical signal of impending recessions, to its largest inversion since November 2000. However, on the final day of trading was positive after retail sales rose more than expected in June, pointing to continued strength among U.S. consumers. Elsewhere in economic releases, consumer sentiment rose slightly in July to a reading of 51.1, per the University of Michigan's latest survey.
July 8, 2022, Weekly Equity Market Recap. For the week, the Nasdaq closed up 4.6%, while the S&P 500 gained 1.9% and the Dow returning about 0.8%. Federal Chair Powell indicated either a 50 or 75 basis point interest rate hike is on the table during their late July meeting; however, most officials agreed that a 75-bp hike will be the most likely outcome. The Fed is hell bent on restraining inflation pressures which indirectly will keep financial assets down. However, with rising rates, the US dollar ended the week higher for the 11th time in the last 14 weeks. July 1, 2022, Weekly Equity Market Recap. Despite Friday’s gains, all of the major equity indexes posted their fourth down week: The S&P 500 finished down 2.2%, the Dow lower by 1.3% and the Nasdaq fell by 4.1%. S&P 500 posted a more than 16% second quarter loss, marking its biggest one-quarter fall since March 2020. The Dow Jones lost 11.3% in the second quarter, putting it down more than 15% for 2022, while the Nasdaq suffered its biggest quarterly drop since 2008, losing 22.4%. Investors remain focused on warning signs from several companies that lowered their profit guidance, adding to investor concerns that persistent inflation at decades long highs could continue to put pressure on share prices. The Institute for Supply Management showed that the month of June was weaker than expected with its index of national factory activity dropping to 53 for the month, the lowest reading since June 2020. Michael Burry of “The Big Short” recently warned that the upheaval in financial markets is only halfway through and that companies will see earnings decline next. June 25, 2022, Weekly Equity Market Recap. All major US equity indexes wrapped up a big comeback week for stocks on indicators that the economy may be slowing which buoyed hopes that the Fed may ease on its aggressive rate hike path. The S&P 500 jumped 6.5% for the week and the Nasdaq Composite soared 7.5% while the Dow Jones finished 5.4% higher. The U.S. equity market had its first positive week after falling for three consecutive weeks. The top preforming sectors were health care, consumer discretionary, and real estate, while industrials, materials, and energy were the worst performers. Fed Chair Jerome Powell said inflation continues to surprise to the upside and it will be challenging for the central bank to engineer a "soft" economic landing.  June 17, 2022, Weekly Equity Market Recap. In reaction to the Federal Reserve’s sharp interest rate hike of 0.75% and lowered expectations of economic growth, all US equity market indexes sharply sold off on the week: The S&P 500 lost 5.79%, Dow finished off 4.79% and the Nasdaq lost 4.78%. For the year, the S&P 500 is now down -23%, Nasdaq -31% and even the Core US Aggregate Bond (AGG) is now below -11%. The Fed hike was the biggest increase since 1994 and removed a reference to expectations the labor market will remain strong. The Central Bank also said it is "strongly committed" to bringing inflation back to its 2% goal, where previously that has been downplayed. Moreover, Fed officials significantly cut their outlook for 2022 economic growth, now anticipating just a 1.7% gain in GDP, down from 2.8% from March. Reading the tea leaves translates into unemployment going up and the soft recession landing being more unlikely given the Fed appears willing to scuttlebutt the economy to get inflation down. According to the “dot plot” of individual members’ expectations, the Fed’s benchmark rate will end the year at 3.4%, an upward revision of 1.5% from the March estimate. Luxury home sales fell 17.8% year-on-year during the 3-month period ended April 30th, the largest drop since the onset of the COVID pandemic. Non-luxury home sales also declined to a lesser extent, falling 5.4%. Our active management of multiple investment asset classes based on modern portfolio practices, relative valuations and economic/market prospects remains effective in mitigating portfolio losses. However, insofar as our inflation hedges in commodities, energy and precious metals did not have a strong showing on the week, energy and commodities in particularly have nonetheless had a great year for returns. Also, our four core alternative funds have done a stellar job, with one up 30%, another +7% with the other two now roughly flat for the year. June 10, 2022, Weekly Equity Market Recap. On stagflation fears, the S&P 500 dropped 2.9% in its ninth losing week in the last 10, leaving the broad equity index down 18.7% from its record high back in early January. Similarly, the Dow Jones Industrial Average sank 2.7% and the Nasdaq fell 3.5% on the week. Our client portfolios continue to benefit from risk hedges where gold (GLD) was up 1.14% and commodities up 0.95% (COMT) on the week, while energy (XLE) only gave back -0.89%. Further, the four core alternative funds all remain up for the year which also have helped mitigate the losses experienced in the capital markets. Finally, cash remains high, serving two purposes: 1) enable future bottom fishing of bargain priced stocks and 2) help weather the market volatility. Inflation unexpectedly hit a new 40-year high in May as gas, food and rent prices jumped with the consumer price index increasing to 8.6% annually, up from 8.3% the prior month and the largest rise since December 1981. Global growth is now projected to drop from 5.7% in 2021 to 2.9% in 2022 and is significantly lower than 4.1% that was anticipated in January. It is expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn. How is US consumer spending holding up in the throes of inflation outpacing wage gains for 13 straight months? 1) Americans are saving less: 4.4% savings rate (lowest levels since 2008) and 2) Americans are borrowing more with a 7.5% increase in credit over the past year (largest since 2011).  June 3, 2022 Weekly Equity Market Recap. All three US equity indexes declined over -0.9% or more for the week. The S&P 500 index recently traded at 20x its earnings over the past 12 months, according to FactSet, down from the 23.5x at which it ended last year and above the 10-year average of 18.7x. U.S. employers added 390,000 jobs last month, the slowest pace of growth since April of last year. In the past week, mortgage applications to purchase homes fell to their lowest level since 2018. According to the Mortgage Bankers Association, volume was 14% lower than the same week a year ago. JPMorgan Chase CEO, Jamie Dimon, one of the most revered CEOs in America, is predicting an economic "hurricane" caused by the war in Ukraine, rising inflation pressures and interest rate hikes from the Federal Reserve. Dimon also said that the Fed is starting to unwind its bond portfolio, a process known as quantitative tightening, at the same time it is raising interest rates. The University of Michigan's final consumer sentiment measure fell to 58.4 in May, down from 59.1 earlier in the month, marking the lowest level in more than 10 years. We took further risk-off actions for client portfolios during this recent period of market strength.
May 31, 2022 Monthly Stock Return Recap: Though it was a volatile trading month stocks finished slightly down in May from the previous month close. The S&P 500 dipped -0.6% to 4,132, The Dow Jones Industrial Average fell 222.84 points, or -0.7% while The Nasdaq Composite eased -0.4% to 12,081.39. With the high degree of asset diversity of client portfolio holdings, including inflation hedges, the vast majority of client portfolios finished positive for the month.
May 27, 2022 Weekly Equity Market Recap. All three major equity indexes jumped over 6% this week, which hasn’t happened since November 2020: The S&P 500 gained 6.6%, the Dow was up 6.2%, while the Nasdaq was the outperformer, up 6.8%. Over $21 billion flowed into global equity funds on the week thru Wednesday, the largest inflow in 10 weeks, according to BofA Global Research. US stocks surged on the notion that early signs of a possible recession are in play, so the Fed won’t be able to hike rates after June and July. The U.S. economy unexpectedly dropped by 1.4 percent annualized rate in the first three months (Q1) of 2022 after more than a year of rapid GDP growth, according to a Bureau of Economic Analysis. Last year, for example, the U.S. economy grew by 5.7 percent, the fastest full-year clip since 1984. However, US inflation-adjusted consumer spending increased in April by the most in three months, indicating households were holding up in the face of persistent price pressures by dipping into savings. The Fed announced on Tuesday they may raise interest rates to high enough levels to purposely fuel a deceleration in economic growth to combat surging inflation – while also approving a plan to shrink the Fed's $9 trillion portfolio starting June 1. The information comes shortly after Fed Chairman Jerome Powell said 0.5% increases would likely be needed at the next several meetings. Powell emphasized that to bring down prices, the unemployment rate may need to rise. Though client portfolios remain allocated toward defensive positioning, portfolios were nonetheless buoyed by the weekly rally. May 20, 2022 Weekly Equity Market Recap. S&P 500 is down for seventh week in a row as a bear market looms. On the week, the S&P 500 dropped 3.1%, Dow Jones declined 2.8% and the Nasdaq Composite fell 3.8%. On Friday, the broad equity market S&P 500 benchmark briefly touched bear market territory after falling over 20% from its January high of 4,797, before erasing losses to close at 3,901. Our client portfolios continue to weather much of the volatility as we have thoughtful risk controls in place and have been active with portfolio adjustments to align with this stagflation investment climate, particularly over the past four months. For example, client portfolios have been largely insulated from the massive market losses due to thoughtful asset diversity, purposeful high cash, loss buffer equity ETFs, several intentional inflation hedges and helpful alternative funds having low correlation to US equities. Historically, should the economy be entering a recession then stocks typically enter bear markets, and things will get worse, down -34.8% on average and lasting nearly 15 months. However, in the event the economy avoids a recession, the bear market bottoms at -23.8% and lasts just over seven months on average. The May University of Michigan consumer sentiment survey data showed that sentiment had dipped to low levels not seen since 2011. May 14, 2022 Weekly Equity Market Recap. On Friday, the S&P 500 gained 2.4% and the Nasdaq climbed 3.8% while the Dow Jones closed up 1.5%. Despite Friday’s bounce, all three major U.S. indexes fell for the week: The Dow Jones, the S&P 500, and the Nasdaq slipped 2.1%, 2.4%, and 2.8%, respectively. The S&P 500 is on pace for one of its worst plummets since the March 2020 bear market and much of the carnage has occurred in just the last two weeks. The S&P 500 has fallen to a 52-week low, with more than half of the stocks in the S&P 500 now trading below their 200-day average. While the first-quarter earnings season for the S&P 500 has reflected respectable profits for companies, concerns over inflation, higher future interest rates, and the potential for a deteriorating economy have rattled investors. This worrying investment climate is not only giving investors pause, but also forcing investors to reevaluate what they are willing to pay for stocks in the throws of several strong headwinds. Our investors continue to benefit from early portfolio actions taken in the form of reduction stock and bond allocations, while increasing exposure to energy, commodities, gold, and alternative funds. May 7, 2022 Weekly Equity Market Recap. The U.S. stock market posted its fifth consecutive weekly loss on data showing a tighter labor market which only added to investor fears of aggressive Fed rate increases this year. The S&P 500 and Dow shed 0.2% each for the week while the Nasdaq fell 1.5%. So far for the year, the S&P 500 has tumbled 12% while the Nasdaq has plummeted into bear market territory, down 22%. In this bleak investment environment, we continue to recommend portfolio allocations toward watersheds like energy, commodities, precious metals, cash and alternative funds. In fact, most of our alternative funds are up for the year, and we have added to all these other asset classes. The reality is the naïve balanced traditional portfolio is getting crushed as bonds are also down in the -10% range: the Ishares Cored Moderate Allocation ETF is -11% year-to-date. Finally, cash is an asset class in this environment and should be an area to add in this flight to safety. Fortunately, due to our re-posturing portfolios in early January, then again on several other occasions, our clients have only had a partial exposure to the capital market losses for the year. April 29, 2022 Weekly Equity Market Recap. The broad equity market S&P 500 plunged nearly -9% in April, its worst monthly decline since March 2020, and also marked the biggest four-month loss period (-13.3%) to start a calendar year since 1939. While earnings season appears healthy, stocks are being negatively impacted by CEO quarterly comments on inflation rising purchasing costs and supply chain constraints and bottlenecks. The trading week was also derailed by news that GDP shrank 1.4% annual rate in the first quarter.
March 26, 2022 Weekly Equity Market Recap. The U.S. equity markets posted their second weekly gains led by the Nasdaq +2% followed by the S&P 500 posting a 1.8% gain, while the Dow Jones Industrial edged up a mere 0.3%. The energy and materials sectors continue to drive the recovery upside for the benchmark broad market index of the S&P 500. The Federal Reserve is walking a tight rope at keeping recession pressures at bay in the coming year with a rising rate environment, soaring inflation and slower growth. Then, there is the added uncertainty of trade disruptions of war in eastern Europe. Finally, consumer confidence is at an 11-year low, which is disconcerting given the consumer drives 60% of the economic growth. However, there is a chance of a navigating a soft landing as the Fed’s rate actions is conditionally tied to inflation and should actions be taken to increase supply of energy while also resolving logistical supply chain blockages, then economic engine may continue to flow benefits to the stock market. One recent upbeat note was the job report for this week where initial Jobless Claims fell precipitously to a total of 187K.
March 19, 2022 Weekly Equity Market Recap. Notching their biggest weekly gain in 16 month, the S&P had staged a four-day rally that tallied 6% from the close on Monday. The NASDAQ which had taken the brunt of the recent selling rose 10%. Stocks were buoyed on Federal Reserve comments and only 0.25% rate action, along with oil dropping to $94 a barrel after U.S. crude oil topped $130 last week. The Federal Reserve comments also included “the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting." Federal Reserve Board members and Federal Reserve Bank presidents under their individual assessments of projected appropriate monetary policy, which shows that the median projection for the Federal funds rate is 1.9% for the end of 2022. March 12, 2022 Weekly Equity Market Recap. The Nasdaq dropped 2.2% and S&P 500 fell 1.3% for the week, while the Dow Jones Industrial Average was down only 0.7% . However, the Dow posted a fifth straight weekly loss - its longest losing streak since 2019 on dropping consumer sentiment, inflation hikes and global military tensions. As near-term inflation worries mount, U.S. consumer sentiment is at a 11-year low dropping to 59.7 so far this month, from 62.8 in February. The West Texas intermediate topped $130 a barrel in recent sessions on oil supply shocks and losing 10% of supply; U.S. halted purchases from Russia given the humanitarian calamity in Ukraine. Insofar as we maintained our real asset portfolio hedges in commodities, gold, energy, and treasury inflation-protected securities, we may look to partly reduce in the coming weeks given Russia-Ukraine are in talks to reach peace terms. March 5, 2022 Weekly Equity Market Recap. For the week, both the S&P 500 & the Dow Jones lost about 1.3%, while the Nasdaq dropped nearly 3%. With the broad market U.S. index marking its third consecutive loss, investors also were exposed to the second correction on the year, where the S&P 500 dropped below 10%. As previously highlighted last week's investment blog, Russia’s unprovoked war with Ukraine is disrupting commodity pricing and trade, while also elevating fear of greater escalation in the region, including the potential nuclear option. Further, with 10% of U.S. oil imports from Russia and WTI prices reaching $115/barrel, exorbitant energy prices continue to spike inflation costs on much of the U.S. economy, ranging from shipping, transportation and a hefty bill at the gas pumps. Fortunately for our client portfolios, we reduced risk and added smart hedges last week – gold, commodities, energy and treasury inflation-protected securities – all of which have been paying off. On Friday, nonfarm Payrolls surged 678k for the month of February, a much stronger figure than the projected 440k by economists, which moved the unemployment rate to 3.8% from 4.0% (the lowest since February 2020). However, even this upbeat economic result was overshadowed by the economic toll of rising inflation and geopolitical tensions. Of course, the greatest market disruptor is undoubtedly war crimes perpetrated by a major military power controlled by "strongarm" Vladimir Putin who is increasingly perceived as an evil madman by the civilized world. February 26, 2022 Weekly Equity Market Recap. The unprovoked invasion of Ukraine by Russia shook the markets and most of the civilized world. Client portfolio had established hedges for inflation and rising rates, such as additional gold, commodities, treasury inflation-protected securities, energy and financials. However, with geopolitical risk jumping, we reduced portfolio risk a bit & added addition loss hedges. Volatility is now at one of its highest levels for the last decade, and while the jury is still out on whether the pullback will remain a correction or turn into a bear market, equity market is being re-rated not just for inflation and rising rates now, but geopolitical risks. Notwithstanding the humanitarian consequences of war, there are also very disruptive economic consequences that must be considered by investors. Case in point, Russia produces 11% of world oil and 30% of Europe’s natural gas. Russia is also the world’s top wheat exporter. Together with Ukraine, both account for roughly 29% of the global wheat export market. Rising food and energy prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists. Then, our Newsletter's “China” geopolitical event statement clearly is tied to the fragility of Taiwan’s independence and China’s view that Taiwan remains a renegade province of its mainland. It would not be unexpected for hostile repatriation actions to occur in this region, where 94% of semi-conductor chips just happen to be produced in Taiwan. On the positive side, and the reason a good amount of risk remains in portfolios are: 1) The U.S. economy is still growing at a 5-6% pace and escalating world tensions that might disrupt global economies could trigger less aggressive interest rate actions by the Federal Reserve. Further, of the past 20 corrections that have occurred in the S&P 500, including those that have morphed into a bear market, defined as a 20% decline from a recent peak, the S&P 500 has ended higher 70% of the time. Also, stocks do tend to perform well just after they enter correction territory. The average S&P 500 gain for the 12 months following a close into correction territory is 9.3% dating back to 1998, according to Dow Jones Market data; 2) Looking at 29 different geopolitical crises starting with WWII and found that on average, stocks were higher 3-months after a geopolitical shock, and following 66% of events, they were higher after only one month and, 3) If you missed the best 10 trade days in the past 20-years, you would have made half the S&P 500 return (if all stocks); and, 4) If you missed the best 20 trade days, you would have made no money in stocks.
February 19, 2022 Weekly Equity Market Recap. The S&P 500 dropped 5.7 percent for the week, marking its sharpest weekly decline since March 2020, on nonstop news of Russia preparing to invade Ukraine. Then, markets were further rattled with another jump in both oil prices and the Producer Price Index. The market is also concerned about the Fed Reserve interest rate hikes, but from an historical basis starting in the 1950s to today, almost all rate hike cycles have been followed by positive S&P returns, with S&P averaging about 9% in past dozen rate-rising cycles. Indeed, Goldman Sachs updated their S&P 500 target return to 4,900 targets, which implies a 12% gain for U.S. equities from the current values, or 4% for the full year. Finally, we reiterate our own 2022 forecast from back in early January, which appears to be playing out: “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction” with volatility “more near-term in nature.” February 12, 2022 Weekly Equity Market Recap. The stock market is continuing to reprice risks – rates, inflation & geopolitical – which elevates volatility. After two weeks of recovery gains, the major U.S. market indices finished down on the week: the S&P 500 shed -1.8% and the Nasdaq lost -2.2%. However, Friday’s announcement by the U.S. that Russia’s invasion of Ukraine was eminent essentially moved the stock market from flat to a loss on the week. Further, the blunt tool used to fight inflation by the Federal Reserve of interest rate hikes doesn’t solve the root of the problem, such as energy supply (more policy) and supply chains shortages, such as semiconductors which are hurting autos, smartphones, etc. The silver lining has been the stabilizing force of healthy corporate earnings, which has kept stocks in a range bound trade range, albeit on the lower end. February 5, 2022 Weekly Equity Market Recap. The U.S. equity markets notched a second week of gains in another volatile trading week: Nasdaq led the equity indices by ending week up 2.4%, with the S&P 1.6% higher and Dow Jones advancing 1.1%. The forward 12-month P/E ratio for the S&P 500 is now at 19x, down from 21x, but still slightly above the 5-year average of 18.5x. Going forward, we continue to expect a wide trading range that will keep the indices in a sideways pattern until there is better clarity on the economic impact of inflation and rising interest rates; in particular, whether the rising prices will ebb in the coming months prompting less hawkish Federal Reserve. Employment and corporate earnings remain robust and supportive element to the markets. Indeed, with 76% of S&P 500 corporate earnings having beat EPS estimated so far in Q4 and January jobs adding 467,000, the economy is showing a pattern that defies omicron and work shortages. January 2022 Monthly Stock Market Review: U.S. stocks end January on a two-day rally but still chalk up worst month since March 2020. For the month, the S&P 500 lost -5.3%, the Dow Jones shaved off -3.4% and the Nasdaq dropped -9%. A point of optimism is that corporate profits keep climbing with fourth-quarter profits rising 24% for companies in the S&P 500 compared with a year earlier, according to the market data service FactSet. Hence, we don’t think there is a big risk of recession at this beginning of the year juncture. Further, the S&P 500 had technical support when it hit a -10% intraday loss, before rebounding. Another positive consideration is Goldman Sachs released a note saying corrections are buying opportunities and rarely turn into bear markets. Historically, the prolonged bear markets occur during the recessions , and inverted yield curve precedes the recession by 9-12 months; yet, the yield curve remains upward sloping. January 27, 2022 Weekly Equity Market Recap. The U.S. equity markets broke a three-week losing streak marked by a wild, topsy-turvy ride for investors where the major indices first sold off sharply on the first three days yet climbed back the last hour to recover part of the losses, then on the last days the markets were up for most of the day and fortunately Friday brought a healthy positive finish. The Dow and S&P ended the week with gains of 1.3% and 0.8%, respectively, with tech heavy Nasdaq finished just above flat at +0.01%. Turning back to Monday of this week, the S&P 500 slid -4% on Monday and into correction territory, below -10% from its Jan 3 record close, before clawing much of the losses back by end of day. We do not believe the volatility is behind us as the market mechanisms are still experiencing sector rotations and price valuation re-setting to a rising rate environment with no more Fed asset repurchases. This week also held the FOMC meeting and Fed Chairman Jerome Powell said “I think there’s quite a bit of room to raise interest rates without threatening the labor market” and the central bank released a paper outlining principles to start “significantly reducing” the bond holdings on its balance sheet without indicating a specific time frame.
January 22, 2022 Weekly Equity Market Recap. The S&P 500 and Nasdaq posted the worst week since pandemic start back in March 2020 with the S&P 500 falling 5.7%, the Dow dropping 4.6% and the Nasdaq plummeting 7.6%. From the high back in early January, the S&P 500 has given back 8.3% while the Nasdaq has lost 11% for the year. The S&P 500 is moving toward correction mode with all major indexes trending down and trading below their 50-day moving averages. Given the diversification of our client portfolios, the range of loss exposure to the S&P 500 has been 0.40%-0.55% for the week. It is more fortunate that client portfolios only had 0.30%-0.40% correlation to the losses experienced by the tech-laden Nasdaq. What also is becoming apparent is the speculative investors (retail day traders) now appear to be leaving the market, and that is a good thing. Recall, in our 2022 Market Outlook we clearly outlined 2022 expectations for this “choppy” market environment with “downside volatility” and a “minimum -10% intermittent correction.” Notably, the S&P 500 has yet to hit the 10% correction so we would anticipate more turbulence ahead, but as our 2022 Market Outlook indicates, “more near-term in nature.” For perspective, in 29 of the past 50 years, the S&P 500 has experienced a correction of at least 10% with a frequency of about once every 19 months, on average, going back to 1928. That means the S&P 500 is about four months overdue for a correction. The point is the S&P 500 is only in a mid-range pullback right now and this current turbulent behavior is a natural cycle mechanism. Accordingly, we do not intend to take client recommended portfolio changes unless we see panic, capitulation behavior that would be associated with directional bear markets. Another way to look at this is not much has changed since the market close on December 31, 2021, with respect to stock fundamentals, the economy, and the Federal Reserve. If anything, from the looks of the yield curve it appears as the markets are discounting (don’t expect) the Fed to be as hawkish with rate hikes, which bodes well for the markets. January 14, 2022 Weekly Equity Market Recap. Given persistent inflation, ongoing supply chain disruptions and anticipated rate hikes, the equity markets continue to reprice downward: Since Dec. 31, the S&P 500 is off by about 2.1%, while the Nasdaq is down 4.8% and the Dow Jones is down just 1.2%. Omicron-related labor shortages have exacerbated the supply chain disruptions and in face of product shortages and virus sickness spiking, Americans have curbed their shopping with retail sales declining 1.9% in December. The Labor Department reported that consumer inflation jumped at the fastest pace in 40 years last month, a 7% surge. However, while we anticipate inflation to persist in 2022, we also believe the rising costs will moderate toward the second half of 2022. 2021 Yearly Equity Market Recap: The S&P 500 finished up 26.9% at 4,766 in 2021, while the Dow and Nasdaq also notched double digit returns of 18.7% and 21.4%, respectively. The S&P 500 is the broad market stock index composite here in the U.S. and insofar as it has diversified holdings of five hundred stocks, notably there was a sharply disproportionate source of concentrated high-flyer returns where just 1% of these stocks were responsible for about one-third of the index’s overall 2021 gains: Microsoft (MSFT), Apple (APPL), Alphabet (GOOG, GOOGL), Nvidia (NVDA), and Tesla (TSLA). Market volatility was also muted on the year with only a-5% September pullback, but as we go forward in 2022 investors should expect volatility will not only be here to stay but the markets are likely to experience a minimum -10% intermittent correction – but doesn’t mean the market can’t gain on the year. The stock market certainly had a lot going for it with sustained tailwinds of rock bottom interest rates, fiscal/monetary stimulus, strong GDP, and healthy corporate earnings growth. Clients will receive the 2022 Market Forecast & Proposed Investment Strategies next week. December 24, 2021 Weekly Equity Market Recap. Happy Holidays and We Wish Everyone a Prosperous New Year. With Christmas falling on a Saturday, the U.S. equity markets are closed on Friday, Christmas Eve. On consecutive three days of gains, the S&P 500 hit a record close for the week as Omicron fears waned: The S&P 500 gained +2.3%, the Dow gained rose +1.7% and the Nasdaq climbed +3.2%. This week investors welcomed new facts that though Omicron is much more infectious than other coronavirus variants, it seems to be far less lethal, with largely mild symptoms. Also, Merck’s at-home COVID-19 pill received U.S. approval. On the economic front, weekly jobless claims came in largely unchanged at 205,000 while consumer spending increases +0.6% in November. December 18, 2021 Weekly Equity Market Recap. In a choppy week of trading, stocks finished down: The Dow Jones closed down -1.7% followed by the S&P 500 -1% and the Nasdaq little changed at -0.1%. The Producer Price index has accelerated to a 9.6% year-over-year pace and is running much hotter than anyone expected. That is the highest reading on record. Moreover, inflation as measured by the CPI, jumped 6.2% from October 2020 to October 2021. In response to rising prices, the Fed announced this week that it will shrink its monthly bond purchases at twice the pace it previously announced, likely ending them altogether in March, while also increasing its forecast that the benchmark short-term rate will increase three times next year, up from just one rate hike. December 11, 2021 Weekly Equity Market Recap. Following two weeks of volatile trading that left the S&P 500 with back-to-back weekly losses, the S&P 500 led the major U.S. indexes by closing at a record high, advancing about 1%. Meanwhile, the Nasdaq and Dow Jones posted gains of 0.7% and o.6%, respectively. Inflation came in at an almost four-decade record high of 6.8% but the sticker shock was offset by being within the expectation range and consensus view that prices have peaked. Other notables for the week was the Fed reserve would take actions (tapering) to help alleviate inflation and investor concerns over omicron eased amid positive signs that the variant may be less dangerous than the Delta variant. A couple pharmaceutical companies, Pfizer and GlaxoSmithKline, indicated this week that their vaccine and antibody treatment, respectively, appear to have been effective against Omicron in early-stage studies. November 27, 2021 Weekly Equity Market Recap. On Friday, the equity markets digested the economic threat of a new virus variant called Omicron and sold off sharply, from -2.3% for the S&P 500 to all the way down -3.7% for the Russell 2000. Omicron variant was discovered using phylogenetic sequencing techniques on November 11th in Botswana and was soon found in South Africa, Belgium, Israel and Hong Kong. The Omicron variant has 32 mutations of the spike protein alone, compared to the Delta variant which had only nine. Alarmingly, the increase in the positive testing rate in the Johannesburg region rose from 1% to 30% in one week as Omicron outcompeted the Delta variant. Disease modeling scientists estimated that Omicron has several multiples greater transmissible than the original Wuhan variant, while the Delta variant was only 70% more transmissible. For the week, the broad equity market S&P 500 finished -2.2%, while both the Dow Jones and Nasdaq -dropped -2.0% and -3.5%, respectively. Given the quick reversal of past positive stock trends, the message is to pay very close attention to the potential economic threat of this Omicron variant as more data is analyzed and distributed. That said, the stock market has historically been fairly positive after Thanksgiving. Since 1950, the S&P 500 has climbed by an average of 1.5% in December, logging a post-holiday gain more than 80% of the time. November 19, 2021 Weekly Market. On a choppy trading week, the major U.S. equity indexes finished mixed with results: the tech-ladened Nasdaq closed up +0.4% while the S&P 500 and Dow Jones both slipped, -0.1% and 0.8%, respectively. Inflation, supply chain and unfilled jobs is still center stage concerns for investors this week. However, the fourth quarter (Q4) net profit margin estimate for S&P 500 is 11.8%, which is only slightly below the estimate of 11.9% on September 30. Investors have plowed more than $400 billion into U.S. equity ETFs over the past year, which exceeds the prior peaks in 2008-2009 and 2016-2017.  Further, households’ allocation to equities now stands at 62% exposure which is just slightly off its all-time high in 2000, an ominous period which preceded the tech bust. However, supportive market breadth and company profit margins have been fundamentals that have helped sustain the rosy investment optimism. Fortunately, more than 90% of stocks within the S&P 500 have already had a 10% correction from a high at some point this year which is considered a healthy consolidation.
November 12, 2021 Weekly Market. After a series of daily equity losses on the week, major U.S. equity indexes rallied and recovered much of the lost ground: The S&P slipped -0.3% while the Dow Jones and Nasdaq dropped -0.6% and -0.7%, respectively, for the week. The equity markets continue to weigh inflationary concerns with the 6.2% year-over-year rise in inflation in October, the biggest jump since November 1990. Inflation not only eats away at the buying power of consumers but also has hit retiree bond portfolios which don’t have “growth” protection and are inversely correlated with rising rates; Fed rate hikes are a tool to constrain inflation. Further, the U.S. economy has had more than 10 million open jobs since June, with a record high quit rate of 3% in September. November 6, 2021 Weekly Market. For the week, the S&P 500 rose +2%, the Dow Jones added +1.42%, while the Nasdaq gained the most at +3.05%. Every major index recorded a new all-time high as the bull market continues with its fifth straight week of gains. The Federal Reserve met and conveyed 'accommodative stance', reiterated interest rate benchmark of 0%-0.25%, and its intention to taper stimulus. Further, the Labor Department report showed U.S. employment increased more than expected in October. Earnings to date for the third quarter (Q3) show 81% of S&P 500 companies have beaten EPS estimates, which is tied for the 4th highest percentage since FactSet began tracking this metric in 2008. October 30, 2021 Weekly Market. The S&P 500 index, which fell -4.8% in September, bounced back with a +6.9% gain for October, marking its biggest monthly gain since November 2020. The monthly gains came about despite deceleration in the nation’s third-quarter GDP. Case in point, the Commerce Department released data that showed only a 2.0% quarterly advance in the July-to-September period, versus a 6.7% pace in the second quarter. Further, warnings from Apple and Amazon have raised concerns that the economic recovery may face a bumpier road ahead. The broad market stock index of the S&P 500 continues to be largely driven by energy (up +100% ytd) and financials (up 69% ytd), with technology, real estate and consumer discretionary sectors also all are up around 40% on the year.
October 23, 2021 Weekly Market. With 75% of S&P 500 companies have beaten revenue estimates for Q3 to date, and now reporting the third highest (year-over-year) growth in earnings since Q3 2010, the U.S. equity markets rallied on the week: The S&P 500 Index rose +1.64%, leading the major indices followed by the Nasdaq +1.29% and the Dow Jones +1.08%. The Biden Infrastructure Bill is still being negotiated downward to below $2 trillion yet has many items in contention between Sinema and Manchin. The U.S. leading indicator rose 0.2% to 117.5 in September marking a 6th straight new all-time peak. October 16, 2021 Weekly Market. Stocks posted their best week since July after earnings, with retail sales and banking earnings topping estimates. Consequently, the broad market blue-chip index of the S&P 500 closed out the week higher by about +1.8% in its best one-week increase since July. According to FactSet, the S&P 500 index is now "reporting the third highest (year-over-year) growth in earnings since Q3 2010." While only 8% of the companies in the S&P 500 have reported earnings results for Q3 2021, 80% of the composite have reported actual EPS above estimates with averages exceeding expectations by 14.7%. Banks posted much stronger-than-expected third-quarter earnings results, including Bank of America (BAC), Citi (C) and Morgan Stanley (MS), which helped alleviate investor concerns over a sharp deceleration in corporate profits. The Consumer Price Index (CPI) rose +0.4% overall with the core increasing +0.2% in September; and on a 12-month basis, the headline rate rose to 5.4% year-over-year, marking the 10th straight month consumer inflation came in over the five-year average. However, supply chain issues remain strained and therefore continues to help fuel inflationary pressures. October 9, 2021 Weekly Market. The Dow Jones Industrial Average led the major US equity indices with +1.22% followed by the S&P 500 Index +0.79% and the Nasdaq +0.09%. Core inflation rose +3.6% in August from a year ago, the biggest jump in more than 30 years. Supply chain shortages have elevated preexisting inflationary pressures by growing beyond electronics and chips into most other commodities: oil is at a 6-yr high, beef up +14%, pork by +12.1%, and poultry by +6.6%. Even food-away-from-home like restaurant purchases is +4.7 percent higher. Also, the job report was disappointing only 235,000 positions added vs. expectations of 720,000. October 2, 2021 Weekly Market Update. The S&P 500 equity index fell -4.8% in September, representing the worst month since March 2020. Further, the S&P 500 finished the month -5.1% below its all-time high set on September 2, 2021. Fortunately, on the first day of trading for October the S&P 500 bucked the past four days of losses with a robust turnaround in trends, rebounding +1.2% on the day. On the economic front, consumer spending, which accounts for over two-thirds of U.S. economic activity, rose +0.8% in August while inflation also maintained its upward trend with the monthly personal consumption expenditures (PCE) price index up +0.3% (+3.6% over past 12-months}. September 25, 2021 Weekly Market Update. Equity volatility as measured by "VIX" spiked on the week to the highest in four months as the U.S. equity markets tumbled then recouped the losses by the end of the week. The Dow Jones Industrial Average led the major indices with +0.62%, followed by the S&P 500 Index +0.51%and the Nasdaq +0.02%. The capital markets were rattled by one of China’s largest real estate groups facing a debt crisis in the form of potential default, uncertainty over the direction of the scheduled Fed meeting, and ongoing delta variant struggles; the virus uptick has led some economists to lower growth targets for both the third and fourth quarter of the year. However in contrast, the Leading Economic Index marked the 15th advance in over the last 16 months, rising +0.9% to 117 for the month of August. With the Fed’s recent statement of "slower bond buys may soon be warranted", it appears the FOMC might also be tapering the purchase program by year-end.
September 18, 2021 Weekly Market Update. All major U.S. equity indexes lost ground on the week: Dow Jones Industrial Average declined -0.07% followed by the Nasdaq -0.47% and the S&P 500 Index -0.57%. After hitting a new high back on September 2nd, the S&P 500 has been trading lower in a narrow, choppy range as we look to close the summer. With no fundamental earnings reports due until mid-October the focus remains on the virus, the developments on a new Congressional spending bill, meandering course of the Biden tax plan, and the economy. On this front the news has been mixed with some positive economic trends laden with potential higher capital gains taxes (25%) concerns and frustration over the coronavirus variants. September 11, 2021 Weekly Market Update. Marked by three days of consecutive losses the Dow Jones Industrial declined -2.15% followed by both the S&P 500 Index -1.69% and the Nasdaq -1.61% losses for the week. Market volatility has increased in what we believe to be a response to uncertainty related to the meandering course of Biden’s new tax regime that could have negative impact on investment gains and estates along with a growing feeling of ongoing virus mutation taking a toll on future economic growth. Additionally, the equity markets have been rising without much resistance; September is the 11th month without a 5% correction for the S&P 500, which from a historical perspective, also happens to be one of the longer rally streaks. September 3, 2021 Weekly Market Update. The U.S. market indexes finished mixed for the week: Dow Jones Industrial and S&P 500 posted +0.9% and +0.7% gains, respectively, while the Nasdaq Composite dipped -0.1%. However, the broad market index of the S&P 500 showed a strong trend by closing with gains in 7 out of the last 8 trading sessions. With S&P 500 Q3 earnings just around the corner (3 wks), FactSet noted that third quarter (Q3) earnings estimates showed the “fourth largest increase in EPS Estimates for S&P 500 Companies Since 2009.” Going into this new month it is also notable that since 2004, September has finished up for the month in 11 of the last 17 years, or 65% of the time, while also finishing up 75% of the time in three of the past four years. August 28, 2021 Weekly Market Update. All U.S. equity market indexes participated in an upswing for the week on FDA approval of Pfizer COVID-19 vaccine, the virus new case count slowing to 2.8% week-over-week while hospitalizations also easing to a 5.7% increase: The Nasdaq +2.82% led the index gains, followed by the S&P 500 +1.52% and the Dow jones Industrial Average +0.96%. The capital markets were also supported by the House infrastructure resolution passing, which should enable work to begin on drafting the budget reconciliation bill. Finally, for the first time in over a month seasonally adjusted jobless claims came in higher with claims around 353K.
August 21, 2021 Weekly Market Update. All the major U.S. equity market indexes lost ground on another choppy trading week: The Dow Jones Industrial Average ( -1.11%), the Nasdaq (-0.73%) and the S&P 500 Index (-0.59%). The stock market was rattled by minutes from the Federal Reserve indicating asset purchases would be tapered by year-end, geopolitical instability (Afghanistan), another weekly Delta variant infection uptick (+14%) and the weaker than expected retail sales for July. However, vaccinations did increase this week to 60.2% of the total U.S. population (one dose) and the booster shot is expected to be released next month. August 14, 2021 Weekly Market Update. The S&P 500 and the Dow Jones Industrial both rose on the week, +0.71% and +0.87% respectively, while the tech-laden Nasdaq slipped -0.09%. On the week, the S&P recorded three straight days of new highs while the month of August has marked the 10th consecutive month where the index recorded a new record high. However, with a surge in cases of the Covid-19 delta variant the August University of Michigan Consumer Sentiment unexpectedly tumbled from 81.2 to 70.2, which is a foreboding sign. After the passing of the $1.5 trillion Infrastructure bill, the Senate has now shifted to pursuing a $3.5 trillion budget resolution that would expand a social safety net to levels not seen since the “New Deal” programs of the Great Depression. August 7, 2021 Weekly Market Update. All major U.S. equity indexes hit new highs on positive earnings and employment news, along with the appearance that the new infrastructure bill will not have accompanying taxes: the Nasdaq (+1.11%) led the major indices followed by the S&P 500 Index (+0.94%) and the Dow Jones Industrial Average (+0.78%). According to FactSet, the S&P 500 is reporting year-over-year earnings growth of 88.8% for Q2, which is the highest earnings growth rate for the index since Q4 2009 (109.1%); also, 87% of companies have beaten revenue estimates for Q2 to date. The better-than-expected July jobs report, 943,000 versus expectations for 845,000, dropped the unemployment rate to 5.4%. The seasonally adjusted IHS Market U.S. Manufacturing Purchasing Managers’ Index posted 63.4 in July, up from 62.1 in June while The ISM Services' rise to a 64.1 all-time high in July from 60.1. July 31, 2021 Weekly Market Update. With delta variant unbridled pace of new infections, the Dow Jones Industrial Average slipped -0.36% and S&P 500 declined fractionally -0.37% while the Nasdaq trailed -1.11%. The U.S. Bureau of Economic Analysis (BEA) revised its Gross Domestic Product (GDP) estimate, posting an increase of 6.5% in the second quarter of 2021; slightly above its revised first quarter estimate of 6.3%. The Senate passed a procedural vote on the $550 billion bipartisan infrastructure package.
July 24, 2021 Weekly Market Update. Market trading was marked by choppiness where the week started with the potential for the S&P 500 to break below technical support levels followed by the setting of another new record by week's end: The Nasdaq gained +2.84%, followed by the S&P 500 (+1.96%) and Dow Jones Industrial Average (+1.08%). The leading index rose 0.7% to 115.1 in June, another new record high with eight of the 10 components making positive contributions. So far the earnings season is robust with 86% of the S&P 500 companies beating revenue estimates for Q2 with 88% of the reporting companies beating EPS estimates, which is the highest since FactSet began tracking this metric in 2008. July 17, 2021 Weekly Market Update. The U.S. equity markets retrenched for the week on investor worries over the potential flattening of the yield curve (slowing economy sign), consumer confident dipping to 80.8 (from 85.5 in June), inflation concerns (CPI rose a whopping 5.4), and Biden’s proposed higher tax changes: For the week, the Dow Jones Industrial Average slipped -0.52% followed by the S&P 500 Index -0.97% and the Nasdaq -1.87%. Further, the Delta coronavirus variant appears to be taking hold with U.S. case counts rising 87% week-over-week. In contrast to these ailments, 90% of S&P 500 companies have beat revenue estimates for Q2 to date, with 85% beating EPS estimates to date (Source: Factset). July 10, 2021 Weekly Market Update. Though a bumpy ride, the major U.S. equity indexes finished up for the week: the Nasdaq +0.43%, the S&P 500 Index +0.40% and the Dow Jones Industrial Average +0.24%. Market volatility was spurred by the 10-year Treasury dipping to 1.25% from a high of 1.75% back in March. The drop in yields is often an indicator of economic slowdown, and while economic data may have peaked globally with Delta version of the coronavirus shutting down travel in many regions of the world again, there isn’t any hard evidence the U.S. economy is slowing at this stage. Case in point, the bottom-up EPS estimate for the S&P 500 for Q2 increased by +7.3% from March 31 to June 30, which was the largest increase during a quarter since FactSet began tracking this metric in 2002. Further, according to Factset, industry analysts in aggregate predict the S&P 500 will see a price increase of 11.2% over the next twelve months. July 5, 2021 Weekly Market Update. Strong employment trends continue to take center stage with unemployment dropping to 5.9%; nonfarm payrolls jumped 850k in June, a 150K higher figure than expectations. For the week, the Nasdaq (1.94%) led the major indices followed by the S&P 500 (1.67%) and the Dow Jones Industrial Average (1.02%). U.S. consumer confidence index rose 7.3 points to a 16-month high of 127.3 in May marking a 13-month high while pending home sales rebounded 8.0% to 114.7 in May. June 26, 2021 Weekly Market Update. On positive data showing a resurgence in the world economy and Biden’s announced agreement on a new infrastructure stimulus bill of $1.2 trillion over eight years (with nearly $600 billion in new spending), the U.S. equity markets rallied on the week: Dow Jones Industrial Average (+3.44%, the S&P 500 +2.74% and the Nasdaq +2.35%. A European survey reported the fastest pace of business activity in 15-years while the overall health of America’s manufacturing continued its upswing; Institute of Supply Management's capacity utilization is now at 88%, a post-1995 high. Lastly, the Fed announced it was eliminating temporary limits on dividends and stock buybacks.
June 19, 2021 Weekly Market Update. The Federal Reserve jolted the market with changed stance toward the potential of two hikes in interest rates in 2023, prompting all U.S. equity markets to sell off on the week: The Dow Jones Industrial Average -3.45%, the S&P 500 Index -1.91% and the Nasdaq -0.28%. However, Fed Chair Powell reiterated that the Fed would maintain Quantitative Easing at its current monthly pace of $120 billion. Meanwhile, President Biden and Congress continue efforts to resolve differences for an agreed infrastructure bill. The U.S. leading index rose 1.3% to another record high of 114.5 in May while PPI grew 0.8% in May. June 12, 2021 Weekly Market Update. The Nasdaq led the U.S. major equities with +1.85% followed by the S&P 500 +0.41% while the Dow Jones Industrial Average declined -0.80%. Inflation took center stage on the week with Consumer prices jumping 5% in May, marking the fastest pace hike since the summer of 2008. Used cars and truck prices continued their climb higher, rising 7.3% on the month and 29.7% for the past 12 months while the gasoline index is up 56.2% over the past year. New job claims declined 9,000 from previous week to 376,000. Meanwhile the White House and Congress continue to work on a meeting of the minds for the infrastructure stimulus bill. June 5, 2021 Weekly Market Update. All major U.S. equity indexes rose at a modest pace in a rather uneventful news week for the stock market: the Dow Jones Industrial Average +0.66%, the S&P 500 Index +0.61% and the Nasdaq +0.48%. However, there was one positive piece of data the reconfirmed the upward trajectory of the economy and that was economy added 559,000 jobs in May, well above April’s 278,000 (Q1 GDP remained at 6.4%). Over 60% of America’s population has now had at least one vaccination shot leading to sharp U.S. declines in Covid hospitalizations and deaths. Accordingly, it comes to no surprise that TSA screened more than 7.1 million people during the Memorial Day weekend - its highest traffic numbers since March 2020. May 29, 2021 Weekly Market Update. The Nasdaq +2.06% led the major U.S. equity indices followed by the S&P 500 Index +1.16% and the Dow Jones Industrial Average +0.94%. The markets were supported by positive decline in unemployment claims, Biden’s Infrastructure bill showing promising comprise by both parties, further home price appreciation and manufacturing showing upticks with PMI on the rise. However, Biden’s new tax regime and inflation remain to be an ongoing concern going forward for investors.
May 22, 2021 Weekly Market Update. The major U.S. equity indices, though volatile at times, finished muted and mixed on the week: Nasdaq posted a gain +0.31% while the Dow Jones Industrial Average -0.51% and the S&P 500 Index -0.43% lost ground. The S&P 500 is now just about 3% from the all-time high and remains up about 10% for the year. Equities continue to process degrees of sector rotation from high-flyer growth names to cyclicals, financials and energy; financial stocks look particularly attractive going forward with inflation, economic recovery trends and the potential of rising rates (higher rate interest on new loans). May composite purchasing managers index (PMI) came in at a whopping 68.1, handily beating the 63.7 estimates while initial jobless claims declined for the third consecutive week. May 15, 2021 Weekly Market Update. Rising inflationary signs led investors to tap the breaks with all U.S. equity markets losing ground on the week: The Nasdaq -2.34% led the major indices lower followed by the S&P 500 Index -1.39% and the Dow Jones Industrial Average -1.14%. The reality is that things are likely to get more expensive for the producer and consumer as the Producer Price Index spiked 6.2% for the 12-months ended in April, while the Consumer Price Index also rose (from 2.6% to 4.2% year-over-year, marking the largest increase since 2008). The inflation data trends are spooking the market with concerns that the economy may be heating up so much that the Fed will be forced to taper its support early, and rate hikes could be back on the table. However, business activity continues to be very much on a robust, rebound trajectory with even more new lenient CDC mask guidelines now taking hold. May 8, 2021 Weekly Market Update. The major U.S. equity markets finished mixed for the week: The Dow Jones Industrial Average +2.67% gain led all the major indices followed by the S&P 500 Index +1.23%; meanwhile the Nasdaq lost ground with -1.51% loss. On the corporate earnings front, the second quarter marked the second-highest increase in the bottom-up EPS estimate during the first month of a quarter since FactSet began tracking this metric in 2002. While the U.S. equity markets should be celebrating the potential for another massive (and unprecedented) stimulus bill of $1.8 trillion, there are strings attached in the form of potential massive tax hikes for corporations, high-earners, and on portfolios. With regards to COVID-19, one-third of the adults are now fully vaccinated while 45% of the population has had at least one shot. May 1, 2021 Weekly Market Update. The U.S. equity markets finished the week with mixed results led by the S&P 500 +0.02% followed by marginal declines by the Nasdaq (-0.39%) and the Dow Jones Industrial Average (-0.50%). FOMC kept its policy stance unchanged with rates near 0% and also maintained the $120 B in monthly QE buying. The Fed commented "the path of the economy will depend significantly on the course of the virus, including progress on vaccinations." While COVID-19 has resurged in Europe, with particularly horrible outbreak in India, the uptick in U.S. states appear to have a short fuse with J&J vaccine re-released and 43% of the population now having at least one shot. The backbone of the economy has been the consumer and this category is sanguine with almost 11% consumption growth and consumer sentiment sharply higher in April at 121.7. As to the state of the health of the U.S. companies, 86% of the S&P 500 companies have beaten EPS estimates to date for Q1, which is the highest EPS beat % since FactSet began tracking this metric in 2008. However, the market has been reluctant to bring strong rewards given forward-looking concerns over future potential corporate tax rates (and new onerous capital gain tax regimes). April 24, 2021 Weekly Market Update. The U.S. equity markets returns were slightly off on the week with the S&P 500 Index -0.13%, the Nasdaq -0.25%, and the Dow Jones Industrial Average -0.46%. Biden’s onerous 39.6% tax plan proposal on capital gains (from 20%) weighed heavily on otherwise sanguine earnings results where 94% of S&P 500 earnings have beat analysts’ expectations, setting a record high. U.S. Leading Economic Index rose +1.3% to 111.6 in March, a figure that was a little stronger than expectations. It remains uncertain whether the latest Biden tax proposal makes it to the finish line in its present form. However, taxing growth and income can unwind even the strongest of economies with the stock market being the first victim in the dominos that could potentially fall.
April 17, 2021 Weekly Market Update. The equity markets continued the upward trajectory for the week led by the S&P 500 Index +1.37%, followed by the Dow Jones Industrial +1.18% and the Nasdaq +1.09%. The March retail sales results handily beat expectations at +9.8% vs. estimates of +5.5% as restrictions eased and consumers benefited from stimulus checks. On the global front, the quarterly GDP growth of +18.3 reported by China was a positive surprise for the World’s economy. The U.S. Core Consumer Price Index (“CPI”) rose 0.3% on the month, a huge monthly jump for the index that excludes food and energy. This CPI inflationary gauge has a run rate of over 3% annually, which would probably place core inflation around 2%. However, despite the big jump, the 10-year Treasury yields remained around 1.6%. While many states seem to be experiencing spikes in new COVID-19 cases, this worry was offset by 38.5% of U.S. adults having now received at least one vaccination dose; 24.3% are now fully vaccinated. April 10, 2021 Weekly Market Update. The Nasdaq reemerged as the major indices leader with a +3.12% gain, followed by the S&P 500 +2.71% and the Dow Jones Industrial +1.95% for the week. The economy added 916,000 jobs in March, the largest gain since August 2020, marking pandemic-low unemployment rate of 6%. Meanwhile the ISM non-manufacturing Index report of 63.7% blew-out estimates of 58.5% while March ISM manufacturing Index reached a 38-year high of 64.7%. Investor sentiment towards the global economy over the next 6-months has also reached a record high according to survey data covered by Sentix. However, proposed U.S. new corporate and individual tax hikes may lead to greater uncertainty and spur future market volatility. April 3, 2021 Weekly Market Update. The S&P 500 led the major U.S. indices with +1.57% weekly return, followed by the Dow Jones Industrial +1.36% while the Nasdaq gave back -0.58%. The ongoing equity rally reflects a recovery where the term “recession” is no longer in the Wall Street vocabulary but rather “V” shape recovery; this has been spurred by unprecedented government stimulus and a very liberal Fed policy. Though the COVID-19 cases have recently spiked (5% range) in over half the U.S. states, the shift toward “business as usually” continues its incremental path toward pre-coronavirus normalcy. Indeed, over 30% of the U.S. population have now had at least one vaccination shot and some of the vaccine options appear to affective against the new variants. It should come to no surprise then that the Conference Board's consumer confidence index has now jumped to a one-year high of 109.7 from 90.4 in February. March 27, 2021 Weekly Market Update. The U.S. equity markets provided a topsy-turvy investor ride yet ended the week largely positive: The S&P 500 led the major indices +1.57% followed by the Dow Jones Industrial Average +1.36% while the Nasdaq declined -0.58%. The four pillars driving the economic engine continue to take center stage: Covid-19 vaccination trends, government stimulus (new infrastructure bill), the Federal Reserve’s policies and the economy reboot progression. Another key story was an instrumental transportation way of the Suez Canal has been blocked by a jumbo ship running ashore; this is expected to delay vital goods and commodities such as critical oil supplies.
March 20, 2021 Weekly Market Update. The decline in U.S. equity indices were led by the Nasdaq (-0.79%), followed by the S&P 500 Index (-0.77%) and the Dow Jones Industrial Average (-0.46%). The tech-heavy Nasdaq Composite has fallen in recent weeks and remains off about -7% from its all-time-high about a month ago, which is emblematic of both sector market rotation and investor concerns over inflation. Indeed, the Fed’s zero interest rate policy together with government stimulus spending could tip the inflation rates scale above the Fed’s 2.0% target. March 13, 2021 Weekly Market Update. In response to the passing of the $1.9 trillion stimulus package by Congress and more than 101.1 million vaccine doses now administered (reaching 19.9% of the total U.S. population), the U.S. equity markets rallied on the week: Dow Jones +4.07%, the Nasdaq +3.09% and the S&P 500 +2.64%. However, bonds are down on inflationary concerns and an uptick in the treasury yield curve, with the mainstream U.S. corporate bond index (symbol: AGG) -2.85% YTD. With bonds often a core asset class of most portfolios, even though equities are rallying there remains a return drag from the fixed-income components. March 5, 2021 Weekly Market Update. The U.S. equity markets were mixed with the tech-sector losing ground on continued delays and uncertainties over the stimulus package in Congress, along with Fed Chair Powell’s comments which suggested the Federal Reserve does not intend to take any action to mitigate the rising treasury bond curve yields, which disappointed investors. For the week the S&P 500 Index edged up +0.81% while the Nasdaq lost -2.06%. However, the S&P 500 is still in a cooling-off pattern and is off about -3.5% since its high of last month, which is the second pause in the market since the index’s breakout back in November of 2020. February 27, 2021 Weekly Market Update. The U.S. equity markets were disrupted on the week by inflation and interest rates as interest rates jumped mid-week on inflationary concerns, as well as signaling of the economy reheating: Nasdaq lost -4.92% followed by the S&P 500 Index -2.45% and the Dow Jones Industrial Average -1.78%.
February 19, 2021 Weekly Market Update. With winter storms damaging the transportation of goods around much of the country, and literally shutting down the largest state of Texas, the U.S. equity markets were mixed for the week with the Dow Jones Industrial Average +0.11, the S&P 500 Index -0.71% and the Nasdaq -0.57%. The markets were down until Friday then uplifted by an Israeli study which reported an 85% effectiveness after one dose of the Pfizer/BioNTech vaccine, and other reports of accelerated production in the coming weeks. To date, 83% of companies in the S&P 500 have reported fourth quarter earnings showing a +3.1% earnings growth rate, far surpassing the pre-earnings analyst estimates of an -8.8%. February 13, 2021 Weekly Market Update. All major U.S. equity indexes moved to new highs on the year on effectiveness news of coronavirus vaccines and a national drop in hospitalization (-22%). The week's positive index returns are as follows: The Nasdaq +1.73%, the S&P 500 +1.23% and the Dow Jones Industrial +1.00%. With more people back at work jobless claims dropped to 793K which is the lowest level since the first week of the year while corporate earnings continue to rebound. Together with another massive stimulus package in the works the capital markets remain sanguine. February 6, 2021 Weekly Market Update. On the heels of another massive $1.9 trillion stimulus approved by Congress the equity markets celebrated with sizable gains: Nasdaq +6.01%, S&P 500 +4.65% and Dow Jones Industrial Average +3.89%. The Plan will provide $1,600 direct payments along with unemployment extension and increase. The S&P 500 earnings season has been marked with robust financial results with 81% of companies haven beaten EPS estimates to date for Q4, which is tied for the 2nd highest EPS beat % since FactSet began tracking this metric in 2008. Amazon, Google and AbbVie were among a number of companies reporting strong results for the quarter. January 30, 2021 Weekly Market Update. There was an investor uprising against Wall Street and its “short interest” which is traced back to Reddit social media and day traders, which caused stocks like GameStop, AMC Entertainment, and Blackberry shares to rise sharply on the week. The week was marked by high volatility for the major equity indices with the S&P 500 losing -2.5% on Wednesday, then recovering +1.5% Thursday and ending down again -1.9% on Friday. In brief, the average joe trader revolt against hedge funds overshadowed otherwise fundamentally positive news developments such as favorable earnings reports, the J&J’s vaccine trial results, and other sanguine economic data. Essentially the big institutional short interest losses drove those funds to sell other holdings to cover big money losses and this event helped drive other stocks down; meanwhile names like GameStop overtook the financial news cycle for the week.
January 22, 2021 Weekly Market Update. Propelled by positive corporate earnings results all major U.S. equity indices rallied on the week with the Nasdaq hitting a new high with a +4.19%; the S&P 500 and the Dow Jones Industrial also finished higher with +1.94% and +0.59%, respectfully. Indeed, roughly 86% of S&P 500 companies have beaten earnings (EPS) estimates for Q4 to date, which is the highest earnings beat % since FactSet began tracking this metric in 2008. January 16, 2021 Weekly Market Update. The equity markets took a breather by giving back past gains with losses led by the Nasdaq -1.54% followed by the S&P 500 -1.48 and the Dow Jones -0.91%. The lofty $1.9 billion Biden Economic Rescue Package was offset with sobering economic news of higher than expected 965,000 job claims, spiking coronavirus cases engendering further business restrictions and consumer confidence edging downward to 79.2 from 80.7. However, earnings week launched with banks reporting stellar quarterly financial results. January 9, 2021: Recap & Investing Outlook Vignette Excerpt: Stock Market Forecast During this extraordinary 2020 period of negative and volatile markets, our firm’s model portfolio continually shifted from its traditional market holdings by incrementally adjusting to more cash, then when unimaginable amount of government stimulus was infused into the economy, along with an extraordinary amount of Federal Reserve asset purchases (even high yield debt), we also incrementally shifted client portfolios back into greater and greater equity exposure. The stock market enters 2021 with favorable trends: 1) vaccines should thwart the spread of Covid-19; 2) S&P 500 earnings are expected to keep rebounding; 3) the Federal Reserve has assured markets that it won't raise interest rates; and 4) the government signed a new round of fiscal stimulus into law. Indeed, there are several catalysts we already know about that has already initially push the market higher. A Covid-19 vaccine will continue to expand in the early months of 2021 to where distribution in the U.S. should be widespread and the Federal Reserve intends to keep interest rates low for the foreseeable future. Government spending should continue to spike with additional stimulus and perhaps the much-anticipated infrastructure bill. However, the unknowns include how robust the economic recovery will be, the timing of another stimulus package from Congress, and the broader impact of new regulations, including the potential for more aggressive tax regimes. In tandem with the abovementioned 2021 tailwind factors, investors should also benefit from a couple of other positive market forces. First, since there isn’t really any other viable return alternatives to stocks at the moment, with bond & other fixed-income yields nearing all-time lows, then stocks should continue to be the most alluring asset class. Second, there is a wave of retirees that must rely on financial asset returns and this establishes both foundational support and positive momentum for much of 2021. This crescendo of demand translates to more buyers than sellers, which in its simplest form, moves stocks higher. From another perspective, how many investors are looking to offload stocks before additional stimulus given there isn’t much competing return options elsewhere? This low interest rate backdrop should encourage investors to continue favoring equities relative to bonds. 2021 Portfolio Strategies: This year’s asset allocation theme will be to share in the upside of a rising stock market with diversity of asset allocations. We believe that stock market sentiment is generally favorable but also expect volatility given elevated valuations. We will continue to hold individual stocks, individual bonds, exchange traded funds (ETFs) with exposure to both these classes, along with some mutual funds that provide needed asset and strategy diversity . During the stock market extremities of last year, new investment vehicles were launched to better cope with the new market loss risk realities, such as defined outcome exchange traded funds (ETFs). The most common reason for using defined outcome investing is for the ability to invest with some measure of known downside protection. Over long periods of time, the stock market has tended to go up. But over shorter periods, stock market losses are common and unpredictable. The investing world has many risks, many which are unknowable and with the S&P 500 trading at a rich 25 forward looking price-earnings (PE) ratio compared to the historical mean is about 19 that then it is important to have safeguards in place. Therefore, we will continue to use defined outlook ETFs to track the return of the S&P 500 (up to a predetermined cap or others uncapped ETFs) while buffering investors against a range of losses over the outcome period, such as 9-15% of the initial market losses. In this investment climate where the printing machine has distorted the underpinnings of relative valuations with “funny money” the prospects of using ETFs that offer the potential for double-digit upside returns with similar downside buffers is compelling for the risk tolerances of our client base. January 1, 2021 Weekly Market Update. For the last week of the year the market retrenched on news of lower stimulus checks and uncertainty over which party will control of the Senate given the close Georgia elections: The S&P 500 -1.43%, the Dow -1.35% and the Nasdaq -0.65%. However, for the year all U.S. markets finished positive in the throws of an -30% economic contraction and if anything, this can be best summed-up by former Fed Chair Janet Yellen, “The stock market isn’t the economy.” Interestingly, over 50% of the S&P 500®’s gains for the year just came from three stocks: Apple, Amazon and Microsoft. Our 2021 outlook newsletter (clients only) is still being researched and drafted, but with government printing machine still working on overdrive we expect further gains again – at least for the first half of the year (albeit with some intermittent stock fluctuations). |
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July 2022
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