Market Insights: Last Week in Review with Rusty Vanneman, Vol. 65

Investment Strategy | May 10, 2022

BY Rusty Vanneman, CFA, CMT, BFA

Stock prices are down again, and we can expect another volatile week in the markets following last week’s turbulence (Morningstar Direct, May 2022). Bond yields are also continuing to rise (Morningstar Direct, May 2022).

Last week was another down week for the stock market (Morningstar Direct, May 2022). US stocks were down less than 1% (Morningstar Direct, May 2022). International stocks were down over 3% (Morningstar Direct, May 2022). Bonds lost just over 1% (Morningstar Direct, May 2022). Keeping returns afloat, yet again, were value stocks with a gain of just under 2% (Morningstar Direct, May 2022). Other positive returns came from commodities and diversified alternatives (Morningstar Direct, May 2022).

Year-to-date, the US market is now down over 14% (Yahoo Finance, May 2022). Losses have been led by growth stocks that are down nearly 28% year-to-date, while value stocks have been about flat (Yahoo Finance, May 2022).

Early last week, the 10-year Treasury yield breached 3% for the first time since 2018 (CNBC, May 2022). As of this writing, the yield on the 10-year Treasury is about 3.1% (CNBC, May 2022).

The weekly AAII Sentiment Survey rose slightly last week (May 2022). At around 53% bearish sentiment, we are sitting well above the historical average of about 31% (AAII Sentiment Survey, May 2022). That being said, there is a contrarian argument to be made that bearish sentiment from the masses is an opportunity for others.

Deeper Dive

There was a lot of notable economic data last week. Most notably, the Fed rose interest rates by 50 bps last Wednesday (CNBC, May 2022). This was the highest single increase since May 2000 (CNBC, May 2022). Markets responded positively to the news Wednesday but gave back much of those positive returns the following day (CNBC, May 2022).

The bond market is now expecting 250 basis points of increases by Dec. 2022 (CNBC, May 2022).

Although the starting point for Fed tightening is one of the easiest in 30 years, the speed of the tightening is the fastest we’ve seen in the last 30 years (CNBC, May 2022). While some believe that a recession will have to occur for inflation to regulate down below 3%, other economic indicators are still giving us optimism about the strength of the economy, including earnings growth and the labor market (CNBC, May 2022).

The Atlanta Fed ‘s initial GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) for the second quarter of 2022 is 1.9% on April 29 (The Federal Reserve Bank of Atlanta, May 2022).

The corporate earnings season, at least to the weekly FactSet report, is mostly good news (May 2022).

Overall, 87% of the companies in the S&P 500 have reported actual results for Q1 2022 to date (FactSet, May 2022).
Of these companies, 79% have reported actual earnings per share (EPS) above estimates, which is above the five-year average of 77% (FactSet, May 2022).
While the percentage of companies beating EPS estimates is above the five-year average, the magnitude of these “beats” is below the five-year average (FactSet, May 2022).
The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the first quarter is 9.1% today, compared to an earnings growth rate of 7.0% last week and an earnings growth rate of 4.6% at the end of the first quarter (March 31) (FactSet, May 2022).

Inflation is the big number to watch on this week’s economic schedule:

Consumer Price Index on Wednesday – analyst consensus is we will see an increase of 8.1% year-over-year, down slightly from last month’s reading of 8.5% (Calculated Risk Finance & Economics, May 2022).
The Fed’s favorite inflation indicator, the Producer Price Index (PPI), will be released Friday. The consensus is for a 0.5% increase in PPI (Calculated Risk Finance & Economics, May 2022).

Here’s an interesting note on US equity asset flows – Mutual funds have had 12 straight months of net outflows as of 3/31, while US Equity ETFs have had only one month of net outflows over the same period (January 2022) (Morningstar Direct, May 2022).

Crypto Corner – Grant Engelbart, CFA, CAIA, Brinker Capital Sr. Portfolio Manager

It was a volatile week for almost all asset classes, and cryptocurrencies were no exception (CNBC, May 2022). Bitcoin fell -10%, Ethereum -9%, Solana -14%, Terra Luna -17%, and Cardano -3% (CNBC, May 2022). Bitcoin was below $35,000 on Sunday afternoon, near year-to-date lows (CNBC, May 2022).
Digital asset news was somewhat light last week, overshadowed by the Federal Reserve raising interest rates. The world’s largest cryptocurrency exchange, Binance, is providing $500 million to help back Elon Musk’s Twitter takeover (CNBC, May 2022). FIFA and Sony announced partnerships with various blockchain platforms (Algorand and Theta respectively) (The Washington Post, May 2022). Luxury goods company Gucci will allow customers to pay in crypto later this year (Reuters, May 2022). CBOE closed on their acquisition of crypto exchange ErisX, a move seen to potentially get in the race for a spot Bitcoin ETF in the U.S (ETF.com, May 2022).
Outside of Van Eck launching Crypto ETNs in Europe, ETF news was also light (Vaneck, May 2022).

Additional Resources

Last week’s Orion’s The Weighing Machine podcast with “The Inflation Guy” (@inflation_guy) Mike Ashton from Enduring Investments was a hit. This coming week is Bob Baker, the President and co-founder of AAMA. Bob and AAMA have been long-time strategic partners (in fact, among the longest) on the OPS (and FTJ) platforms. Listening to Bob, it’s easy to tell why Bob is so likable and a trusted steady hand in turbulent times.

Speaking of podcasts, how about Meb Faber on Dr. Daniel Crosby’s Standard Deviations podcast. They are both fun to listen to, have big fan clubs (for good reasons), and are always teaching advisors/investors something about the markets and making investment decisions.

Thanks for reading and have a great week! As always, please let us know what we can do better at rusty@orion.com or ben.vaske@orion.com. Invest well and be well.

0819-OPS-5/11/2022
The CFA is a globally respected, graduate-level investment credential established in 1962 and awarded by CFA Institute — the largest global association of investment professionals. To learn more about the CFA charter, visit www.cfainstitute.org.

The CMT Program demonstrates mastery of a core body of knowledge of investment risk in portfolio management. The Chartered Market Technician® (CMT) designation marks the highest education within the discipline and is the preeminent designation for practitioners of technical analysis worldwide. To learn more about the CMT, visit https://cmtassociation.org/.

About Rusty Vanneman, CFA, CMT, BFA

Rusty Vanneman serves as the Chief Investment Officer for Orion Advisor Solutions. An industry veteran with more than 30 years of investment experience, Rusty creates relevant market- and platform-related content that supports deeper, more engaging conversations with advisors and investors, educating key internal and external audiences on Orion Portfolio Solutions’ strategies and resources to help deliver favorable investor outcomes, and helps identify new investment offerings to meet growing marketplace demand. Rusty is a host of Orion’s The Weighing Machine weekly podcast, Orion’s monthly Weighing the Risk podcast, and authored the book “Higher Calling: A Guide to Helping Investors Achieve Their Goals.” Rusty has managed multiple mutual funds and hedge funds during his career and was named one of the Top 10 Portfolio Managers to Watch by Money Management Executive.* Prior to Orion’s acquisition of Brinker Capital in 2020, Rusty was the Chief Investment Officer for Orion Advisor Solutions and prior to that was the President and Chief Investment Officer of CLS Investments. Before joining Orion in 2012, Rusty served as the Chief Investment Officer and Managing Director for a multi-billion-dollar registered investment advisor (Kobren Insight Management) in the greater Boston area. His 11-year tenure at the RIA included a five-year span when the firm was owned by E*TRADE Financial where he also served as the Senior Market Strategist for E*TRADE Capital. Prior, Rusty was a Senior Analyst at Fidelity Management and Research (FMR Co) in Boston. Additional work experience includes Thomson Reuters, General Electric, and as a cattle ranch hand in the Nebraska Sand Hills. Rusty received his Bachelor of Science in Management from Babson College in Wellesley, Massachusetts, where he graduated with high distinction. He holds the Chartered Financial Analyst (CFA®) designation and is a member of the CFA Institute. He is also a Chartered Market Technician® (CMT) and is a member of the Market Technician’s Association (MTA). He is also a Behavioral Financial Advisor (BFA). *RUSTY VANNEMAN MONEY MANAGEMENT EXECUTIVE AWARD. Rusty Vanneman, CFA, CMT, was selected as a “Top 10 Fund Managers to Watch” in 2017 by Money Management Executive. Money Management Executive is an unbiased, third-party publication covering the asset management industry. Money Management Executive chose the list of managers to watch by screening Morningstar data from funds with a single manager, ranked as having the best three-year annualized returns in their respective categories. The list of managers was published March 27, 2017. Money Management Executive is not affiliated with OPS. Ratings and awards may not be representative of any one client’s experience and are not indicative of OPS’s future performance.

Market Insights: Last Week in Review with Rusty Vanneman, Vol. 65

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