Market Insights: Last Week in Review with Rusty Vanneman, Vol. 67

Investment Strategy | May 26, 2022

BY Rusty Vanneman, CFA, CMT, BFA

The markets are starting the week with early gains (NASDAQ, May 2022). Let’s see if the stock market can snap some losing streaks this week.

Last week was another difficult week, with the Dow Jones Industrials Index down for the 8th week in a row, its longest losing streak since 1932 (CNBC, May 2022).

The S&P 500 meanwhile, lost ground for the 7th straight week (Yahoo Finance, May 2022). Its worst streak since 2001 (Yahoo Finance, May 2022).
The S&P 500 did hit bear market status on an intra-day basis Friday (as defined by a loss of 20% from the prior cycle highs), though the market was able to have a decent close finishing the week (CNBC, May 2022).
The NASDAQ lost for the 7th week in a row, its worst stretch since November 2020 (CNBC, May 2022).

Despite the losses, there are some bright spots in recent market action. Longer-term interest rates have moved lower for two weeks now, the safe-haven US dollar is also well off its highs, and commodities have not broken to new highs for a while (CNBC, May 2022).

Ten-year Treasury yields ended the week at 2.79% (down 0.15% over the last week and down 0.33% over the last two weeks) (Yahoo Finance, May 2022). The high yield last week was 3.01% (Yahoo Finance, May 2022).

Last week, despite mid-week strength, the US market lost nearly 3% (CNBC, May 2022). Losses were once again led by growth stocks, with a near 4% loss, while value stocks lost around 2% (CNBC, May 2022). International stocks and commodities outperformed (CNBC, May 2022). The aggregate bond index was positive, yet with a less than 1% gain (CNBC, May 2022).

Deeper Dive

For the year, the US market is now down nearly 19% with growth stocks down nearly 33%, and despite outperformance earlier in the year, value stocks are now down nearly 4% (CNBC, May 2022). Bonds are still down over 9% year-to-date, while energy stocks and commodities are still holding some of the only positive return figures for the year (CNBC, May 2022).

Ten-year returns are still strong. The US market is averaging nearly 14% per year, led by large caps and growth stocks, while commodities are now essentially flat over the same period (CNBC, May 2022). US bonds have returned nearly 2% per year over the same time (CNBC, May 2022).

Here are a few bear market stats, according to Bank of America (May 2022):

There have been 19 US equity bear markets over the past 140 years
The average price decline is 37%
The average duration is 289 days
If repeated, today’s bear would end on Oct. 19, 2022, with the S&P 500 at 3000

According to Bespoke Investments, once the market hits bear market status forward returns tend to be better than average, especially over the following year, and in more than half of the 19 bear markets, the low was within two months of the 20% threshold being reached (Bespoke Investments, May 2022).

Another number decreasing lately is the average mortgage rate. The average 30-year fixed mortgage rate is now at 5.48% (Bankrate, May 2022).

However, one price that is increasing is the average gas price, which was $4.59 as of May 22, 2022 (AAA Gas Prices).

According to the latest Bank of America Global Fund Manager Survey, the average cash balances among money managers are at about 6%, which is near the highest cash levels in 20 years (May 2022).

Sentiment may still be poor among both individual and professional investors, but US ETF flows took in nearly +$21bn of net inflows in the week ending May 19, its largest week of net inflows in 11 weeks and second-largest year-to-date (NASDAQ, May 2022). Is this another sign that the tide is turning?

Last week’s economic data highlights, included April Retail Sales up 8% year-over-year and existing home sales for April (FT Portfolios, May 2022):

Existing home sales are down 5.9% versus a year ago (FT Portfolios, May 2022).
The median price of an existing home rose to $391,200 in April (not seasonally adjusted) and is up 15% versus a year ago (FT Portfolios, May 2022). Average prices are up 9% versus last year (FT Portfolios, May 2022).
Assuming a 20% down payment, the rise in mortgage rates and home prices since December amount to a 42% increase in monthly payments on a new 30-year mortgage for the median existing-home (FT Portfolios, May 2022).
It should be noted that buyer urgency remains so high in April that 88% of existing homes sold were on the market for less than a month (FT Portfolios, May 2022).

There is a lot of economic data on this week’s economic schedule, including Thursday’s second estimate of Gross Domestic Product, for the first quarter of 2022. The consensus is that real GDP decreased 1.3% annualized in Q1, up from the advance estimate of -1.4% (Calculated Risk Finance & Economics, 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 2.4 (up 0.6 from the week before) (Federal Reserve Bank of Atlanta, May 2022).

It’s mostly good news for corporate earnings, according to the weekly FactSet earnings report.

To date, 95% of the companies in the S&P 500 have reported earnings for the first quarter (FactSet, May 2022).
Of these companies, 77% have reported actual earnings per share (EPS) above the mean EPS estimate, which is equal to the five-year average of 77% (FactSet, May 2022).
In aggregate, earnings have exceeded estimates by 4.7%, which is below the five-year average of 8.9% (FactSet, May 2022).

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

Cryptocurrency prices mostly fell last week, with Bitcoin falling around 3% despite a late weekend rally (CNBC, May 2022). Prices hovered around $30,000 per Bitcoin (CNBC, May 2022). Ethereum fell 5% to teeter on the $2,000 level (CNBC, May 2022). Many other coins fared worse, falling near double digits (CNBC, May 2022). Tron (TRX) was the big winner of the week, up nearly 9% (Yahoo Finance, May 2022).
Digital asset news was (thankfully) lighter last week as the market continues to digest the Terra/Luna implosion. Cryptocurrency and NFT exchange FTX announced commission-free US stock trading (CNBC, May 2022). New research shows that China has re-emerged as the second-largest Bitcoin mining hub in the world behind the US, almost a year after the government banned Bitcoin mining in the country (CNBC, May 2022).
There were no new digital asset ETF launches last week.

Additional Resources

This week on Orion’s The Weighing Machine podcast is Polen Capital’s portfolio manager Rayna Lesser Hannaway. Polen has one of the strongest long-term performance records and Rayna walks through the Polen philosophy and what Polen’s thoughts are on today’s current market environment, including growth stocks. We also debate where the US Navy began.

Orion is having a Summer of CE events with three webinars, one in June, July, and August, each qualifying for 1 hour of CE toward the CFP designation. Orion’s Chief Behavioral Officer, Dr. Daniel Crosby, will explore the underlying psychology affecting decision-making and the ability to foster stronger relationships in the financial space. The three webinars:

Behavioral Alpha: An Advisor’s Greatest Value
The Science of Influence
Leadership Begins with you

“The essence of investment management is the management of risks, not the management of returns.” Benjamin Graham (father of value investing)

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.

0922-OPS-5/25/2022
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 Strategist 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. 67

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