Market Insights: Last Week in Review with Rusty Vanneman, Vol. 69

After experiencing a loss last week, the US stock market is looking to rebound early this week. Both the S&P 500 and NASDAQ dropped about 1% last week, and both had their eighth losing week in nine (Marketwatch, June 2022).  The Dow Jones Industrials has now lost ground 9 out of the last 10 weeks (Marketwatch, June 2022).   

  • Asian markets are up big this morning on positive news out of China regarding COVID and regulations (Bloomberg, June 2022).

Last week, the overall US stock market had a loss of just over 1% (CNBC, June 2022). Losses were led by value stocks at over 1%, while growth stocks were about flat (CNBC, June 2022). Notable equity returns came from Chinese and emerging market stocks. Bonds were also down nearly 1%, while commodities were also flat (CNBC, June 2022).

 Interest rates also rose last week as Ten-Year Treasury yields ended the week at 2.96% (up 0.22% over the last week) (Yahoo Finance, June 2022).  This snapped the three-week winning streak of lower bond yields (Yahoo Finance, June 2022).

In turn, the average 30-year fixed mortgage rate also rose last week and is now at 5.46% as of 6/5 (up 18 basis points from last week) (Bankrate, June 2022).  This is below the recent high of 5.57% on May 13, 2022 (Bankrate, June 2022).  

Needless to say, investor sentiment improved last week after the prior week’s price gains, at least according to the weekly AAII individual investor sentiment data (June 2022).  Typically, this is a good sign for future returns when sentiment starts to emerge from extreme bearishness.

 As Bespoke Investments succinctly states: there’s reason for optimism; despite COVID, American society is getting better with lower income inequality, high checking account balances, and strong labor markets amidst a historic housing boom (June 2022).

Deeper Dive

May’s returns were mixed.  The S&P 500 had a very slight gain, but the overall market did finish with a slight loss (Morningstar, June 2022).

  • Value outperformed growth in May by over 6% (Morningstar, June 2022).
  •  Small caps slightly outperformed large caps and international slightly outperformed domestic stocks (Morningstar, June 2022).
  • Among diversifiers, commodities were up 2%, bonds were up 1%, and diversified alternatives had a slight gain again (Morningstar, June 2022).

 For the year, the big storylines remain the same:

  • The overall US stock market is down 14% (CNBC, June 2022).
  • The bond market (Aggregate Index) is down nearly 9% (Morningstar Direct, June 2022).
  •  Value has outperformed growth by over 29% year-to-date (+1% vs -28%) (Morningstar Direct, June 2022).
  •  International has outperformed the US by 3% (despite the US dollar being up 6%) (Morningstar Direct, June 2022). 
  • The energy sector is up 56% while Technology is down 22% (Morningstar Direct, June 2022).
  • Commodities are up 33% (Morningstar Direct, June 2022).

The momentum investment factor is one of the most durable in market history and academic studies.  In short, the momentum factor favors those investments that have outperformed over the last year. The largest momentum ETF is iShares’ MTUM (ETF Database, June 2022).  Last week it was rebalanced (ETF Database, June 2022).  Big increases in Energy and Health Care with a big drop in Technology exposure (ETF Database, June 2022).

Speaking of strong 1-year returns, below are the strategies on the OPS platform with the highest alphas vs the S&P 500 as of the end of April (Orion Portfolio Solutions, May 2022):

For those worried about a recession though, as the investment firm AAMA argues in their recent commentary Does It Even Matter If They Call It A Recessionthe market is less vulnerable to further shock than the beginning of the year. So, while we may not be at the bottom, investors can find solace in the fact that the market is far less overvalued today, and that the downside looks far less steep than before (The Wealth Advisor, June 2022).” 

Regarding last week’s economic data, the highlight was the “no recession in sight” non-farm payrolls (FT Portfolios, June 2022).  There were more jobs created than expected and the unemployment rate stayed at 3.6% (FT Portfolios, June 2022).

  •  Also, the national Case-Shiller housing price index increased nearly 3% in March and is up nearly 21% from a year ago, both record increases for housing prices (FT Portfolios, June 2022). 
  • The price gains in the past 12 months were led by Tampa, Phoenix, and Miami, with the lowest price gains in Minneapolis, Washington, DC, and Chicago (FT Portfolios, June 2022). 
  • In our opinion, it doesn’t look like a housing crash is near either.

Currently, the Atlanta Fed’s initial GDPNow model estimate for real (“after-inflation”) GDP growth for the second quarter of 2022 is 1.3 (down 0.6 from the week before and down 1.1 from 2 weeks ago) (The Federal Reserve Bank of Atlanta, June 2022).

There is a lot of data on this week’s economic schedule (except on Monday), with May’s Consumer Price Index (CPI) on Friday the most anticipated.

  • May Consumer Price Index for May: consensus is for a 0.7% increase in CPI, and a 0.5% increase in core CPI (Calculated Risk Finance & Economics, June 2022).

Ouch. The average gas price moved up to $4.85 (up 23 more cents from the prior week) as of 6/5/22 (AAA Gas Prices, June 2022).

More good news on the inflation/housing front. Lumber prices continue to fall and are now almost back to levels from 2 years ago (Factset, June 2022).

Additional Resources 

This week on Orion’s The Weighing Machine podcast, we wanted to present to financial advisors why they might consider doing a podcast themselves.  Robyn and I interviewed David “Ledge” Ledgerwood, who is an experienced veteran in podcasting, sales, and entrepreneurial ventures. 

The new book “Talent: How to Identify Energizers, Creatives, and Winners Around the World” remains red-hot. 

“Courage! We have been here before…Bear markets have lasted this long before. Well-managed mutual funds have gone down this much before. And shareholders in those funds and the industry survived and prospered.” Jim Fullerton, chairman of Capital Group, in a letter to his colleagues back in the mid-1970s as mentioned in the article Revisiting the Nifty Fifty (Stray Reflections, May 2022).  The Nifty Fifty bear market from the 1970s is increasingly what many are comparing the current environment to. 

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. Have a great week!   Invest well and be well. 

1033-OPS-6/14/2022
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
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 podcast and authored the book “Higher Calling: A Guide to Helping Investors Achieve Their Goals.” Rusty has also 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 in 2017. 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).