Market Insights: Last Week in Review with Rusty Vanneman, Vol. 77

Welcome to August. Only five weeks left until Labor Day.

Last week, the US Total US Market (Morningstar indices) gained over 4%, capping off the overall market’s best month since 2020 (Morningstar, July 2022).

YTD Performance Highlights:

  • US Market is down 14% (Morningstar, July 2022)
  • Growth stocks are down 25%, Value stocks are down 3% (Morningstar, July 2022)
  • International Stocks are down 15% (Morningstar, July 2022)
  • Bonds are down 8% (Morningstar, July 2022)
  • Commodities are up 23% (Morningstar, July 2022)

Notes from last week:

  • The Fed, as expected, raised rates by 75 basis points last Wednesday, but markets took off on Fed Chairman Powell’s hawkish tone. He said that he does not believe the US economy entered a recession. “I do not think the US is currently in a recession and the reason is, there are too many areas of the economy that are performing too well.” (CNBC, July 2022)
  • Despite weakness from growth-oriented tech stocks,Amazon and Apple both definitively beat earnings expectations on their reports from last week (CNBC, July 2022).
  • Meta Platforms (Facebook) missed on second-quarter revenue and reported its first-ever revenue drop in history (CNBC, July 2022).

The Ten-year Treasury yields last week finished at 2.64% (down another 0.14% over the last week) (Yahoo! Finance, July 2022). Recall the high was 3.48% on June 14 (Yahoo! Finance, June 2022).

The yield to maturity on the Bloomberg Aggregate Bond Index also dropped last week (by 13 basis points) to 3.45% as of July 29 (Bloomberg, July 2022). The cycle high was on June 14 at 4.03% (Bloomberg, June 2022).

The average money market yield is now 1.43% (up 11 basis points from the prior week) as of July 30 (Crane Data, July 2022).

The average 30-year fixed mortgage rate came down last week and it is now at 5.67% as of July 29 (Bankrate, July 2022).

Deeper Dive 

Over the last year (through June 30, 2022), here are the highest Alpha* numbers (vs S&P) on the Orion Portfolio Solutions (OPS) platform:

Alpha – 1 Year

1 PIMCO Commodity Real Ret Strat Instl 24.54
2 AQR Long/Short Equity Strategy 21.62
3 AQR Managed Futures Strategy 20.78
4 Crawford Dividend Yield SMA 11.27
5 Abbey Capital Futures Strategy 11.19
6 Brinker Direct Indexing U.S. Low Volatility Factor SMA 10.90
7 Brinker Capital Real Assets – ETF 10.01
8 Brinker Direct Indexing U.S. REIT Thematic SMA 8.90
9 Chilton Capital REIT Strategy 6.23
10 Genter Dividend Income SMA 6.08

*Alpha, also called the risk-adjusted return, is the difference between an asset’s expected return and its actual return.

Polen’s second-quarter portfolio reports are out. One choice quip: “If we remain in a more difficult economic environment, we expect to see the resilience of revenue and earnings growth rise in importance in a more growth-challenged world.” (Polen Capital, July 2022)

Last week’s economic numbers included:

  • PCE increase in “Inflation figure that the Fed follows closely hits highest level since January 1982” (CNBC, July,29, 2022)
  • 2nd Quarter GDP (Initial) report (First Trust, July 28, 2022)

The Atlanta Fed’s GDPNow‘s estimate for real (“after-inflation”) GDP growth (which uses actual economic data for inputs) is now providing estimates for third-quarter 2022 and, for now, they are positive (GDPNow, July 2022). They are now estimating third-quarter 2022 GDP to be at +2.1% as of July 29, 2022 (GDPNow, July 2022).

This week’s economic schedule includes the Employment Report for July. The consensus estimate is for 250,000 jobs to have been added, and for unemployment to remain unchanged at 3.6% (Calculated Risk, July 2022).

It has now been seven straight weeks of price drops for the average gas price (AAA, July 2022). It moved down to $4.22 (down another 18 cents from the prior week). The high was $5.01 on June 24 (AAA, June 2022).

As for earnings, second-quarter earnings according to I/B/E/S data from Refinitiv:

  • Second-quarter 2022 Y/Y earnings are expected to be 6.2% (Refinitiv, July 2022). Excluding the energy sector, the Y/Y earnings estimate is -3.2% (Refinitiv, July 2022).
  • Of the 106 companies in the S&P 500 that have reported earnings to date for second-quarter 2022, 75.5% have reported earnings above analyst estimates (Refinitiv, July 2022). This compares to a long-term average of 66.1% and prior four-quarter average of 80.6% (Refinitiv, July 2022).
  • During the week of July 25, 172 S&P 500 companies are expected to report quarterly earnings (Refinitiv, July 2022).

A great read from investment legend Howard Marks at Oaktree Capital Management, “I Beg To Differ”, came out last week (July 2022). There are some choice quotes (many in the article) that could pertain to conversations in the current market environment.

Have you seen the work from Tyler Grimm and Dr. Daniel Crosby regarding Practice Management at Orion.com/Practice-Management? In short, wow.

In the soon to be updated OPS Quarterly Reference Guide, look out for a new slide on how often stocks beat bonds. It should certainly be interesting perspective after this stretch of bonds and stocks moving down together.

Bitwise 30-minute video on Crypto 101: Bitcoin, Blockchain and Crypto (Bitwise Investments, July 2022).

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

  • Another positive week for cryptocurrencies, capping off a strong month (Arcane Research, July 2022). Despite trading below the weekend highs by Sunday afternoon, Bitcoin rose 5% on the week to near $24,000, likely closing higher by 22% on the month (Arcane Research, July 2022). Ethereum fared even better, up more than 7% on the week and nearly 60% on the month to hover between $1,700-$1,800 (Arcane Research, July 2022). Solana, Polkadot, and Polygon had strong weeks, +8%, +23%, and +10% respectively (Arcane Research, July 2022). Of the top 15 coins, Polygon had the best month, more than doubling in price (+103%) (Arcane Research, July 2022).
  • Add CoinFLEX and Zipmex to the list of crypto companies in dire straits (Decrypt, July 2022). FTX continues to make news, as it launched US stock trading and is also reportedly interested in Korean exchange Bithumb (Decrypt, July 2022). A bipartisan bill was introduced last week that would exempt crypto trades of less than $50 or netting less than $50 from taxes (Decrypt, July 2022). The much-anticipated Ethereum merge is now expected to happen on September 19, 2022 (Decrypt, July 2022).
  • Crypto ETF launches continue to be light (CoinMarketCap, July 2022).

Additional Resources  

The cautious seldom err or write great poetry.” Sir John Templeton (Goodreads, 2022). From fortune cookie circa 1980 eaten by Howard Marks at Oaktree Capital Management, in “I Beg To Differ”, from last week (July 2022).

Last week’s Orion’s The Weighing Machine podcast with Matt Werner from Chilton Capital Management went over why REITs make sense for investment portfolios. This week’s podcast is with Dan Villalon from AQR. In short, this was a great podcast, especially if you like globally diversified portfolios! AQR is a highly regarded quantitative investment manager with portfolios that have been thriving in this market environment, especially their alternative strategies. We cover a lot of important ground in this interview. Dan’s a high-energy, positive guy who I hope to have on more podcasts in the future.

How about a peek inside the Orion Nebula? Rusty’s son shared a cool website from NASA. It’s loaded with awesome pictures (Nasa.gov, July 2022).

Jack Raines on Young Money on “The Truth about Work-Life Balance” (July 2022).

Morgan Housel from Collaborative Fund Management: “The Optimal Amount of Hassle” from May 2021. In short, the point of this article is: “If you recognize that BS is ubiquitous, then the question is not ‘How can I avoid all of it?’ but, ‘What is the optimal amount to put up with so I can still function in a messy and imperfect world?’ If your tolerance is zero – if you are allergic to differences in opinion, personal incentives, emotions, inefficiencies, miscommunication and such – your odds of succeeding in anything that requires other people rounds to zero. You can’t function in the world.”

Another rite of summer: farmer’s markets. From the “Reasons To Be Cheerful” website on The Spectacular Comeback of the American Farmers Market (July 2022).

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. 

 

1379-OPS-8/3/2022

Orion Portfolio Solutions, LLC, a registered investment advisor, is an affiliated company of Brinker Capital Investments, LLC, a registered investment advisor, through their parent company, Orion Advisor Solutions, Inc.

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
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).