Market Insights: Last Week in Review with Rusty Vanneman, Vol. 78

Hope you had a great weekend and found some solace from the heat.

Last week, the US Total Market (Morningstar indices) gained just under 1% (Aug. 2022).

  • Growth stocks gained 2%, value stocks lost about 1% (Morningstar, Aug. 2022)
  • International stocks had a slight loss of under 1% (Morningstar, Aug. 2022)
  • The Aggregate Bond index lost about 1% (Morningstar, Aug. 2022)
  • Commodities lost about 3% (Morningstar, Aug. 2022)

YTD Performance Highlights:

  • Total US Market is down 13% (Morningstar, Aug. 2022)
  • Growth stocks are down 23%, value stocks are down 4% (Morningstar, Aug. 2022)
  • International stocks are down 16% (Morningstar, Aug. 2022)
  • Aggregate Bond index is down 9% (Morningstar, Aug. 2022)
  • Commodities are up 20% (Morningstar, Aug. 2022)

The Ten-year Treasury yields last week finished at 2.84% (up 20 basis points over the last week) (Yahoo! Finance, Aug. 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 rose last week (by 22 basis points) to 3.67% as of Aug. 5 (Blooomberg, Aug. 2022). The cycle high was on June 14 at 4.03% (Bloomberg, June 2022).

The average money market yield is now 1.88% as of Aug. 5, 2022 (Crane Data, Aug. 2022).

The average 30-year fixed mortgage rate decreased again last week (by 5 basis points); it is now at 5.52% as of Aug. 5, 2022 (Bankrate, Aug. 2022).

Notes from last week:

  • The Bank of England (BoE) rose interest rates by 50 basis points last week; their largest increase in 27 years. (CNBC, Aug. 2022)
  • The US Labor Market officially fully-replaced the22 million jobs lost at the start of the pandemic, while the unemployment rate is at 50 year lows (Wall Street Journal, Aug. 2022).

Deeper Dive 

The concept of “investor return” is likely familiar to most of us (what are the returns the end investor receives, not the return of an index, stock, or mutual fund, etc.) Morningstar published their “Mind the Gap” study in July (referencing the behavior gap), and their results show a 1.7% lower return for investors than the average mutual fund or ETF against benchmark (Morningstar, July 2022).

Check out the chart on Schwab Asset Management’s site – while the Fed increasing interest rates may slow economic growth, fixed income yields are on the rise (July 2022).

The results are in from this month’s OPS Strategist Survey on Aug. 5! Below are the results of a basic survey of six asset classes.

OPS Strategist Survey 8/5/22 US Stocks Non-US Stocks US Investment Grade Bonds US High Yield Bonds Absolute Return Alts Commodities
Bullish 43% 21% 21% 50% 57% 50%
Neutral 36% 50% 57% 29% 36% 21%
Bearish 21% 29% 21% 21% 7% 29%

Source: Orion Portfolio Solutions, Aug. 2022

Last week’s economic numbers included:

  • Total nonfarm payroll employment rose by 528,000 in July – this beat the consensus estimate of about 258,000 jobs added (CNBC, Aug. 2022). While this is a positive for the economy, it may say otherwise for the Fed’s handle on inflation.

The Atlanta Fed’s GDPNow ‘s estimate for real (“after-inflation”) GDP growth (which uses actual economic data for inputs) decreased last week (GDPNow, Aug. 2022). The third quarter 2022 GDP estimate is now at 1.4% as of Aug. 4, 2022, down from 2.1% as of July 29, 2022 (GDPNow, Aug. 2022).

This week economic schedule:

  • Wednesday, August 10– Consumer Price Index (CPI); consensus estimates are for year-over-year inflation to be down to 8.8% in July, down from 9.1% in June (Calculated Risk, Aug. 2022).
  • Thursday, August 11– Producer Price Index (PPI); consensus estimates are for a 0.3% increase in PPI from June (Calculated Risk, Aug. 2022).

It has now been eight straight weeks of price drops for the average gas price (AAA, Aug. 2022). It moved down to $4.07 (down another 25 cents from the prior week) (AAA, Aug. 2022). The high was $5.01 on 6/24/22 (AAA, June 2022).

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

  • 22Q2 Y/Y earnings are expected to be 9.2% (Refinitiv, Aug. 2022). Excluding the energy sector, the Y/Y earnings estimate is -1.5% (Refinitiv, Aug. 2022).
  • Of the 432 companies in the S&P 500 that have reported earnings to date for 22Q2, 77.5% have reported earnings above analyst estimates (Refinitiv, Aug. 2022). This compares to a long-term average of 66.1% and prior four quarter average of 80.6% (Refinitiv, Aug. 2022).
  • During the week of Aug. 8, 23 S&P 500 companies are expected to report quarterly earnings (Refinitiv, Aug. 2022).

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

  • Cryptocurrency prices cooled off a bit last week. Bitcoin fell 3% to around $23,000. Ethereum fared a little better, down -1.6% to near $1,700 (Decrypt, Aug. 2022). Solana dropped 10% (more on that shortly), while Avalanche popped 11% (Decrypt, Aug. 2022).
  • Despite muted price movements, there is lots to talk about. Blackrock announced a crypto trading partnership with Coinbase Prime (Coin Market Cap, Aug. 2022). Coinbase stock rose 48% on the week and is up nearly 100% this quarter (Coin Market Cap, Aug. 2022). Bitcoin-loving CEO of Microstrategy, Michael Saylor, is stepping down from his CEO role (Coin Market Cap, Aug. 2022). Blockchain ‘bridge’ Nomad was hacked for nearly $200m as were thousands of Solana wallets (Coin Market Cap, Aug. 2022).
  • Charles Schwab (a firm notoriously conservative with their ETF launches and products), launched the Schwab Crypto Thematic ETF (STCE) this week (RIA Biz, Aug. 2022). At 0.30%, the fund is currently the least expensive in the US digital asset ETF universe (RIA Biz, Aug. 2022).

Additional Resources  

“Don’t confuse things that are hard with things that are valuable. Many things in life are hard. Just because you are giving a great effort does not mean you are working toward a great result. Make sure the mountain is worth climbing” – James Clear (GoodReads, Aug. 2022).

Last week’s Orion’s The Weighing Machine podcast with AQR’s Dan Villalon was loaded with talking points about diversification and what to expect in terms of market returns moving forward. This week’s upcoming podcast is with portfolio manager Thom Forsha from River Road Capital Management. River Road is one of the premier value investing investment firms in the country and it was definitely interesting to get Thom’s take on the market environment, what to expect moving forward, and why River Road’s value investing approach is different than most other value managers.

I saw an awesome picture this week of a lake shore in Minnesota. This time of year, when it’s often so blasted hot, it is awesome to be next to a lake.

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. 

 

1416-OPS-8/8/2022

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, 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).