Market Insights: Last Week in Review with Rusty Vanneman, Vol. 83

Hope you had a great weekend filled with fall weather and the start of NFL football!

Also, congratulations to the many from our Orion team who received awards at The Wealthies last week certainly an exciting event for the company this year!

Last week was broadly positive for the markets. The US market increased by nearly 4%, led by growth stocks at +5%; Bonds were the big loser for the week, dropping nearly 1% (Morningstar, Sept. 2022).

It’s been a good quarter so far: The US market has gained over 8%, again led by growth stocks at +11%; Bonds have again struggled, losing just over 1%, while commodities have gained just over 1% (Morningstar, Sept. 2022).

Bottom line: Despite some third-quarter strength, it’s been a tough year across the board. The US market is still down nearly 15% YTD, Bonds are down nearly 12%, and commodities, one of the only bright spots for the year, have a gain of about 21% (Morningstar, Sept. 2022).

Deeper Dive

Ten-year Treasury yields last week finished at 3.32% (up another 13 basis points over the last week) the range last week was from 3.21% to 3.35% (Morningstar, Sept. 2022).

The average 30-year fixed mortgage rate increased to 6.08% (up 13 basis points) last week (Bankrate, Sept. 2022). This represents the highest rates since 2008, or a 14-year high, however, these rates are still relatively low by historical standards (Wall Street Journal, Sept. 2022).

Bespoke Investments looked at every bear market over Queen Elizabeth II’s reign as the Queen of England. Despite these bear markets, the S&P 500 gained over 16,000% cumulatively, or 7.6% per year before dividends, and the annualized figure is over 10% with dividends included (Bespoke, Sept. 2022).

According to the AAII Investor Sentiment Survey for the week of Sept. 5, 2022, investor’s bullish sentiment hit its lowest level since early April 2022 at only 18% of investors being bullish on the economy, while bearish sentiment also hit its highest level since mid-June 2022. While this may read as a negative sign to most, investor sentiment can often serve as a contrarian indicator for future returns (*queue Warren Buffett’s quote on investor greed*).

Domestic economic data last week was relatively calm. However, the European Central Bank (ECB) rose its key rate by 75 basis points, its largest increase since the early days of the European currency union, to further battle the effects of increased inflation (Wall Street Journal, Sept. 2022).

This week’s economic calendar from Calculated Risk is jam packed:

  • Tuesday, September 13: CPI and Core CPI; consensus is for a 0.1% decrease in CPI and a 0.3% increase in Core CPI (Calculated Risk, Sept. 2022)
  • Wednesday, September 14: Producer Price Index (aka PPI, aka one of the Fed’s favorite inflation indicators) (Calculated Risk, Sept. 2022)
  • Thursday, September 15: Retail sales for August
  • Friday, September 16: University of Michigan consumer sentiment results

The Atlanta Fed’s GDPNow‘s estimate for real (“after-inflation”) GDP growth (which uses actual economic data for inputs) decreased last week by over a full percent. The third-quarter 2022 GDP estimate is now at +1.3% as of Sept. 9, 2022 (GDPNow).

Regarding second-quarter corporate earnings, we only have a few companies left to report. Here’s the summary according to I/B/E/S  data from Refinitiv as of Sept. 9, 2022:

  • 22Q2 Y/Y earnings are expected to be 8.5%; excluding the energy sector, the Y/Y earnings estimate is -2.1% (Refinitiv, Sept. 2022).
  • Of the 498 companies in the S&P 500 that have reported earnings to date for 22Q2, 77.5% have reported earnings above analyst estimates; this compares to a long-term average of 66.1% and prior four-quarter average of 80.6% (Refinitiv, Sept. 2022).
  • During the week of Sept. 12, two S&P 500 companies are expected to report quarterly earnings (Refinitiv, Sept. 2022).

 

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

  • Cryptocurrency prices rebounded last week. Bitcoin rose nearly 9% to $21,500, and Ethereum jumped 12.6% to just under $1,800; Ethereum Classic, Solana, and Avalanche added 19%, 12% and 8% respectively (CoinMarketCap, Sept. 2022).
  • All eyes this week are on the Ethereum merge scheduled for Wednesday. The final network test was successfully deployed over the weekend; several wallets and exchanges will be pausing Ethereum transactions during and around the merge, prepare accordingly (Arcane Research, Sept. 2022). The White House is calling for standards to minimize crypto mining’s environmental impact; SEC Chair Gary Gensler spoke out in support of the CFTC regulating Bitcoin (Decrypt, Sept. 2022). A chart from the September Eaglebrook monthly webinar – showing a specific way of valuing Bitcoin ­– is hovering around levels last seen during 2019 and 2020 lows.
  • There was a new ETF launch in the space this week, kind of. Defiance ETFs launched an inverse/short version (IBIT) of the largest equity ETF in the Blockchain/crypto space, Amplify Transformational Data Sharing (BLOK) (EFT.com, Sept. 2022). Hopefully it marks a bottom!

Additional Resources

A quote from my favorite weekly newsletter from James Clear: “Each day is a small lifetime. Live a good life today.” (Goodreads, Sept. 2022)

Last week’s Orion’s The Weighing Machine podcast was with Portfolio Manager Mike Petro from Putnam Investments, talking small cap value. Did you know (using Morningstar indices) that small cap value has outperformed large cap growth over the last three years? Can this continue? Check out Mike’s interview. As for this week’s podcast, it’s a super solid one. It’s with Blackrock’s Michael Gates who manages their ETF model portfolios. Michael certainly had some intriguing thoughts on direct indexing. Michael is not only an experienced and successful portfolio manager, but also a painter. A modern Renaissance Man! Thanks for listening!

For financial advisors to get this commentary delivered straight to your inbox, please subscribe at orionportfoliosolutions.com/monday-morning-bullets.

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.

 

1668-OPS-9/13/2022

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).