Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 27

Happy Monday! I hope you stayed dry this past weekend. It was a wild weekend of weather in Omaha, including some wind speeds approaching 100 mph. It hurts to see trees come down, like many did in my neighborhood.

Outside of the weather, the weekend ended on a note of excitement with the first retail-oriented space launch by Richard Branson. And what a sports weekend. Italy beat England in the Euro in a shootout. The Milwaukee Bucks hosted an NBA Championship game for the first time since 1974. Jim Furyk winning the U.S. Senior Open in Omaha. He’s the 8th golfer to win both the U.S. Open and U.S. Senior Open during his career. And though this was an exhibition, I would say this is the biggest shocker of all: Despite 25 to 1 odds, Nigeria beats NBA-laden USA basketball team.

In an opposite of a shocker, the U.S. stock market keeps grinding higher. Although the overall U.S. market saw a few negative days last week and low summer trading volumes, the index ended the week with a small gain. The month and quarter are off to positive starts. Last week’s gains were driven primarily by real estate, though growth stocks still lead for the month. Small caps are lagging. One reason for the outperformance of growth stocks over more cyclical fare last week was renewed concerns over COVID. Here’s an interactive link to the latest COVID-19 data.

Inflation remains a hot topic, and on this point, minutes were released from the Federal Open Market Committee’s (FOMC) meeting last month. The minutes expressed the committee’s reiteration that its inflation target is just over 2%, but that it’s an average over time. We get more Fed talk this week. The Fed and investors will also get plenty of inflation data this week. The economic calendar includes Consumer Price Index (CPI) and Core CPI on Tuesday and Producer Price Index (PPI) on Wednesday.

Earnings season also begins in earnest. This week we will get multiple earnings reports from the Financial sector.

Despite the aforementioned inflation concerns, the 10-year treasury yields hit their lowest level since February last week. Yields are opening the week at 1.36%, after hitting a low yield of 1.27% last week.

While the direction of 10-year yields has not been able to impact the overall level of stock prices – the stock market has been going up whether or not yields or falling or rising — the direction of yields has been impacting relative performance. In short, when yields are rising, the “re-opening trade” has been working as more cyclical fare has been outperforming. When yields are falling, the more stable high-growth stocks have been outperforming. Given the potential tide shift in market leadership from the imminent peak growth of the economy, the best course for investors is to stay diversified.

The key to build wealth is to invest, of course, and that’s exactly what investors are doing. According to Goldman Sachs, there were record inflows into Global Equity Funds over the first 6 months of this year. Also according to Goldman Sachs, US ETFs saw +$466B of net inflows in the first half of the year which officially surpasses the second-highest yearly net inflow on record (2017 = $464B) and closes in on last year’s largest YEARLY net inflow on record (2020 = $480B). ETF demand is on fire!

One more flows tidbit from Goldman Sachs. Real estate led flows last month and commodities have also picked up notable allocations. If advisors want real assets like commodities/real estate, we have a strategy that scratches that itch: Brinker (CLS) Real Assets ETF strategy!

Despite all of this investor enthusiasm, it should be noted that expectation gaps often equal behavior gaps. If that’s the case, advisors have work on their hands regarding investor expectations: U.S. individual investors expect returns to be 17.5% after inflation.

On this point, maybe the best financial journalist today Jason Zweig is on a recent Morningstar podcast: Temperament Is Everything for Most Investors Okay, there is competition for “best financial journalist today” to Zweig, and it’s Morgan Housel. He happened to list his 10 Money Rules last week.

The next episode of Orion’s Weighing Machine to be published this week features Dr. Ken Sleeper from Ocean Park. Ocean Park has many dedicated fans, and it’s easy to hear why after listening to Dr. Sleeper.

For more resources on the economy and markets, including partner content, please review the OPS Financial Advisor Success Hub. As always, please let me know if you have any feedback or questions: rusty@orion.com. You can also reach out to benjamin.vaske@orion.com.

 

Have a great week!

1994-OPS-7/12/2021

 

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).