Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 55

  • I hope everyone had a wonderful weekend and you were able to enjoy a bit of the Winter Olympics.
  • Thanks to a strong earnings report from Amazon last Friday, the overall US market was able to gain nearly 2% last week. It was the best week of the year for the US stock market so far.
  • Amazon wasn’t the only big tech stock in the news last week. Facebook had a faceplant on its earnings earlier in the week and had the biggest one-day market cap loss in market history. Also of note is that Google had a 20 to 1 stock split. That helps smaller accounts that can’t utilize fractional shares to buy GOOG.
  • The overall US stock market is still down about 6% this year. Growth stocks are down about 13% while value stocks are up 1%. 
  • One-year trailing returns:
    • Overall US stock market is up 13% and the S&P 500 is up about 18%.
    • Value has outperformed Growth 21% to 3%.
    • With the bond market down 3% over the last 12 months, Diversifiers are outperforming including Absolute Return (+5%) and real assets like commodities (+34%).
    • Last week the Ten Year Treasury Yields rose 15 basis points to 1.93%. The high yield last week was 1.94%. These are the highest 10-year yields have been since Christmas Eve 2019. The last time 10-year yields were 2% or higher was July 2019.
  • The big economic data last week was the positive surprise in the January Non-Farm Payrolls Data released last Friday.
    • Nonfarm payrolls increased 467,000 in January, well above the consensus expected 125,000.
    • The unemployment rate ticked up to 4.0% in January from 3.9% in December.
    • According to the latest weekly BeSpoke Report, since 1976 Nebraska has had the lowest unemployment rate at 1.7%. Utah was at 1.9%. The states with the highest average unemployment were New Jersey at 6.3% and Nevada at 6.4%.
  • We are in the midst of earnings season, and it’s been solid so far. There are a lot of great stats in the Weekly Factset Earnings Scorecard 02/04/22
    • For Q4 2021 (with 56% of S&P 500 companies reporting actual results), 76% of S&P 500 companies have reported positive earnings per share and 77% of S&P 500 companies have reported a positive revenue surprise.
    • Earnings Growth: For Q4 2021, the blended earnings growth rate for the S&P 500 is 29.2% (an improvement from “just” 24% a week ago). We believe this will likely be the fourth straight quarter with earnings growth above 20%.
    • Despite the market correction so far this year, the forward (i.e., using expected earnings instead of trailing earnings) 12-month P/E ratio for the S&P 500 is still 19.7. This P/E ratio is above the 5-year average (18.6) and the 10-year average (16.7).
  • Below are some of RenMac’s research nuggets from this weekend:
    • “The course of the economy depends very much on the course of the virus” has been the excuse for every Fed official, economist, and CFO on earnings calls for 2+ years. That excuse is dead.
    • The economic data is learning to live with the virus. See the Non-Farm Payroll numbers. This is a jobs market with momentum on employment and wages, so the pressure is on the Fed to keep raising rates.
    • It’s not likely the Fed will raise rates 0.5%, but if they go 50 next month, we will have plenty of warning and the markets will have it priced in. (We’re almost there anyway.)
    • If “concept capital” plays to the script of past bubbles, it’s usually about a 70% decline before it’s all said and done. This isn’t the contagious “popping” we had with Tech or Housing of bubbles past (credit is still good). It’s more of a hard rinse, and with a solid economy, elongated bullish cycle (just in different areas).
  • Contrarians note. AAII Sentiment Survey: Bearish Sentiment Reaches Eight-Year High, bullish sentiment remains low. All else being equal, this is typically a bullish signal for the stock market in the month(s) ahead.
  • Here’s another bullish thought.  “A ‘waterfall decline’ in the stock market suggests a violent February rally could lead to record highs”. Sure, everybody has an opinion, but this comes from Tom Lee from Fundstrat. He does have a nice touch on the market. Lee observed that retail investors put $53 billion into money market funds over the past two months, retail investor sentiment has dropped to its worst reading in eight years, and markets sold everything on Thursday after Facebook’s weak print. Given the start of the year that we’ve had, a “violent” rally to new highs might be kind of fun.
  • For the week ahead, there is nothing on the economic schedule, but the week’s big number is Thursday’s Consumer Price Index (CPI) number.
    • Consensus economists expect to see that the headline CPI jumped by 7.3% in January over last year, which would mark the fastest rise since 1982. This would also accelerate from December’s 7.0% annual rise in consumer prices. And on a month-over-month basis, the CPI will also likely match December’s 0.5% rate in January. Excluding more volatile food and energy prices, CPI is expected to rise by 5.9% on an annual basis, which would also represent the biggest jump since 1982.
    • The estimate for 1Q22 GDP growth according to GDPNow remains at 0.1%.
  • Research firm Strategas had a great short piece this past week called “CFA Charterholders of the World Unite”. In short, it was a rebuttal of the recent article that portfolio managers with CFAs have been underperforming in recent years. Strategas countered that the last few years have been more about easy Fed policy as opposed to traditional fundamental analysis. As interest rates are expected to (hopefully!) normalize in the year(s) ahead, fundamental analysis (and active management) should start to perform better. There are a lot of great nuggets in this article.
  • Should advisors know something about Digital Assets? The Digital Assets Council of Financial Professionals thinks so.
    • Digital assets are anticipated to generate $4.6 billion in fees for financial advisors over the next 5 years.
    • 82% of clients expect their financial advisors to be knowledgeable about bitcoin.
    • 62% of clients say they would switch advisors to get advice about bitcoin.

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

  • The rebound continues! Digital asset prices rose broadly last week, with many of the gains coming over the weekend. Bitcoin regained the $40,000 level, 10% higher on the week. Ethereum rose 17% back above $3,000. All of the top 30 coins by market cap (excluding stablecoins) were positive, with strong gains in Cardano +8%, Solana +22%, Polkadot +18%, Avalanche +12%.
  • India’s finance minister announced a 30% tax on crypto income and announced the Reserve Bank of India will be introducing a digital rupee soon. 
  • A decentralized finance platform called Wormhole, which functions as a connection between different blockchains, lost $325 million to a hacker that exploited a known security flaw.
  • In ETF news, Grayscale launched a Future of Finance ETF (GFOF) that invests in companies that support the digital asset industry.
  • This week will be the second week of hearing from Orion leadership on Orion’s The Weighing Machine podcast. Noreen Beaman joins me this week and there are a lot of goodies on here ranging from industry outlook to how to expand your reading list!

 

  • “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood Teddy Roosevelt’s Man In The Arena
  • While not everybody’s cup of tea, some people love the energy and inspiration from digital marketing and social media guru Gary Vaynerchuk speaking on Gratitude.
  • A new movie called  GameStop: Rise of the Players is out. Fascinating story about the hottest meme stock last year.
  • Here’s an awesome picture of a house famous architect Frank Lloyd Wright designed, but never built: Frank Lloyd Wright Unbuilt Homes
  • Thanks for reading and have a great week!  

0262-OPS-2/9/2022

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/.

“The CAIA® is the globally-recognized credential for professionals managing, analyzing, distributing, or regulating alternative investments. To learn more about the CAIA, visit https://caia.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).