Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 58

  • Happy Monday. I hope you had a wonderful and warm weekend. 
  • Russia’s invasion of Ukraine has continued to escalate over the last week along with increased sanctions from the US, EU, UK, Canada, and other western allies on Russia. Notably, Russian banks have been banned from using the SWIFT network, further restricting the flow of currency in and out of the country. Other actions included restrictions on Russia’s central bank, a vow to create a transatlantic task force to enforce the aforementioned sanctions, as well as increased efforts toward reducing the spread of misinformation surrounding the invasion.  In addition, Russian and Ukrainian officials are meeting today at the border to discuss a ceasefire.
  • The stock market is starting the week lower in price, with commodities like oil and gold higher.
  • Despite losses earlier in the week, the overall US market ended the week with about a 1% gain with Friday being the best daily gain for the US market since November 2020.
  • Gains last week were led by growth stocks, which outperformed value. Among other performing sectors was Energy, which is seeing price surges due to the threat of further supply shock from the COVID-19 pandemic and the Russian invasion.
  • For the month of February, the overall market is down over 2%. Losses for February are at almost 5% for growth stocks and value stocks are flat for the month. The greatest outperformer for the month has been Small Value, at nearly a 2% gain.
  • For the year, the overall US stock market is down just over 8% year-to-date, with growth stocks down over 15% for the year and value with a slight gain of less than 1%.
  • Remarkably, despite the Ukraine news and extreme stock market volatility, last week Ten Year Treasury Yields rose 6 basis points to 1.99%. The intraday high yield last week was nearly 2.01%. Yields are still knocking on the door of pressing to new 3-year highs.
  • The bond market is acting a little funky.  According to Bespoke Investment Group, since the S&P 500’s peak, high-yield spreads have widened significantly. Most notably, even as stocks staged a major reversal on Thursday, spreads widened out to their widest levels since January 2021.
  • Key economic data from last week:
  • There are a lot of economic reports in this week’s economic calendar:  
    • On Wednesday and Thursday, Fed Chair Jerome Powell will give his Semiannual Monetary Policy Report to Congress, specifically before the Committee on Banking, Housing, and Urban Affairs.
    • The February Employment Report will be released Friday. Consensus estimates state there were 400,000 jobs added with a reduction in the unemployment rate to 3.9%.
  • 4Q21 earnings season is almost over with 95% of the S&P 500 companies reporting as of last week according to the weekly Factset Earnings Report.
    • Earnings Growth: For Q4 2021, the blended earnings growth rate for the S&P 500 was 31%. If this holds for the actual growth rate for the quarter, it will mark the fourth straight quarter of earnings growth above 30%.
  •  The  AAII Investor Sentiment Survey remains quite negative. While the number of bulls did increase last week, the number of bears (and the net between weekly bullish investors and bearish investors) reached their most negative numbers since April 2013, nearly 9 years ago.   The tragic event in April 2013 was the Boston Marathon bombing.   At the end of May 2013, the S&P was up about 6% in price terms from the April lows and up 9% at the end of 3 months later.
  • One highlight of the crisis comes this weekend from Tesla CEO Elon Musk, who responded to pleas from Ukrainian officials to assist in disrupted internet service across the country by activating Starlink in Ukraine, the satellite-based internet service founded by Musk.
  • Given the geopolitical tension, many are worried about cybersecurity.  For good reason, at least according to WisdomTree: Cybersecurity Threats to Continue.
    • Cyberattacks were prevalent and costly in 2021, a trend likely to continue into 2022. The average data breach cost increased from $3.86 million in 2020 to $4.24 million in 2021, the highest total cost in the 17 years IBM has published its Cost of a Data Breach Report 2021.
    • Corporations, governments, and consumers are increasing their cybersecurity commitments and enhancing measures to protect themselves. Corporations, for example, are expected to spend $172 billion in 2022.
    • Identity, network, and endpoint security continue to be points of emphasis for cybersecurity efforts with network security expected to grow the fastest at 24% between 2021 and 2026.

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

  • Cryptocurrency prices are down slightly on the week, with Bitcoin hovering around $38,000 as of Sunday night (down less than 1% for the week). After a rough Wednesday, crypto prices recovered pretty well into the latter half of the week but struggled for direction Sunday. Ethereum closed down~2%, Solana and Avalanche -7-8%. Polkadot was flat and Terra surged 45%.
  • Almost $20 million in cryptocurrency has been donated to the Ukrainian government and over causes this week. The world’s largest custodial bank – BNY Mellon – announced an integration with Chainalysis, a blockchain transaction tracking firm. The European Union called for a ban on energy intensive crypto mining (proof-of-work), however the vote has been delayed.
  • Digital asset ETF news was limited this week (not a lot of firms wanted to launch ETFs last week).

Additional Resources

  • As our in-house Buffett expert Grant Engelbart notes, this year was perhaps the shortest Berkshire Hathaway Annual Shareholder Letter yet. It was released this weekend.
    • Highlights from the letter include (1) not much excitement from Warren Buffett or Charlie Munger in terms of new purchases, (2) thus repurchasing their own stock was their best investment for their large cash holdings, and (3) Apple stock now makes up about 40% of their stock holdings.  
    • All of these are interesting, as to the first point a lot of stocks are currently well off their highs. The latter two points are only interesting (though not really new news though) as for many years BRK eschewed stock buybacks and technology shares.  See, old dogs can learn new tricks!
  • This week on Orion’s The Weighing Machine podcast is Justin Christofel from BlackRock talking about income strategies.   Many are asking about how to build good income portfolios and Justin had plenty of good ideas.  Besides, another cool thing about Justin is that he grew up near the Field of Dreams in Iowa.  He’s played on the field numerous times.
  • Speaking of income strategies, for those Interested in learning more about how to build global multi-asset actively-managed income-oriented strategies, there were a lot of ideas from BlackRock and Brinker last week. Global Multi-Asset Income Portfolio Recipe.
  • Thanks for reading and have a great week!  For more resources, please check out the Financial Advisor Success Hub, and as always, please let us know what we can do better at rusty@orion.com or ben.vaske@orion.com.
  • Have a great week!
    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/.”
    0383-OPS-2/28/2022
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).