Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 60

  • What a great weekend for sports and an interesting night for movies.
  • The stock market gained nearly 2% last week and is up nearly 4% for the month (as defined by the S&P 500).
    • Nearly all styles/sectors/size exposures were higher last week. The clear laggard has been small and mid-cap growth, which has the largest losses going back to all short-term time frames for 1-year.
    • International stocks did lose ground last week and are down for the month.
    • Commodities led the way again, with a gain of over 5% last week, over 15% for the month, and over 31% for the year.
  • Ten Year Treasury Yields closed at 2.49% last Friday (up 34 basis points in one week).  The high yield was just over 2.50% last week, its highest level since early May 2019.
    • Michael Batnick from Ritholtz had a great article on how bad the bond market performance has been recently. Highlights include the worst 3- month nominal and real return for bonds and the largest outflows from bonds ever
    • And this has happened despite weakness in stocks.   Did you know that stocks and bonds have never both had negative returns for three straight months? If for some reason stocks slide into quarter-end, this will be another market first we’ll witness.
  • More on interest rates.  The aforementioned Batnick article also talked about the “yield curve”, which is the difference in yields between two different maturities.  It’s normal and natural for long-term bonds to require higher interest rates since your money is locked up longer.  Currently, the yield curve is getting close to being “inverted”, where the longer-term bonds have a lower yield than the 2 years (St. Louis Fed, March 2022).  Historically, when the yield curve inverts, an economic recession occurs within a year or two.
  • With the rise in interest rates combined with higher housing prices, the year-over-year change in the monthly payment for homeownership has never been higher (at least according to a dataset from BeSpoke Investments that goes back to 1987).
  • Economic news from last week featured something for everybody in February Home Sales.
    • New single-family home sales declined 2% in February, below the consensus expected of 0.810 million.  Sales are down 6.2% from a year ago.
    • The months’ supply of new homes (how long it would take to sell all the homes in inventory) rose to 6.3 in February from 6.1 in January.
    • The median price of new homes sold was $400,600 in February, which is up 10.7% from a year ago.  The average price of new homes sold was $511,000, up 25.4% versus last year.
    • The total number of single-family homes under construction is currently at the highest level since 2006.
    • Overall inventories have been rising recently and now sit at the highest level since 2008.  This has pushed up the months’ supply (how long it would take to sell the current inventory at today’s sales pace) to 6.3 from a record low reading of 3.5 in late 2020.
    • However, almost all of this inventory gain is from homes where construction has either not yet started or is still underway.
    • Doing a similar calculation with only completed homes on the market shows a months’ supply of a meager 0.5, near the lowest level on record back in 1999.
    • One piece of good news for buyers is that median price growth has begun to decelerate, falling to a year-over-year gain of 10.7% in February after peaking at 24.2% last August.
  • This week’s economic schedule has something every day, but the key number is the Employment Report on Friday.
  • The Employment Report for February currently has a consensus estimate of 475,000 jobs added, and for the unemployment rate to decrease to 3.7%.
  • The  AAII Investor Sentiment Survey has finally moderated after being at its most bearish readings in years.  However, this moderation came from the biggest weekly drop in outright bear since July 2010.
  • Seasonally speaking, April is typically a great month in the markets. Since 1990, the S&P50 has been higher 74% of the time in April.
  • Why should investors not look at their portfolios each day? One reason is that the shorter the period looked at, it’s less likely to see a gain.

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

  • Another strong week for cryptocurrency prices. Bitcoin rose nearly 8% to near the $45k level, Ethereum tacked on nearly 10%, Solana +12%, Cardano +27%, Avalanche -2%, and Dogecoin +16%.
  • Galaxy digital announced they facilitated Goldman Sach’s first over-the-counter cryptocurrency transaction to purchase an option on the price of Bitcoin. Wyoming’s Bitcoin-friendly senator has nearly completed a bill to incorporate crypto into the U.S. tax code. Meta (Facebook) filed eight trademark applications for various digital asset purposes. The oil giant Exxon Mobil announced a program to mine bitcoin with energy from excess natural gas wells in North Dakota.
  • Proshares launched a metaverse ETF (VERS) on March 17, 2022. The ETF has a range of themes focused on the growth of the metaverse economy. The largest holding is Apple.

Additional Resources

  • We have another rock the boat interview on this week’s Orion’s The Weighing Machine podcast with Potomac Funds Manish Khatta.  Not only does Potomac has a unique style of tactical investing, but strong views on how advisors should be marketing themselves.   Manish doesn’t pull any punches; in fact, we needed to make a few edits to this podcast to reduce some of the colorful language.
  • An industry shift to robo-advice? Maybe not as prevalent as we thought. A recent Vanguard study found that 93% of human-advised clients say they would not consider switching to a digital advisor, with 88% of robo-advised clients saying they would consider switching to a human advisor.
  • 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 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/.”
0521-OAS-3/28/2022

 

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).