Monday Morning Market Insights: Last Week in Review with Rusty Vanneman, Vol. 61

  • Congrats to the winners of this year’s March Madness brackets.  The 18-year-old in my house is going to the University of Kansas next year, so it’s no surprise that he’s won our extended family bracket this year.  Spring must be here because it’s Master’s Week!
  •  Looks like a quiet start to the markets this week. The most exciting market news is that Elon Musk took a large stake in Twitter and the stock was up big Monday morning.
  •  The US stock market gained ground last week and even finished March with a gain.  Nonetheless, last Thursday closed the worst quarter for stocks in two years.
  • Coming into the new week, the overall US stock market is down less than 5% on the year.  Most parts of the stock market are down on the year.  So, what’s actually up in price? 
    • Value stocks are up nearly 3%, primarily because energy stocks are up nearly 40% year-to-date.   
    • The overall bond market is down about 6% for the year, but other diversifiers are higher.  Diversified alts have a slight gain and commodities are up 25% year-to-date.
  • The rise in Ten Year Treasury Yields, perhaps for now, stopped last week.  Yields closed at 2.38% last Friday (down 11 basis points in one week).  The recent highest yield was just over 2.50% which again was its highest levels since early May 2019.
  •  Economic news from last week featured Friday’s employment report:
    • Nonfarm payrolls increased 431k versus an expected 490k. 
    •  The unemployment rate fell to 3.6% in March from 3.8% in February.
    • Average hourly earnings are up 5.6% versus a year ago (which is great, except it’s below inflation)
    • Notably, the median duration of unemployment fell to 7.5 weeks, which is lower than it was pre-COVID, meaning those who lose their jobs are not staying unemployed for long. 
    • Continuing unemployment claims are the lowest since the late 1960s. 
    • Payrolls are still 1.6 million short of where they were before COVID. 
    •  By the way, for a frame of reference, the lowest unemployment rate in modern economic times was 2.5% in the early 1950s.   The labor market is so hot, it would not be a surprise to see that number challenged.
  • Another inflation report last week, and another 40-year high. This was the highest since January 1982.  For a frame of reference, Olivia Newton John’s “Physical” was the #1 song all that month until Hall and Oates’ “I Can’t Go For That” finally broke Olivia’s hold on #1.  For me, that was a very long time ago in a galaxy far away.   For some reading, you may not even know those artists!
  • Speaking of inflation, for the first time ever in NYC, the average cost of a slice of pizza is more than a subway ride. The average cost of a regular slice is now $3.14, compared to a subway fare of $2.75, according to Bloomberg.
  •  Bloomberg’s John Authers had a great overview of the first quarter and how record-setting it was.  He writes a daily article that is always loaded with nuggets.  This article was no different, including what happens to the stock market when the yield curve reverts.
  • This week’s economic schedule has some housing data and Federal Open Market Committee (FOMC) minutes, but otherwise not much.  Earnings season doesn’t really begin for at least another week.
  • The  AAII Investor Sentiment Survey has the first (albeit slight) majority of bullish investors this year.  Technically, investor confidence is still less bullish than the long-term average. 
  •  When it comes to investing, men are more likely to panic than women.
  • As mentioned last week, from a seasonal perspective, April is typically a great month in the markets. Since 1990, the S&P 500 has been higher 74% of the time in April (Yahoo Finance, April 2022).
  • Why diversify into non-US stocks?  Besides the possibility of enhancing returns, it is also about volatility reduction.  Here is page 45 of the quarterly OPS Reference Guide.   According to a study by Vanguard, the maximum volatility reduction is about 40% of an equity portfolio in non-US stocks.   That also happens to be the approximate current weight of non-US stocks in the overall global equity market. 

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

  • Another green week for crypto prices. Bitcoin was hovering around $46,300 as of Sunday afternoon, a 3% return on the week. Ethereum was nearing $3,500 for almost a 10% gain. Solana +33%, Terra +26%, and Avalanche +13% all had a strong week. Bitcoin closed out the first quarter down slightly -1%. That return masks the volatility of the quarter – prices fell -17% in January, then rebounded 8% in February, and almost 10% in March. Ethereum fell -11% for the quarter.
  • $622 million worth of Ethereum and USD Coin held in reserves for a popular video game, Axie Infinity, were stolen from a network bridge called Ronin. It is one of the largest crypto hacks in history, however, the funds may have already been located. The 19 millionth Bitcoin was mined last week, leaving only 2 million more to ever be mined. It has taken around 12 years to mine 19 million Bitcoin but will take over 100 more years to mine the final 2 million.
  •  Grayscale, which runs the $30 billion Grayscale Bitcoin Trust (GBTC), has threatened to sue the SEC if their proposal to convert to a spot Bitcoin ETF is denied. The SEC rejected ARK’s bitcoin ETF application.

Additional Resources

  • Some people are just wired to make money.  This week on Orion’s The Weighing Machine podcast, we interviewed one of them, portfolio manager David Sherman from the Crossing Bridge Funds, an important holding in the Destination funds.   David’s experience goes back to the Drexel Burnham days and high yield bonds (once upon a time, if you were in the investment industry, the book on Drexel called “The Predator’s Ball” was required reading).   He seems to do a lot of stuff now, and it seems to be all about making money, including managing the successful CrossingBridge Funds.
  • Speaking of podcasts, here are two of the top contemporary BeFi (behavioral finance) experts on one quick podcast, including Orion’s Dr. Daniel Crosby.
  • And while I’m giving out Be-Fi love, let’s look at some Morgan Housel stuff from last week including “8 Things from the book The Psychology of Money” and I can’t recommend this article enough that I quoted from last week “How People Think”.   Expect more quotes/excerpts from this article in future Bullets!
    •  Good marketing can sell once, but only a good product can sell twice. In the long run, your performance reverts to the value you provide.” James Clear
  • The 10 best extensions for Chrome.
  •  Want to perform better and live healthier? Biohacking fundamentals.
  •  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/.”
0568-OPS-4/5/2022

 

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).