Weekly Market Bullets with Rusty Vanneman, CFA, CMT, BFA, Vol. 103

Investment Strategy | January 31, 2023

BY Rusty Vanneman, CFA, CMT, BFA

Hope everyone had a great weekend. How about those games yesterday!? I know we have lots of Eagles and Chiefs fans here at Orion; should be a great Super Bowl.

As for performance highlights:

It was an overall positive week in the markets. The US market gained nearly 3%, driven by growth stocks (Morningstar, Jan. 2023).
Other notable growth for the week came from China, real estate, and small caps (Morningstar, Jan. 2023). Commodities and the US dollar slid slightly (Morningstar, Jan. 2023).
Year-to-date, US growth and international stocks have led the charge in market gains (Morningstar, Jan. 2023).

A note on 2023 performance from Bespoke Investments:

“January has been a complete reversal of the action we saw in 2022. The Nasdaq, Consumer Discretionary, Communication Services, and Technology have been 2023’s biggest winners, and these were last year’s biggest losers…” (Bespoke Investment Group, Jan. 2023)

And a note on international equities from a new white paper, “International Equities: The Dawning Of A New Era”, written by our partners at Main Management:

”…international markets are currently experiencing three conditions that have historically led to strong outperformance: a weakening U.S. Dollar, low valuations, and strong forward growth estimates.” (Main Management, Jan. 2023)

Last year felt like an anomaly for many 60/40 investors and, to a degree, it was. The apparent culprit of course was that, while equities had a turbulent year, the aggregate bond index also had its worst year since its inception in the ‘70s, pointing more attention to the increased correlations between stocks and bonds (Morningstar, Jan. 2023). However, this isn’t the first time we’ve seen such correlations, and certainly won’t be the last. Just one more reason to keep a long-term focus, stay invested, and stay diversified!

Here’s where key rates landed last week:

Deeper Dive

The next Federal Open Market Committee (FOMC) meeting is on February 1 (Wednesday) and the market overwhelmingly expects a 25 basis point increase to the fed funds rate (FOMC, Jan. 2023). The FedWatch Tool from CME Group is forecasting a 98.4% chance of a 25 basis point increase, a 1.6% chance that rates are not raised at all, and therefore a 0% forecasted chance that rates are raised by 50 or 75 basis points (CME Group, Jan. 2023). Heightened volatility should be expected this week if the rate increase is anything other than 25 basis points (CME Group, Jan. 2023).

Here’s a great quote on the expected rate hike slowdown:

“It’s just like if you’re on a road trip, and all of a sudden, it starts to rain, and it’s very foggy. You’re going to slow down. It doesn’t change the destination you’re going to — it changes the pace at which you’re approaching it.” ~ Greg McBride, CFA, Bankrate chief financial analyst (Bankrate, Jan. 2023).

Earnings season is in full swing! According to last week’s Earnings Insight from Factset:

Earnings Scorecard: For Q4 2022 (with 29% of S&P 500 companies reporting actual results), 69% of S&P 500 companies have reported a positive EPS surprise and 60% of S&P 500 companies have reported a positive revenue surprise (Factset, Jan. 2023).
Earnings Growth: For Q4 2022, the blended earnings decline for the S&P 500 is -5.0% (Factset, Jan. 2023). If -5.0% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year decline in earnings since Q3 2020 (-5.7%) (Factset, Jan. 2023).
Earnings Revisions: On December 31, the estimated earnings decline for Q4 2022 was -3.2% (Factset, Jan. 2023). Seven sectors are reporting lower earnings today (compared to December 31) due to downward revisions to EPS estimates and negative EPS surprises (Factset, Jan. 2023).

Along with earnings season, there have been plenty of headlines regarding layoffs, especially in big tech. While layoff action should never be ignored, check out the chart from ChartR in its January 24, 2023 Tweet. It provides some context on some of the big guys’ headcount growth over the last four years. While there have been some big waves of layoffs, employment growth has been strong on a slightly longer time horizon (US Bureau of Labor Statistics, Jan. 2023).

As for economic data last week:

More on last week’s PCE (personal consumption expenditures) data: Real rates are now positive again (PCE v Fed Funds Rate) (Bloomberg, Jan. 2023). Coming out of a period of 40-year high inflation paired with near-zero yields, this is a great sign for investors, especially conservative and income-taking investors (Bloomberg, Jan. 2023).

Here’s what to expect for economic data this week, beginning Monday, January 30:

Coming off stronger than expected GDP growth for the fourth quarter, Atlanta Fed’s GDPNow is projecting just 0.7% growth for the first quarter of 2023 (GDPNow, Jan. 2023).

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

Crypto prices continued to climb last week, with Bitcoin rising 4.4% to near $24,000 and Ethereum slightly higher to hover around the $1,650 level (Decrypt, Jan. 2023). Bitcoin is higher by 43% YTD; Polygon and Avalanche popped 17% each last week (CoinMarketCap, Jan. 2023).
Genesis is optimistic they can emerge from Ch. 11 bankruptcy by May (Arcane Research, Jan. 2023). Gemini announced its third round of layoffs related to losses due to the Genesis bankruptcy (Arcane Research, Jan. 2023). Credit ratings agency Moody’s is working on a stablecoin scoring system (Arcane Research, Jan. 2023). Amazon is reportedly starting a NFT initiative this spring (Blockworks, Jan. 2023).
ARK and 21Shares had their second proposal for a spot Bitcoin ETF rejected by the SEC last week (Arcane Research, Jan. 2023). March 7 is the date for arguments regarding Grayscales SEC suit (Arcane Research, Jan. 2023).

Additional Resources

“Don’t just sit there. Do something. The answers will follow.” ~ Mark Manson (GoodReads, Jan. 2023).

On this week’s Orion’s The Weighing Machine podcast we talk to Stan Sattler from Belle Haven. In short, this is a fantastic interview regarding the fixed income markets, especially the municipal bond market. I believe this was one podcast on fixed income that was loaded with talking points that could be used in investor conversations.

Thanks for reading and have a great week! As always, please let us know what we can do better at rusty@orion.com or ben.vaske@orion.com. Invest well and be well.

For financial advisors to get this commentary delivered straight to your inbox, please subscribe at www.orionportfoliosolutions.com/blog.

0268-OPS-1/30/2023

Orion Portfolio Solutions, LLC, a registered investment advisor, is an affiliated company of Brinker Capital Investments, LLC, a registered investment advisor, through their parent company, Orion Advisor Solutions, Inc.

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, BFA

Rusty Vanneman serves as the Chief Investment Officer 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 weekly podcast, Orion’s monthly Weighing the Risk podcast, and authored the book “Higher Calling: A Guide to Helping Investors Achieve Their Goals.” Rusty has 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.* 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). He is also a Behavioral Financial Advisor (BFA). *RUSTY VANNEMAN MONEY MANAGEMENT EXECUTIVE AWARD. Rusty Vanneman, CFA, CMT, was selected as a “Top 10 Fund Managers to Watch” in 2017 by Money Management Executive. Money Management Executive is an unbiased, third-party publication covering the asset management industry. Money Management Executive chose the list of managers to watch by screening Morningstar data from funds with a single manager, ranked as having the best three-year annualized returns in their respective categories. The list of managers was published March 27, 2017. Money Management Executive is not affiliated with OPS. Ratings and awards may not be representative of any one client’s experience and are not indicative of OPS’s future performance.

Weekly Market Bullets with Rusty Vanneman, CFA, CMT, BFA, Vol. 103

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