Kingsview Partners is pleased to welcome Misty House as our new Chief Operations Officer. As the COO, Misty’s chief mandate is to ensure the operational integrity of Kingsview and all the firm’s subsidiary businesses. This requires her to be proficient in nearly every aspect of the firm’s activities and partner with department heads and the firm’s wealth managers to improve operational workflows and enhance the end-user experience.
Misty comes to Kingsview Partners with over 28 years of experience in the business world. She has spent her career in multiple financial services, including accounting, mortgage, investment and insurance, with the last ten years in an executive capacity.
Misty’s knowledge of the public and corporate accounting arenas, along with her Accounting and Total Quality Management degrees, serve as the foundation for her business management expertise. She credits her ability to navigate complex situations and personal relationships in order to create efficient systems and increase the bottom line to her years of experience in various service industries. She is a leadership and efficiency expert and has studied the concepts of Six Sigma and process improvement for the last 20 years.
When not at the office, Misty enjoys traveling and appreciating the great outdoors with her husband, James, and their boys, Isaac and Jonah. She also enjoys painting and volunteering for local charities such as Hearts with a Mission, a teen homeless shelter.
Kingsview SVP Paul Nolte discusses weekly jobless claims, how long it will take to return to 2019 employment numbers, and the market reaction to jobless claims, earnings reports and Chairman Powell’s Congressional testimony.
Reuters interviews Paul Nolte, SVP & Sr. Portfolio Manager
Kingsview SVP Paul Nolte discusses the rotation back in to large growth.
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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 7.14.21
The housing market continues to heat up alongside the post-pandemic boom. The limited supply of homes, historically low interest rates, rising financial asset prices and other factors have created a sense of urgency among many to buy new homes and list their existing ones. As the market further eclipses pre-2008 levels, how does this affect investors?
The housing market is both an income-generating asset class as well as a macro-economic indicator. Housing prices at all-time highs can bolster financial confidence and spur consumer spending in other areas, a fact often referred to as the “wealth effect.” That this is occurring while all financial assets are rising should not be a surprise, since the housing market is highly correlated with the stock market and other liquid sources of wealth.
Housing prices continue to break records
1. Housing prices, as measured by broad indices such as the Case-Shiller index, continue to reach new all-time highs.
2. This should be no surprise as financial liquidity searches for income-generating and inflation-protected returns. However, rising home prices can also feed back into financial markets due to the wealth effect.
The fact that interest rates have fallen in recent weeks may continue to support prices too, whether or not the market needs the support. The 30-year Treasury yield, which peaked at nearly 2.45% in March, is now under 2%. The average 30-year fixed rate mortgage is still below 3% as a result. While both rates are well above their 2020 levels, they are still extremely low by historical standards. The Fed’s guidance that it may keep its policy rate at zero percent until 2023 only supports housing affordability further.
Homebuilding activity is attempting to keep up
1. With a limited supply of available homes for purchase, housing starts and new building permits have jumped. Over time, supply and demand may reach a better balance.
The risk of inflation may also be bolstering the market. As a traditional inflation hedge, real estate investment prices have soared this year. The S&P 500 Real Estate sector has generated a total return of 28%, beating the overall market during the recovery and ongoing rotation in sector leadership. It is currently the second-best performing sector year-to-date behind energy.
Mortgage rates are still near historic lows
1. Despite higher interest rates this year, mortgage rates are still near historic lows.
2. This increases the affordability of housing and can motivate buyers to jump into the market. The Fed’s guidance that it will seek to keep rates low until at least 2023 only fuels the market further.
Of course, where real estate and related stock prices go from here will depend on several factors including the supply/demand of homes, interest rates, stock market valuations and more. To date, not all assets related to real estate have benefitted equally. Lumber prices for instance, jumped to historic highs earlier this year but have since plummeted. And while the market is still hot in most parts of the country, this could also cool a bit after this initial phase of the recovery.
As always, this is a key reason investors should stay diversified and take a holistic view of their portfolios. The housing market has been a positive sign for the economic recovery and has likely increased the wealth of many on paper. The housing market is running hot due to a variety of factors. While this is a positive sign for the recovery and economic expansion, investors should continue to stay diversified.
Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2021)
July 12, 2021
“We’re all mad here, I’m mad. You’re mad.” And so down the rabbit hole we go! Just when you think you have it all figured out, the economy and/or the markets throw you a curveball. Maddening, sometimes. But we are in a deranged time where everyone is a bit crazy. We celebrate huge employment gains, yet at the recent pace, it will take another seven months to regain the old employment peak. Job openings continue to grow as companies of all stripes can not find willing workers. Many “consumer-facing” businesses have shortened hours due to a lack of employees. The Federal Reserve believes easy money can solve this problem, so they keep rates at historically low levels while pumping over $100B into the markets every month. “When you have a hammer…”Goods are having a tough time getting to market and prices for nearly everything are rising. Many believe this will work itself out over the next year as companies fully staff up and supply chains are working properly again. Some wonder if the economy is permanently damaged. The coming week will have inflation, retail sales and sentiment indices released. The madness is not likely to get resolved this week!
Worries about the Fed “starting to think about thinking about” cutting back their bond purchases knocked down stocks for a day, but the “buy the dip” crowd piled back in on Friday, pushing stocks to yet another record and 14th weekly gain in the last 19 weeks. Yes, there are some chinks in the armor, but the easy monetary policy is what rules the day. Over those 19 weeks, 90% of the stocks within the SP500 remain above their long-term average price, however the last few weeks, barely 50% are above their short-term average price. Meaning stocks have rallied so strongly that any short-term pullback has done little to dent the long-term picture. Within the S&P500 industry groups, all but telecom are above their long-term average, so until the market “technical” begin to break down in a more meaningful way, the path of least resistance looks to be higher. Growth has been the big winner over the past few weeks as interest rates have declined. Could the rate decline be warning the markets that the best/fastest economic growth has passed? Potentially, however, we would like to see a few more indicators pointing that way before beginning to worry about the next downturn.
The yield curve flattening is a warning sign of slower economic growth. However, without a signification push higher in the yield differential between junk and treasury bonds, long-term worries are not yet heightened. Earnings season gets started this week, and there will be plenty of commentary about what companies are seeing in their “end markets” and their capacity to fill demand. Finally, comments regarding pricing and inflationary pressures could also impact bond yields, pushing them back up if investors believe those pressures are more than just “transitory” as the Fed currently believes.
The quick rotation between “growth” and “value” has been driven by changes in interest rates. As interest rates rise, value does well. As rates fall, growth does well. Both are tied to the re-opening of the economy. If investors believe that the re-opening is going well and pricing pressures are building, value does well. If investors believe the best of the economic growth is now behind us and we are heading back to the recent average growth of 2%ish, then growth will do well. From a long-term perspective, growth is very overvalued, with various companies selling at their highest price to earnings multiples going back to 2000. While value is also expensive in absolute terms, relative to growth, it is about as cheap as it has been going back to the late 1990s. We believe that over the next few years, the overall market will struggle to provide meaningful gains, but that value should shine relative to growth as the economy slowly works its way back to “normal”.
Interest rates have been driving the markets as well as various parts of the markets for the past nine months and that is not likely to change. Hence, we will be watching yield differences between various asset classes for clues as to when markets are likely to make a significant shift. Not yet in the cards but watching closely!
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.
Kingsview CIO Scott Martin discusses the pace of the interest rate plummet, the housing market, and earnings in the S&P 500.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: Let’s get the read from Scott Martin, Kingsview Asset Management. We’ve got Luke Lloyd back with us as well as Strategic Wealth Partners. Luke, to you first on whether the bond market is telling us something that the stock market doesn’t want to hear. What do you think?
LUKE LLOYD: Yeah, Neil, investors can’t have it both ways. There are two narratives going on right now. Investors get scared when yields rise because of inflation concerns and then investors get scared when yields go lower because of economic concerns and the delta strain of the virus. You can’t have it both ways. The question you have to ask yourself is, what is the best case scenario? And then what is the most likely scenario? The best case scenario? Yields continue to rise because there are no more shutdowns in the economy remains high. What is the most likely scenario? I think that same scenario is the most likely the US can afford or handle another lockdown and half of the population is fully vaccinated. I think these concerns are just temporary and the stock market continues to slowly grind higher.
CAVUTO: Interesting because, Scott, you know, you could make the very argument that this is happening, it’s going to be beneficial to stocks, right? Because the lower those yields go, obviously dividend yields of the S&P 500 are a lot higher. You could make the argument that you’re getting squat in bonds. It might be safe, but you’re not getting much bang for the buck. So it might as investors try to regroup through this, be a good thing for stocks. What do you think?
SCOTT MARTIN: Right, that’s the funny thing, Neil, it’s just I think if you look at the pace of this interest rate plummet, as you kind of highlighted at the beginning of the show there, that’s concerning. I mean, we were up near one point seven three percent in the 10 year just a few months ago. Everybody calling for two, two and a half even heard some threes out there by the year and now everybody’s calling for maybe one. And so I think it’s the pace of that
fall in the yield that’s really concerning. And then also, if you juxtapose that, though, versus stocks, like you said, yield on stocks, dividend yields, their earnings yield on the S&P, the fact that a lot of techland is highly leveraged, therefore, their borrowing costs are falling by the day as the 10 year rate is falling in itself. Those are reasons to be somewhat constructive, but it just goes to show you how the market gets in these weird moods, whereas Luke kind of pointed out where maybe it’s investors wanting both things both ways or just the fact the market gets in this kind of sell first, ask questions later kind of mood and any news is a bad news and a reason to go for the sidelines.
CAVUTO: You know, you could use it. I think you guys are very good at spelling out the big picture here. Look, you could use the argument here that this could be a worrisome development for technology stocks. But however you look at their downdraft today, they’re still up, up and away over the last year. Amazon going into today, it gained about one hundred and thirty dollars billion in market cap. So I’m beginning to wonder whether this is just a a slight adjustment to that and nothing more ominous. How do you play technology stocks?
LLOYD: Yeah, I think it is a slight adjustment all around, but all all around. I think that’s actually bullish for US domestic stocks. And the reason why is, you know, first off, the US economy is essentially so hot right now and that’s causing issues. Companies can’t hire enough workers to grow like they want to, and that’s scaring investors. And then you have the Delta variant freaking people out again, about Covid. You know, as Americans, sometimes we get tunnel vision and forget about the world. In America, things are looking pretty good. We are open and partyin over here where you take a look globally, things aren’t that pretty. Many countries are still shut down. Listen, you know, here’s the thing. I think this is an opportunity for US domestic stocks to outperform international stocks over the coming years. Not only are we open, but international investors want to own US stocks because we are open. This is bullish for US stocks and technology stocks over the next coming years.
CAVUTO: You know Scott, you could also use the argument that lower rates, whatever the rationale behind them, certainly will help those looking for a home or those who want to refinance the one they’re already in. That typically happens with these type of spurts and activity. And we’ve seen housing ebb a
little bit, maybe because of the price of homes themselves have gotten so high. But what do you expect on the housing front?
MARTIN: Housing feels a little bubbly to me and Neil, not so much, say, 05, 06 or even in the mid teens, but it just feels a little bit hot right now to kind of hot to handle. You’re right, though. I mean, Reifies have definitely been a big boom in the last couple of years for consumers, and that could happen again. My goodness, rates are falling here with the Fed still in play, buying a ton of mortgages, all they can handle. So, look, I mean, housing, staying strong here, I think does help us pull through some of the difficulties here with maybe a resurgence with the Delta variance, maybe just a slowdown in general with the economy. But the one concern I do have to Luke’s point, though, is this overseas issue. Yes, I agree. Domestically, things are pretty strong. But if you look at the S&P, five hundred boys and girls, half of the earnings in the S&P 500 come from overseas. So if the global situation isn’t as good as, say, the US situation, eventually that does concern me for the overall performance of equities going forward.
LLOYD: That’s why you don’t own the S&P Five Hundred.
CAVUTO: Yeah, you could say that. Or the Nasdaq a proxy that. But I do want to pursue that a bit with you later in the show, because I want to get into the fact whether China created this technology round and might be doing that right now. But that’s a little later in the show. In the meantime, I want to go to my buddy.
Kingsview CIO Scott Martin discusses comments from China’s President Xi, and the influence recent events have had on Chinese stocks.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: So it’s really a it brought in this selloff that ensues right now, not as bad as it was when we’re off with more than 500 points, the Dow up about 250 points. The Nasdaq has taken on the chin. Technology stocks in particular have been saying take it on the chin. This actually began in China overnight, in Asia by extension, after people saw what was happening. The technology sector there. And China might lay a lot of the blame for this on the reversal of fortunes and its once thriving technology arena because it’s clamping down on technology. And that is not only hurting Chinese investments there, but now technology in general everywhere. Scott Martin back with us. Luke Lloyd, back with us. You know, Luke, I mean, the Chinese might have started this, the interest rate thing notwithstanding, by cracking down on their own offerings to say nothing of what they used to do to Alibaba and all the rest showing more their military concerns than their economic ones. What do you think’s going on here and how long does it last?
LUKE LLOYD: Yes, so I talked to earlier about how you should stay away from international companies. I think China is where you should stay away from the most. You know, China probing US companies should absolutely. One hundred percent concern investors. You shouldn’t be buying Chinese stocks at this point. The regulatory headwinds that could come from both sides aren’t worth the risk DiDi listing over here in the US then being taken off the App Store in China was a big middle finger from China. They could have done that before the IPO, but they chose to wait. And then the US is already talking about reacting by withdrawing the ADR from the US exchanges. I like to invest in free market countries and China is not that at the snap of a finger they can choose to destroy a company. And unless a company was trading an extremely low valuation at a price that I was willing to pay, I wouldn’t be a buyer.
CAVUTO: It’s very, very interesting, you know, Scott, what’s also interesting is the fact that either China doesn’t much care or it wants its cake and wants to
eat it, too, which is a dumb expression because you have the cake, please just eat it. But I digress. I’m wondering whether China, you know, played this out in their heads and now is shocked at the market fallout to say nothing of growing US pressure to crack down on this sort of stuff, as Luke said, maybe just not to buy their stuff all together. What do you think?
SCOTT MARTIN: Well, it’s a hard thing to avoid, typically, because a lot of companies do business in China. China is on pace to be the largest economy in the world in a matter of years. Billions of people, obviously, the companies want access to. I’m not sure China even lets their people eat cake, Neil, which means there’s more for us in the United States. But if you look at President Xi comments just about a week ago at the 100th anniversary celebration, I guess you’d call it a party on Chinese terms. You know, the things that he said at that at that presentation were actually pretty shocking, pretty aggressive, pretty militaristic and pretty scary for the rest of the world. So when you look at what China is doing, whether they mean to cause an uproar or whether they mean to cause selloffs or not, I don’t think they really care. Neil, I think China is ready to take on anyone and everyone, and it’s something we should all be aware of with respect to how the markets, at least initially, at least as we started to figure out who the real state President Xi is, as the markets have started to figure that out, they haven’t liked what they’ve seen so far.
CAVUTO: All right, good point, gentlemen, I’m sorry to truncate this, but with this breaking news, unfortunate, we have to. We’re going to.