Nolte Notes 8.3.2020

There are plenty of Wall Street aphorisms, from “sell in May and go away”, to “don’t fight the Fed” and “the trend is your friend”. The overarching theme for investors is not to fight the Fed. In last week’s comments, they indicated that interest rates are likely to remain at the zero level for the foreseeable future. The economic data, while generally better than expected, has been showing signs of leveling as Covid cases rise in various states. Whether looking at hotel occupancy or restaurant reservations or even credit card spending, all point to a moderation in economic growth. So, the Fed will continue with its extraordinary measures to make sure the economy does not backslide in the fall. Congress is trying to figure out their plan to soften the blow of still-high unemployment and businesses shuttering. All of this adds up to more dollars sloshing around, looking for a place to go to earn a return. That place seems to be the stock market, especially in the tech sector. If the trend is your friend, then technology is the place to be, until that trend changes.

The economic data point of the week was the overall contraction in the US economy during the second quarter. Falling by over 30%, the decline in GDP was the largest on record. Even so, that number was better than the 35% decline estimated by economists. Having never experienced a global economic shutdown, estimates for the decline and recovery will likely be nothing more precise than sticking a wet finger in the air to determine wind speed. The monthly jobless report will hit on Friday and likely show continued improvement in the labor market, but the more frequent weekly claims numbers are indicating a slowing in hiring. So, the trend is better, but at a less robust pace than just a month ago. That is giving both lawmakers and the Fed reasons to continue to support the economy and financial markets with additional stimulus. The economy is not likely to get “fixed” by tossing dollars at it, but only after people feel comfortable moving about doing their routine things.

The comments by the Fed about interest rates pushed yields even lower last week. Projections are for interest rates in the US to be below zero sometime next summer. One metric we keep a close eye on is the difference between two-year and ten-year yields. That difference collapsed last fall and signaled some problems within the US economy. It was only after the virus hit that we began to see “what” it was signaling. After expanding following the various stimulus packages, the yield difference is once again declining. It is above our “worry” threshold, however, another month or two of lousy economic data points could once again signal trouble on the horizon. As a result, we have increased our weighting toward treasury securities that should hold up well and have performed in line with the stock market since early June. As of today, the way is clear for further declines in interest rates in the weeks/months ahead. Until the recovery gains traction, rates are likely to remain at historic lows.

Not much has changed since the 4th of July with the sectors and asset classes. Technology reigns supreme, confirmed by excellent earnings reported on Thursday by the biggest companies. There are a variety of ways we can look at just how the markets have performed without the aid of Big Tech. Technology stocks now account for more of the SP500 than the next two sectors (Health and Discretionary) combined. The largest five stocks within the SP500 have gained as much as the other 495 names have lost this year. Finally, the tech-heavy OTC market is up nearly 24% for the year, while the average SP500 stock is down nearly 8%. How long can the winners run, and the losers suffer? Like the late 90s, much longer than many expect. One final note on the markets. Instead of selling in May and going away, we should be selling in July and fly somewhere. Historically the two worst months of the year are August and September with September as the worst month in the calendar. Enjoy the beach!

Outside of the daily reporting on Covid cases, the markets are looking a bit tired and due for a rest. Our larger concern is the slow contraction in yield differences between the 2/10-year treasuries. We are slowly taking some profits in the technology sector and allocating toward treasuries as a precaution at this point.

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.

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Kingsview Partners Named to 2020 Financial Times 300 Top RIAs

July 30, 2020 – Kingsview Partners is proud to announce it has been named to the 2020 edition of the Financial Times 300 Top Registered Investment Advisers. The list recognizes top independent RIA firms from across the U.S.

This is the seventh annual FT 300 list, produced independently by Ignites Research, a division of Money-Media, Inc., on behalf of the Financial Times. Ignites Research provides business intelligence on investment management.

“To be recognized by Financial Times as a Top 300 RIA is quite the accomplishment and places us among elite company. We are certainly proud of our team here at Kingsview Partners and we don’t plan on slowing down anytime soon. Our partners will continue to deliver measured and personalized service, embracing the firm’s no-nonsense approach to advice, investment management and financial planning.” Said Sean McGillivray, CEO of Kingsview Partners.

RIA firms applied for consideration, having met a minimum set of criteria. Applicants were then graded on six factors: assets under management (AUM); AUM growth rate; years in existence; advanced industry credentials of the firm’s advisers; online accessibility; and compliance records. There are no fees or other considerations required of RIAs that apply for the FT 300.

The final FT 300 represents an impressive cohort of elite RIA firms, as the median AUM of this year’s group is $1.9 billion. The FT 300 Top RIAs represent 39 different states and Washington, D.C.

The FT 300 is one in series of rankings of top advisers by the Financial Times, including the FT 401 (DC retirement plan advisers) and the FT 400 (broker-dealer advisers).

The Financial Times 300 Top Registered Investment Advisers is an independent listing produced annually by Ignites Research, a division of Money-Media, Inc., on behalf of the Financial Times (July 2020). The FT 300 is based on data gathered from RIA firms, regulatory disclosures, and the FT’s research. The listing reflected each practice’s performance in six primary areas: assets under management, asset growth, compliance record, years in existence, credentials and online accessibility. Over 750 qualified firms applied for the award, 300 of which were selected (40%). This award does not evaluate the quality of services provided to clients and is not indicative of the practice’s future performance. Neither the RIA firms nor their employees pay a fee to The Financial Times in exchange for inclusion in the FT 300.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin interviewed on Fox Business News.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin interviewed on Fox Business News.

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Kingsview Quarterly Review | Q2 2020

Kingsview Investment Management Leadership Team Offers Insights And Analysis On The Second Quarter Of 2020 And Their Outlook As We Move Into Q3.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin interviewed on Fox Business News.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin interviewed on Fox Business News.

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Nolte Notes 7.14.2020

“Ya know that tingly feeling when you love someone? It is common sense leaving your body”. So it is with investors falling over themselves, crazy in love with technology of all stripes. From the “mainstay” companies like Amazon, Microsoft, and Google to the new kids on the block, like Zoom and CrowdStrike. Even companies like Tesla are high on the “must own” list for investors. Many of these companies are selling at valuations well above 1999 levels with some at over 30 times revenue, not even earnings. The economic numbers remain OK, but the headlines continue to be clogged with reports of various virus hotspots in the US. The key to any recovery will be not going all the way back to March, when the economy was essentially closed. Investors are also interested in the extension of unemployment benefits, which should allow consumers to maintain spending, even if it is only online. A few months ago, we thought the summer could provide some clarity on the virus, the recovery, and potential treatments. Summer lovin’ for technology seem to be the only certainty this year.

Many of the high frequency data points, including Google searches, are indicating a flattening out of the “V” recovery. Now looking more like a square root sign, the economy will likely struggle going forward until the daily cases begin falling again. The weekly jobless claims figures are coming down, but at a much slower pace than a month ago, indicating hiring has slowed as businesses remain concerned about overall sales. As a result, inflation data remains extremely low. There are shortages of things in various places, but overall, it will be difficult for businesses to recoup losses by raising prices in the years ahead. The biggest fear of central bankers is lower prices as they do not have anything in their arsenal to combat general price declines. Interest rates will not be rising anytime soon, nor will the Fed be leaving their involvement in the bond market. While not strictly “price controls” it is certainly not a free market as defined by older economics books.

How low can bond yields go? Like the limbo, there should be a floor, but central banks around the world have had experience with interest rates below zero. Chief Powell has indicated he is not interested in dropping US rates below zero, but investors continue to push rates down as signs of inflation are nowhere to be seen and the pace of economic recovery remains uneven at best. What does that mean for bond investors? Just three years ago, a bond yielding 3% was deemed poor, but today looks pretty good. The 1-2% yields around today will look juicy in another few years. Investors are chasing much lower quality bonds to gain income, however many of those companies issuing bonds will have trouble selling new issues in the market to redeem those coming due. Bankruptcy will also be a problem in the bond market in the year ahead. Safer to stick to the Treasury or high-quality bonds that may not be yielding much but will provide the cushion when stocks fly off the rails.

It is still a technology world, with that sector rising over 5% on the week. The largest five stocks in the SP500 index are now a much higher percentage of the index than the top 5 were back in 2000. We have highlighted the large differences between the “cap weighted” index and “equal weight” index performance over the past few months. Even within the technology sector, there is a big difference between the cap weighted and equal weighted indices. Many investors now believe the large tech names are “defensive” and should always be owned/held. Valuations of the general markets are once again among the top 10% in history. Even within the tech sector, there are now nearly 40 stocks selling above 30 times revenue, compared to just 30 in 1999. Momentum is keeping the story going, but sometime in the future, investors will begin to shift their focus to the very inexpensive parts of the market and technology will flounder for a few years, not just a few weeks.

Earnings get started this week. We will be interested to see if companies begin providing guidance on future earnings. Those projections were pulled last quarter as companies had no idea what the economy would be looking like in a week, let alone in three months. Will companies confirm Wall Street expectations for the future or mirror the economic struggles as the virus continues to wander through the population? We have learned much over the past three months and we are certain to learn much more in the months to come.

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.

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Nolte Notes 7.6.2020

Here we are at the mid-year reset, otherwise known as the Fourth of July. The financial solution to the virus allowed the markets to contain the decline to roughly six weeks ending in March. However, the healthcare portion of the virus is the gift that keeps on giving. Cases are up from states trying to get back to “normal”. Some are backtracking on the speed of opening, others are continuing on course and asking citizens to wear masks. The
economic data is showing the economy is recovering, with many reports coming in well ahead of expectations. Such was the “big” employment report last Thursday, surprising to many that the unemployment rate fell to 11.1%. Released at the same time was the weekly jobless claims, which did not confirm the strength in the monthly report. Ongoing claims, or those getting benefits, has been flat over the past three weeks, indicating few are heading back to work. The generous benefits are set to expire at the end of July without action by Congress. Expect some action on unemployment benefits this month.

After taking a three-week rest to digest the April/May run higher, the SP500 is once again knocking on the door of the year-end price level and was spurred higher by talk of another aid package and better economic data. The coming week will be relatively quiet ahead of earnings season starting mid-month. There are some divergences setting up in the markets that could be a problem for stocks if not resolved in the weeks ahead. The number of advancing to declining stocks on the high-flying OTC markets are not keeping pace with the index. The number of stocks trading above their long-term average price has also flattened out. These could improve if stocks continue to march higher, but it could also be an early sign that the rally is narrowing. Finally, one indicator that remains positive for stocks is the difference (spread) between the yields on 2- and 10-year treasury bonds. If the spread continues to widen, stocks should be supported in the weeks ahead.

The aftermath of the market decline has seen the Fed introduce all sorts of programs to provide liquidity to the bond market. Some would argue that their direct buying of ETF and corporate bonds is well beyond their mandate of full employment and stable inflation. Bonds, outside of treasuries, continue to be priced for a higher level of risk in the year ahead. If the support of the Fed is successful, the returns on those bonds will be significant over the next year. Last quarter, near 10% returns have been achieved on these bonds as the Fed has supported pricing. The bond model remains positive, calling for lower interest rates in the week ahead. With a 10-year yield around 0.65%, how can lower be possible? Look at Europe and Japan for an answer where yields are negative for maturities out to 10 years. It is possible here with a highly active Federal Reserve.

Just when you think the markets are rotating into the asset classes that have been beaten down and away from those that have run higher, they revert to prior form. Technology came roaring back last week and remains top of the charts. However, there remain glimmers of hope for international and especially emerging markets. If there is indeed a “risk-on” attitude that is gripping investors, emerging markets should be a big winner in the years ahead. Valuations relative to the US markets are near all-time lows. That said, there are plenty of problems with the asset class. The stronger dollar makes their debt more difficult to pay back, as they borrow in US dollars, not
in their currency. Many countries still have serious problems following the virus global shutdown. All that said, the emerging market, over a 3-5-year time horizon should provide returns well ahead of US markets. However, that has been the case for the past three years, so that turning point could still be somewhere in the future.

Earnings season is around the corner and hopefully, companies will be providing more guidance than they did last quarter at the height of the virus shutdown. Investors remain very bullish as long as the Fed is an active participant in the market. Bond investors should enjoy above-average returns as spread continue to contract back toward normal levels in the months ahead.

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.

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CIO Scott Martin Interviewed on Fox Business News

Chief Investment Officer Scott Martin interviewed on Fox Business News.

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