Kingsview CIO Scott Martin talks about the transitory phase that is pushing around markets, inflation rates and great buying opportunities.
Program: Your World with Neil Cavuto
Station: Fox Business News
NEIL CAVUTO: All right, sometimes good news is just good news, it can sometimes rattle the markets. It means higher interest rates today when all the dust settles because of that strong employment report that saw three hundred seventy-nine thousand jobs added to the economy, the unemployment rate dipping down to six-point two percent. It was enough to propel stocks up about 600 points. Interest rates have been back it up a little bit. But again, all of that has been in response to this strong economy and investors are juggling. Is that good or bad, especially if it means now we don’t need as generous stimulus and markets like stimulus. It’s a mess. It’s confusing. But right now, Scott Martin, an uncanny read of these markets and their manic ways can help explain what’s going on at the end of the day, the end of the week. Scott, it sounds like they were OK with the strong economy. They could live with that. They in fact, they welcome that pretty much. Right.
SCOTT MARTIN: It also looks like at the end of the week, Neil, I picked the wrong week to quit drinking because we needed it this week. I mean, the markets were all over the place. That’s a Lloyd Bridges reference, by the way, from airplane, not mine, so everybody just calm down
CAVUTO: But very good, very good, before you were born.
MARTIN: And there’s there’s more behind that where they came from. But, Neil, you’re right. I mean, the markets have been very schizophrenic this week because they’re dealing with higher interest rates because of all the debt we’re issuing to pay for all these stimulus plans. They’re dealing with the fact that, yes, I mean, my goodness, the economy is going to start breathing on its own for once in the last couple of years. And so, we’re excited about that, at least since covid started. And we are going to get some inflation as a result. Boys and girls, because of the growth. And so, we have to come to grips with kind of this transitory phase that is pushing around markets, scaring investors for sure. I mean, some of my clients were pretty freaked out yesterday. And as
we talked yesterday, great buying opportunity on the FBN show Cavuto Coast to Coast because of the fact that things were overdone yesterday, Neil. Today they got back to where they should be, I believe.
CAVUTO: Yeah, you pointed that out, but a lot of people don’t get FBN, I say they should demand it, but they miss that
MARTIN: But Demand it.
CAVUTO: Real quickly, Scott. Yeah, there we go. This notion that interests rates go higher when the economy starts humming like it has been, I guess the worry is that those rates could go a lot higher. Where are you on this?
MARTIN: They could go a little higher. I think they’re going to top out here maybe on the ten-year note, around two percent, a really good friend of mine and his wife in the late seventies. I think you know who this is Neil, bought a house where the mortgage rate on it for, I don’t know, twenty percent, what was it, seventeen I think — we could ask him right now. Your rates on your home, on your home mortgages aren’t bad. You’re saving rates were terrible. It’s not a lot to worry about.
CAVUTO: Thirteen and a half percent, I was a Nostradamus long before…
MARTIN: You thought you were a wiz… and we’re complaining about three percent rates maybe.
CAVUTO: Exactly. But it’s what you’re used to, right? The trend is what rattles folks. But Scott, well explained. I appreciate that, these kids today, Scott Martin, on all of that. In the meantime.
Opening two new offices in Wyomissing, Pennsylvania and Miramar Beach, Florida, Kingsview is excited to welcome Partners and Wealth Managers Radene Gordon-Beck, Regina Rinehimer and Jeffery Barnes. Gordon-Beck and Rinehimer head up Kingsview’s Pennsylvania office, while Barnes works out of Florida. The team joins Kingsview from Wells Fargo, and has collectively managed $240 million in assets.
Radene Gordon-Beck graduated cum laude from Muhlenberg College with a degree in Economics and Finance, and earned her MBA in Finance from St. Joseph’s University in Philadelphia. She works with individuals, families, and business owners to develop and implement investment plans that align their personal values with their financial goals.
While at Wells Fargo Advisors, Regina Rinehimer was recognized as part of a select group of financial advisors who exceeded unique standards of care, including professionalism and education, along with exceptional elements of client service. She offers a dedicated approach to the personalization of comprehensive investment planning.
Jeffery Barnes entered the financial services industry in 1980 and has completed the Accredited Investment Fiduciary Program through the Joseph M. Katz Graduate School of Business at the University of Pittsburg. He focuses on long-term planning with thoughtful wisdom and advice for affluent clients.
This highly experienced team of advisors helps clients meet their financial needs by developing investment plans around their long-term goals and risk tolerance. A significant part of their ongoing responsibilities includes wealth planning, asset allocation and investment performance. They are passionate about building strong, long-standing relationships and generational wealth for their clients.
“Kingsview is extremely excited to welcome Radene, Regina, and Jeffery to our firm,” noted Chief Executive Officer Sean McGillivray. “Our industry has done a poor job of engaging clients and delivering on the promises they make. This team’s strong desire to put the interest of clients first will continue to advance our determination to transform the industry.”
The newest Kingsview offices are located at 945 Berkshire Blvd, Suite 102, Wyomissing, PA 19610 and 495 Grand Blvd., Suite 206, Miramar Beach, FL 32550.
The team can be reached at 484-248-7015.
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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | March 3, 2021
The sudden rise in interest rates has spooked some investors. Fears of runaway inflation, the Fed losing control, and concerns over highly-valued sectors have resulted in renewed market volatility. Of course, this adds to the ever-growing wall of worry around the pandemic, tech stocks, retail investor behavior, and more just two months into the year. While shocks to interest rates can certainly rattle markets, history shows that these events are positive in the long run. How can patient investors keep all these concerns in perspective as the outlook remains uncertain?
First, it is important to understand the many factors that influence interest rates. In the short run, the buying and selling of bonds can mechanically push rates lower or higher. When investors are concerned about the world, as was the case early in the COVID-19 pandemic, they often buy Treasuries and similar securities as a “flight to safety.” This increases the prices of these bonds and lowers their yields. The opposite is true when investors sell bonds, whether because they fear inflation or seek greater risk and reward, which pushes interest rates higher.
Over time, through this buying and selling, interest rates settle in at levels that correspond to expectations on economic growth and inflation. Thus, interest rates can be both reflections and forecasts of economic trends. Rising rates signal the possibility of stronger growth ahead which is often positive for riskier assets like stocks. So, although spikes in interest rates can be disruptive, especially if it impacts the borrowing costs of individuals and corporations, rising rates are usually a positive sign for markets once the dust settles.
INTEREST RATES HAVE JUMPED IN RECENT WEEKS
1.) Medium and long-term interest rates have risen this year, stoking concerns over the Fed, inflation and more. It’s not unusual for longer-term rates to rise at the beginning of a recovery, as was seen in 2001 and 2009.
2.) Still, short-term shocks to rates can affect markets and the “real” economy by impacting borrowing rates for individuals and corporations.
Second, rising interest rates are thus normal and are not necessarily something to be feared by investors. They are consistent with the positive economic data over the past several weeks, including an improving job market, recovering industrial production, and the on-going rollout of vaccines. While some may be concerned about an overheating economy and accelerating inflation, these are unlikely to be the case today. The recovery is still in its early stages and inflation has been muted over the past decade due to several global trends.
However, this does mean that investors should keep a close eye on their asset allocations, and possibly seek expert guidance. Many fixed income sectors have declined this year as a result of higher interest rates and shrinking credit spreads, with the overall U.S. Aggregate Bond Index down 2%. Valuations for some bonds are elevated and finding income will continue to be a challenge for investors, just as it has been since 2008. Fortunately, fixed income will likely still provide a counterbalance to portfolios in periods of uncertainty, even if yields are lower.
MANY FIXED INCOME SECTORS ARE UNDERPERFORMING
1.) Rate spikes and shrinking credit spreads have resulted on a drag across fixed income sectors.
2.) The U.S. Aggregate bond index is down over 2% while Treasuries and Corporates have suffered losses year-to-date as well. It is certainly the case that lower yields and higher valuations make investing in fixed income more challenging.
Finally, if the past two business cycles have taught us anything, it is that Fed rate hikes are nothing to fear if they occur alongside an improving economy. In fact, the fear is often worse than the ordeal itself. For instance, the 2013 short-term spike in rates known as the “taper tantrum” was a consequence of investors over-reacting to then-Fed president Ben Bernanke’s comments. Although rates spiked for a few months, they eventually settled back down. The stock market continued to rally for years thereafter.
At the moment, market expectations of the first Fed rate hike have been pulled up from 2024 to early 2023 – still nearly two years away. In general, the previous cycle showed that the Fed can maintain their monetary policy goals in the face of market skepticism. In fact, it kept the federal funds rate at the zero-lower-bound from the global financial crisis until December 2015, despite a recovering economy and rising stock market. Although it is understandable that the market often scrutinizes the Fed, it’s often more important to focus on the underlying economic trends instead.
FIXED INCOME HELPS TO MAINTAIN PORTFOLIOBALANCE IN UNCERTAIN TIMES
1.) Fixed income will likely still provide stability to portfolios in difficult market environments. Sticking with the most appropriate asset class allocation in order to achieve long-term goals is still the primary challenge for investors today.
For long-term investors, all of this reinforces the need to stay focused on financial goals rather than daily market headlines. Investors should remain patient and disciplined as the market adjusts to the economic recovery. Maintaining a proper portfolio mix to achieve long term financial goals should continue to be the main focus.
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. (2021-94)
Sign, sign, everywhere a sign. Yield is one sign that the equity markets were watching closely last week. As yields rose investors became cautious about adding to their equity exposures as there is now slowly becoming an alternative to stocks. Investors also stopped buying technology stocks as aggressively as they had been during the summer months and into early fall. Again, expectations for an economic re-opening are not only pushing yields up but stocks that will benefit from “going back to normal”. Merging has also been a favorite activity among the “SPACs”, or Specialty Acquisition Companies that are created with the express purpose of buying companies to list them directly on the US exchanges vs. going through an initial public offering. Many of these SPACs have increased in value, even though they have not yet bought another company. It is like spending two dollars to buy a dollar. Do all these signs point to the end of the 11-month rally? We will need to wait to see some more signs before making that final call.
The correction of the past two weeks has only hit the “normal” range of 3-5%, but already investors have begun panicking about the end of the rally. There are still over 70% of the stocks within the SP500 that are trading above their long-term average price. The net number of stocks rising to falling is still at a high level. Finally, the rotation to other parts of the market (other than technology) is a long-term healthy development for the market. Economically speaking, the data is decent. Retail sales continue to boom on the back of government checks sent out at the end of 2020. Real estate is doing very well due in part to historically low mortgage rates and a desire to move out of the big city as many companies are allowing working from home as a long-term proposition. Manufacturing is doing extremely well as companies work to supply all the goods that have been purchased over the past six months. There remain shortages of a variety of goods like semiconductors, that have been in high demand and supply is struggling to keep up. It is the imbalance between low supplies and higher demand that has given rise to the concern about higher inflation. So far, the reports of inflation are not (yet) high enough to warrant long-term concern.
The widening spread between short-term and long-term bond yields has been an indication of a return toward some stronger economic activity. Fed Chair Powell, in his testimony before Congress last week, reiterated their desire to keep interest rates lower for longer until the economy completely heals from COVID. Unfortunately, as we have repeated over the past six+ months, money is not going to make the economy better, until people are willing and able to go and do as they please as had been the case before the various state shutdowns. The seeds may be already sown for some unintended consequences of too much easy money for too long that will impact the financial markets in the future. For now, equities are living off the sugar high. The bond market is signaling that higher economic activity is already here and not really in need of additional stimulus. However, once the economy fully opens, many people will likely need additional aid until their prior jobs fully return.
Last week was a wild one for stocks, but in the end, saw a continuation of the rotation toward more cyclical parts of the market. There will be some corrections and short-term returns to what had been doing well, however, over the coming few years, the markets should be moving toward more cyclical companies and away from the technology favorites of the past 10 years. It is not that many of the technology companies are not good companies and have provided tremendous value to both shareholders and users alike, it is that these companies are selling at historically high multiples of earnings (and in some cases multiples of revenue) that it is unlikely for many of these company’s stock prices to continue their recent trajectory. There is a difference between buying a good company and buying a good company at a good price. Today, many good companies are selling at historically high prices to their underlying value.
The economy will continue to gradually and with many stops and starts along the way, demonstrate solid growth that should support stock prices and higher yields in the bond market. The Fed is not likely to move anytime soon and we will be watching the bond market for clues about an appropriate time to trim stock holdings.
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 how the stimulus is baked into the market, and why Chairman Powell Chairman Powell will need to stay on the path he’s on for the time being.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: You know, this is a big what if, but what if this whole thing fails? What if it goes kaput? What if they don’t get their differences reconciled and that one point nine trillion-dollar stimulus plan, the sort of the battle holy grail for this new administration, what if it just doesn’t happen? What would be the fallout? Scott Martin, Kingsview Asset Management. Susan Li, our superstar here at Fox Business. You know, I got to wonder, Susan, since the markets have factored in that it’s going to happen. It’s unlikely that it doesn’t, but it could. I mean, there were already a number of Republicans who’ve got at least a couple of Democrats with them worried about the price tag, worried about jamming in some of these other features. So then what?
SUSAN LI: Yeah, what a tangled web we weave, right. Thought you’d like that – that was for you Neil. So, yes, I think the markets are anticipating some sort of stimulus, whether it’s one point nine trillion or just a few billion. I think they pretty much said that you have to follow the money, and the money is telling you that there’s going to be money printing coming from either the White House and the government administration or from the Federal Reserve. As you’ve heard two days now with Jerome Powell, the Federal Reserve chair in front of Congress. So I think people are anticipating something. And don’t forget, you still have another trillion-dollar package infrastructure that will be also discussed and pushed for apparently already by the White House. So I think Wall Street needs something.
CAVUTO: If they don’t get it, Scott, of course, Mitt Romney has a column today ducking and bemoaning about all the issues that others are ignoring, that a lot of this is backloaded. A lot of this spending seven hundred, eight hundred billion dollars worth is meant for twenty twenty-two. So this idea that we urgently need it like now, now, now isn’t out there. So, again, I’ll ask you what I asked Susan. If this doesn’t come to be because the trip-ups on these issues, how will the market respond?
SCOTT MARTIN: It’ll feel a lot more than just a simple insect bite, Neil, where you can put some cortisone on it and take care of it in a few days, because if you want any evidence of that, I’ll tell you. Look, yesterday, yesterday, the Nasdaq is down about three and a half percent in the morning. Fed Chairman Powell comes out and starts talking about, don’t worry about inflation. We’re here for the markets. Unemployment is still terrible, et cetera, et cetera. Meaning we’ll be there for you, Mr. or Mrs. Market, as well as his partner in crime, Super Dove, Janet Yellen, treasury secretary, who’s been out talking about more stimulus, more trillions, wherever we can find it, print it, sell it and send it out. So the reality is, Neil, this is kind of baked in the markets to a degree, I believe. But the more it’s talked about in, the more becomes a reality, more the market loves it. The scary thing I will tell you, though, is even if Chairman Powell wants to get out of this situation and say, hey, if data changes, maybe we’ll change our role or slow our roll, the markets freak out. So he’s got to stay in the path he is on for now at least.
CAVUTO: Do you think, Susan, that that’s another superhero analogy? If you think about it, he’s in that role, Chairman Powell, of being like the superhero is going to guard and protect the markets. And his stance over the last two days is where I’ve got your back, does he?
LI: Yeah, that’s exactly what you’ve heard. You’ve heard all the right things being that we’re going to stay low, lower for longer and continue buying more than one hundred billion dollars of bonds each and every month. And what I took away yesterday was at six percent GDP forecast that he made for twenty twenty-one, saying that the recovery in the back half of this year is going to be stronger than the first half. And that will be, by the way, pushed through by the Federal Reserve or the White House and the government printing more money. There will be trillions of dollars there that will liquidate the market. And as we say that, you have to follow the money and watch growth managers. And what the money is telling you is that it’s still going into stock markets that’s liquify. So I use the wrong verb there. But you know what I mean? Meaning that you have to follow where the money is going and it’s going into stock markets right now and risk assets.
CAVUTO: So real quickly, Scott, do you see that changing? I mean, give me sort of your lay of the land for at least the next few weeks here.
MARTIN: No. And we’re cautious as far as bonds go, Neil. So Susan’s right. Money goes into stocks as a result. It goes into Bitcoin, it goes into gold, which are things that appreciate when there’s so much Fed printing. And I love the numbers. Susan threw out six percent GDP growth. We’ve got an improving, improving economic picture, yet Fed funds rate at zero and the Fed’s buying one hundred billion a month. Hey, why not start the party and keep it going?
LI: And by the way, six percent, just my follow up on that, Neil, six percent is almost three times the average for the GDP growth that we’ve seen over the past ten years. So that’s a lot. That’s a big bet. That’s your V shape recovery right there.
CAVUTO: But do you think we’re coming from awful levels, right? So, yes, it is good. I’m not minimizing that. But again, you know, it’s coming from depressed levels, but we’ll see. Guys, thank you both very, very much.
Kingsview CIO Scott Martin discusses the manipulation of GameStop and the fundamentals of the market.
Program: Cavuto Coast to Coast
Station: Fox Business News
NEIL CAVUTO: Let’s go to Ann Berry, I believe she’s still with us and Scott Martin, is Jackie with us as well? I just see Ann and Scott, So Ann let me get your take on that – Jackie is there – basically this is going to go on a long time. And basically, I can kind of see that, you know, the political response – We better not leave this with no response. They’re under increasing pressure by their own words and their threats to do something. What I’m not clear on and I know you’re leery of maybe the government getting over involved here, but that something is going to be done. I guess what I’m asking you then is what would do the least harm in the market’s eyes to police this? Because the market, I guess, is always worried if you police them how soon is before you police us, if you restrict their trading, how soon is it before you go after restricting our trading, if you charge them for doing what they did – how soon is it before you charge us for trades and all this other stuff that’s out there, you know, all across? I’m just wondering what would be the least foul alternative as far as government interaction here?
ANN BERRY: You know, Neal, I want to wonder whether one of the lessons that could be taken and looking at the banks out of this financial crisis could start to be applied for some of these alternative asset platforms. One of the things that the CEO of Robin Hood is saying in different ways when he’s asked the question is we weren’t ready. We couldn’t have anticipated for this to happen. And so we didn’t have the liquidity available to handle the unthinkable. And so, Neil, when I think about what could be a path of less harm as the new administration learns their way through this, is there a way to ask the Robin Hoods of the world to move the hedge funds of the world, to do more stress testing, to really try and analyze what would happen to their business models under certain risk scenarios or even thinking the unthinkable and make sure that they have a plan in place, a business continuity plan in place to handle it. So that’s one idea I would throw out there that helps to get some education going to the regulatory institutions, but also forces some of these business to make sure they’re prepared in ways they haven’t been so far.
CAVUTO: All right Ann but that makes way too much sense, so that’s not going to happen. So we’re done with you. Scott, I’d be curious to what do you tell investors? Because I’ve always step back and I’m always intrigued by how you guide investors through something — you can understand their frustration about. This is the only game in town. I see so many people around me and hear about these guys have become instant millionaires or would have should have could have on Bitcoin when it was trading at a thousand. Now it’s north of fifty- one thousand. They want in on that party. But as you know in your young life, I mean that, that, that’s not a widespread or heavily attended party. There are very few people who managed to pull that kind of thing off. So, what do you tell them when that especially younger investors who hear that you’re offering them a, you know, a market superior return, but they’re saying, well, yeah, eight, nine, ten percent, no, thank you. I want the fifty, hundred, three hundred percent return. What do you say?
SCOTT MARTIN: Yeah, they want the stuff that everybody’s talking about. But I don’t think a lot of people, to your point, Neil, are actually getting it – makes for good headlines. It’s good sensationalism, but it’s really not there as investment advisers. I have clients of my own, Neil — You know, we try to steer clear of some of this really speculative stuff. I mean, unlike Roaring Kitty and nothing against them, I don’t know him personally, but for him to come out and say that GameStop was an attractive stock at five, ten, fifty, one hundred, because the fundamentals seems nuts to me. To your point about stuff that we invest in, like the Amazons, the Googles, the Microsoft, the Apples, the Adobes, PayPal’s Visas, companies, we really like and understand and fundamentally have some security in them. Those are where we direct our investors, because unlike some of the comments in the previous segment about how this is a bad mark on the overall market, I really don’t think it is. I think to put GameStop and Bed, Bath and Beyond and AMC and Fossil and a couple others, these stocks that got really manipulated into the same category as, oh, this can happen to Amazon and Microsoft and Google. I just don’t see it. Those companies are way too big and way too actively traded to have this kind of manipulation that came through on GameStop when it was trading at five dollars a share and was well under a billion dollars in size. I mean, it was as Charlie said earlier, basically a penny stock. So we try to steer clear of these kind of speculative names, Neil, and get people into real fundamentals of the market, which you can find and you can find return and you can find some safety and some more predictability and I think the names that I mentioned.
CAVUTO: That’s interesting, I just should have listened to my teenage sons because, well, I thought GameStop was going out of style because we all download games and they seems plenty cool to us dad and by the way, just give us thirty bucks for this. So maybe I missed something there, but I’m clearly showing my ignorance. But, you know, Scott raises a very good point, though, Jackie, when you think about it, he drew distinctions and did research and his firm does research as does Ann’s. Just take a look — there is a difference between an Amazon or, you know, some of these other companies that come along or Tesla that — that are building something that a smart analyst could start, you know, crunching the numbers, saying alright this is not a Pets.com, this is not some pie in the sky investing on potential versus earnings that might never come. There is a craft to that, and it’s called homework. It’s doing your research. Sometimes the research doesn’t pan out right away. Early investors of Amazon were frustrated. They weren’t seeing any gains for a long time before where they were. But –but — but there’s no shortcut to homework. I don’t know what that’s, you know, any sage advice on my part. But I would say that, you know, hard work is one thing, but also doing your research matters, no matter what it is in terms of buying, you know, a furnace for your home or, you know, checking out contractors and who’s good at what and yeah, buying stocks, that that might be risky. What do you think?
JACKIE DIANGELO: It’s a lesson for all of us, Neil. And it applies broader than just the stock market as well. As you say, you know, when you work hard for a buck and you’re going to spend it on something, whether it’s an equity purchase or a physical asset, like you mentioned, you know, remodeling, whatever the case may be, you do need to do your research to make sure that you don’t get burned. And you mentioned the companies, the tech companies that everybody loves, like Amazon, Microsoft and Apple. These are companies that if you sat back and looked at them and you could pull their financials up on the Internet, you could see they have cash flow, they have earnings, they have a business model, they have innovative leaders. They’re trying to change their business model with a plan, with a structure. The last time that I was talking about GameStop before the frenzy was an assignment where I was standing in front of GameStop telling you about the fact that there was nobody in the store, nobody was buying anything, and this wasn’t a sustainable business model anymore. So there are some people out there like Roaring Kitty, for example, who will say, well, they finally got with the program and they’re not just selling these game cartridges. They’re going to start competing with Fortnight and all of these online gaming apps and whatever the case may be. But they’re really, really late to the party. I mean, so what it comes down to about investing is sit back, look at the thesis, try to understand what the business model is, what they’re doing. Are they an early mover? Are they late mover? Really basic stuff. But to your earlier point, people look at the stock market and they see other people making these kinds of gains and the Hedge Funds and smaller investors and they want a piece of it and they sort of feel like they’ve been left out of it. So, something like this happens with GameStop. And remember the role that technology played here. I will disagree with Roaring Kitty and say this is not like the conversation that you have on the golf course or at the water cooler. The technology democratized that conversation the same way it did in the Arab Spring, which I covered, for example, where people were able to organize themselves and they were able to get together in a way that they never have before, that technologies out there. So this is not going to stop as we move forward.
CAVUTO: Yeah, you know what gives me pause, though- and reputable stock people who follow the market for a living, they generally don’t have nicknames, right? I mean, I know Warren Buffet is the Sage. I get that. But Scott Martin is not Madman Martin, you know,
MARTIN: I might be now.
CAVUTO: You are now. But if I know I’m going in to an investment recommended by Roaring Kitty someone should grab me and just say Neil now what are you doing. And, and sometimes these are manifestations of a lot of craziness that well I tell people maybe you should step back a little bit. There might be perfectly justifiable reasons to get into this. And you like hearing them from a guy named Roaring Kitty. Fine. But maybe that should tell you something that maybe that should indicate how frothy and almost theatrical this is, this has become. But I’m just wondering whether that kind of behavior that drove mentality to follow that behavior is part of the problem here. We’re getting a little ahead of ourselves. What do you think?
BERRY: I think Jackie sort of touched on when she talked about the Arab Spring, I mean, the fact that that could be drawn as the comparisons extraordinary, but it points to the idea that this crowdsourcing of ideas, social media pulling on so many different individuals to come up with ideas, project them and amplify them, whether it’s on stock trains, whether it’s or political positions. I think what you’re really sort of leaning into here, Neil, is do we have appropriate disclaimers? Do we have on these platforms enough caveat emptor or buyer beware warnings that the content that people are receiving is not from folks who are professionally trained in that whole homework process, which Jackie laid out. And so, you know, I don’t know that Madman Martin necessarily is going to be the turn of the people to listen to those voices. I mean, I will see that Twitter handle, I’m sure will bounce up. But I do think it’s about disclaimer. And again, I think it comes about how do we reach folks, younger folks who are digitally native, who are growing up with social media and mobile devices in their hands, and how do we teach them early to do their homework on where their content is coming from and to make sure that they’re educated from lots of different sources before they go ahead and pull the trigger on some really risky behavior.
CAVUTO: All right. I’m still working on a nickname for you Ann, Scott I have you figured out. Jackie, don’t get me started, but we’ll see. We’ll see what happens. By the way, one viewer is letting me know who are you to rail against nicknames, Neal? That he’ll see what you see up there with amorphous
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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | FEBRUARY 24, 2021
Recent frigid weather across the American South resulted in state emergencies, including in Texas where millions were without power and potable water for several days. And while Texas has an independent energy grid, the disruption to oil production and refineries was felt across global energy markets. Amid ongoing investigations and political finger-pointing, many investors may be asking how this could affect their portfolios.
It goes without saying that energy is the lifeblood of the economy, with global oil demand reaching 100 million barrels per day prior to the COVID-19 crisis. Although there is increasing attention on renewable energy sources, including among investors, fossil fuels still constitute the vast majority of energy use.
Oil and natural gas prices tend to be highly correlated with economic booms and bust, as was seen during the mid-2000’s housing bubble when crude reached historic records and, more recently, during the nationwide lockdown when oil prices plummeted. This latter episode resulted in a negative price of oil when financial investors were forced to pay to get rid of contracts in order to avoid taking physical delivery.
Less than a year later, oil prices have recovered somewhat as the economy has rebounded. These episodes are a reminder that disruptions to energy markets can occur at any time. Challenges facing U.S., Middle East, and other regional producers are always possible. Fortunately, it appears that production can eventually get back on track, inventory levels can cushion the shock, and demand is still relatively weak due to the pandemic.
Longer-term, there are three key ways, among many, in which energy has a mixed impact on diversified investors. First, the performance of the energy sector directly impacts the S&P 500. For instance, the 2014/2015 oil price crash resulted in an 80% earnings decline for the energy sector, causing an “earnings recession” for the overall market. Although this didn’t result in a broader bear market or economic recession, it was certainly felt by investors and those who work in the industry.
More recently, rising oil prices have helped to boost the sector. While earnings are far from their levels prior to 2014, they have climbed significantly from their 2020 lows. This is one reason that energy sector shares have climbed over 20% this year. Second, higher energy prices are effectively a tax on consumers and businesses. Gasoline prices have been rising steadily since last year with the national average of regular unleaded climbing 80 cents to around $2.50 per gallon. Although many Americans are driving less during the pandemic, higher gasoline prices eventually filter through to all goods and services.
Finally, higher energy prices fuel concerns of rising inflation. While inflation measures usually exclude volatile categories such as food and energy, rapid increases in these prices can make them hard to ignore. So far this year, commodities have outperformed the S&P 500 as an asset class by returning over 9%. There are even those calling for a new “commodities supercycle” – a decades-long rise in commodity prices and production. Whether this occurs has yet to be seen. In the meantime, the increases in prices, demand and supply of oil, metals and agriculture commodities mirror the economic recovery.
It will take time for the dust to settle on the recent disruptions in the South. The ongoing challenges to the energy industry may take time to work out as well, especially for those who depend on it for the livelihoods. In the meantime, investors ought to focus on the longer-run implications of rising energy prices beyond recent headlines.
Oil prices have been recovering steadily since the COVID-19 lockdown began
1.) Oil prices have been recovering since they fell into negative territory last year.
2.) Recent weather events in the American South have disrupted production, pushing prices up further.
Oil prices have direct consequences for the energy sector and the overall stock market
1.) Oil prices directly affect the energy sector which, in turn, impact the overall stock market. This was best seen during the 2014/2015 oil price collapse which resulted in an “earnings recession” for the broader S&P 500.
2.) Conversely, higher energy prices have helped to boost the sector significantly since the 2020 lows.
Gasoline prices have been rising, affecting all consumers and businesses
1.) Energy prices, and gasoline specifically, directly impact consumers and businesses. While prices are still below their long-term averages, they have been rising over the past year.
2.) Due to how rapidly prices are rising, fears of inflation have spurred across the country.
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. (2021-85)
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