Portfolio Manager Insights | Weekly Investor Commentary – 3.9.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 3.9.22
Investment Committee

Interest rates have swung wildly in recent weeks due to the Fed, the conflict in Ukraine, and the spike in oil prices. The 10-year Treasury yield briefly exceeded 2% last week before falling back. For those who may not watch interest rates closely, these changes may seem insignificant. But not only do interest rates play important roles for investors, savers, and borrowers, they also provide an important signal of the health of the economy and financial system. How do rates at these levels affect investors and what do they tell us about the market environment?

On a theoretical level, interest rates reflect expected economic growth and inflation. Record levels of inflation over the past year have created upward pressure on rates. After all, an investor who buys a bond will require a higher interest rate if the dollars they receive in interest and principal payments will be worth less due to inflation. Strong economic growth also pushes interest rates higher since investors could find alternative ways to invest their money for higher returns.

On a more practical level, investors tend to buy Treasuries and other lower-risk bonds during times of stress and uncertainty as we’re seeing today. This demand increases the prices of these bonds which lowers their yields, especially for bonds that reflect additional risks such as longer maturities. In this way, bonds help to balance riskier parts of portfolios, as we have seen during periods of volatility over the past decade.

Thus, there are at least two competing forces acting on interest rates today. On the one hand, inflation is forcing the Fed’s hand as it plans to raise rates beginning next week. It is widely expected that the Fed will lift the federal funds rate by at least one-quarter of a percent for the first time since before the pandemic. The market still expects up to six rate hikes this year, or nearly one every Fed meeting, although this is subject to change. By raising rates, the Fed’s goal is to contain inflation by gradually stepping on the brakes.

On the other hand, the conflict in Ukraine, sanctions against Russia, and the impact on oil prices is creating significant market uncertainty. Many stock market indices, including the S&P 500, Dow and Nasdaq, have fallen into correction territory and interest rates have declined as a result. Oil prices have spiked even further with Brent crude now trading above $120 per barrel. The threat to economic growth is a reason for the Fed to keep rates steady while rising energy prices are a reason to raise rates to further combat inflation. This naturally puts the Fed in a bind.

However, it’s also important to keep the broader historical context in mind. While interest rates have risen since the start of the year, they are only back to levels last seen at the start of 2020 and near their peaks in 2021. Over a multi-year horizon, interest rates are still significantly lower. In fact, it’s still the case that interest rates have been declining since the late 1970s for a variety of reasons that have nothing to do with short-term crises. Technology, globalization, worldwide cash savings, and other factors have conspired to push interest rates lower decade after decade.


Interest rates have had a rocky few years

KEY TAKEAWAY:

1. Interest rates have increased this year across the yield curve due to inflation and the Fed. Still, the 10-year Treasury yield is only near levels last seen in 2021 and 2020, and is still significantly lower than it was in 2019.

So, while interest rates do rise and fall within each business cycle, the overall trend has been lower across cycles. At the moment, high inflation and strong U.S. economic growth are expected to keep pushing rates higher over the long run. In the near-term, however, geopolitical risk is creating an environment of uncertainty. This means that the challenges investors have faced with low rates throughout the last decade will likely continue for some time.


Rates are still low by historical standards

KEY TAKEAWAY:

1. While rates do rise and fall during business cycles, they have been declining across cycles for 40 years.
2. With inflation surging, driven in no small part by energy prices, this time could be different. Still, investors could face the challenges of low rates in the near term as market uncertainty continues.

For instance, for borrowers and home buyers, mortgage rates remain attractive despite increasing over the past several months. For savers, the challenge of generating sufficient income from cash and high-quality bonds will likely continue. This potentially means that finding alternative sources of income, from high-yield bonds to dividend-paying stocks, is still as important as it has been since 2008, especially with valuations more attractive today.


Portfolio yield is still scarce in this environment

KEY TAKEAWAYS:

1. One of the primary challenges of low rates is the scarcity of portfolio income. This is especially true once inflation is taken into consideration since this erodes the purchasing power of cash savings over time.
2. This is an important reason for investors to stay focused on the long run by holding an appropriate portfolio that can generate sufficient growth to meet financial goals.

Ultimately, this period highlights the importance of staying diversified across asset classes. Stocks and bonds each play unique roles in the portfolio. In times of stress over the past decade, fixed income has helped to keep portfolios stable when investors need it the most.

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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 3.2.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 3.2.22
Investment Committee

While the humanitarian impact of Russia’s invasion of Ukraine is the top concern, investors also continue to face a challenging market environment as the conflict intensifies. Not only are geopolitical lines being redrawn in the region, but escalating sanctions and Russia’s ban from SWIFT, a system for global money transfer, are raising questions for global financial stability. But perhaps the most immediate global impact of this conflict is on energy prices. Oil prices have spiked in recent days to their highest levels since 2014, with Brent crude above $100 per barrel. What implications might this have for investors and everyday consumers in the months to come?

The challenges created by the Russia/Ukraine conflict only add to storylines of the past two years. During the initial stages of the pandemic lockdown, the front-month oil contract fell into negative territory. This had never occurred in history and was due to a lack of oil storage capacity driven by the collapse in demand. In other words, contract holders were so desperate to offload their oil that they were willing to pay others to take this otherwise valuable commodity.

The world has changed significantly since then. Over the past two years, oil prices have recovered alongside the economy, with a few bumps due to growth concerns and COVID-19 variants. As a result, rising energy prices have been a major contributor to rising inflation. Last month’s Consumer Price Index report, for instance, showed that energy prices rose 27% over the previous year and gasoline prices skyrocketed 40%.

From an economic perspective, energy affects everything. The world is still primarily driven by fossil fuels despite an increased focus on renewables among investors. The International Energy Agency (IEA) estimates that global oil demand will reach 100.6 million barrels per day this year, surpassing its pre-pandemic level. Of course, where this oil is produced has changed over the past decade due to the so-called U.S. energy renaissance. Still, OPEC+, which includes Russia, are important suppliers of both oil and natural gas, especially to Europe. To combat higher energy prices, especially at the pump, the U.S. administration is expected to release oil from the Strategic Petroleum Reserve, and it’s possible that supply from Iran could come back to the market pending nuclear talks.

While the dynamics of the oil and gas markets can be complex, there are a few simple ways in which energy prices affect investors. First, rising energy prices could continue to support higher inflation rates for some time. This hurts consumer pocketbooks and reduces discretionary income, effectively functioning as a tax. For businesses, higher energy prices can boost the cost of products and services directly and indirectly. Gasoline, for instance, has risen from a nationwide average of around $1.75 a gallon in early 2020 to over $3.40 today


Oil prices have spiked

KEY TAKEAWAY:

1. Oil prices have jumped as the Russia/Ukraine conflict intensifies. Brent crude has surpassed $100/barrel, the highest level since 2014.
2. However, oil prices have been rising steadily over the past two years and many expected oil prices to reach these levels in 2022 regardless of geopolitics.

Second, the energy sector of the stock market has benefited from the oil price recovery of the past two years. Energy stocks have done well with the S&P 500 energy sector rising 23.4% year-to-date and 41.5% over the past year. It is the only sector in the black this year and has far outpaced all other groups over the past twelve months.

However, for those who are properly diversified, the energy sector accounts for just under 3.5% of the S&P 500’s market capitalization. The fact that the sector has made these gains emphasizes the importance of investing within and across markets. This is a significant shift from the areas that performed well during the initial economic reopening, i.e., technology and growth stocks. This underscores the fact that it’s difficult to know what may or may not outperform in any given year, especially once a sector falls out of favor, and thus it’s important to be broadly diversified.


Higher gasoline prices hurt consumer pocketbooks

KEY TAKEAWAY:

1. Perhaps the most direct impact of rising energy prices is at the pump. Consumers have experienced a near-doubling of gasoline prices since 2020, alongside other factors driving inflation. Higher gas prices serve as a tax on consumers and act as a drag on the economy.

Third, higher inflation and prices could act somewhat as a drag on the overall economy. However, growth is expected to slow anyway from its feverish reopening pace. While rises and collapses in oil prices have been correlated with bull and bear markets, this has more to do with their common connection to the economy. When growth is strong, oil prices tend to rise as does the stock market. Thus, focusing on the underlying fundamental trends is ultimately more important when considering market performance over the course of years and decades.


The energy sector has outperformed over the past 12 months

KEY TAKEAWAYS:

1. The energy sector has rebounded strongly this year and over the past twelve months. This underscores the need to stay diversified across sectors since leadership within the market can shift unexpectedly.

The next several months will be challenging for investors as the conflict in Ukraine plays out. However, investors are always faced with potential problems whether it’s trade wars, the pandemic, lofty valuations, rising interest rates, geopolitical conflicts, or other issues. Clearly understanding the key issues while resisting the urge to overreact is still the best approach to achieving long-term financial success.


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)

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Portfolio Manager Insights | Weekly Investor Commentary – 2.23.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 2.23.22
Investment Committee

For long-term investors, facing periods of geopolitical risk is unavoidable. Headlines on regional and global conflicts can be alarming since they are unlike the typical flow of business and market news. These events are also difficult to analyze and their outcomes challenging to predict. Of course, this doesn’t stop many short-term traders from talking about “buying the invasion,” betting on oil prices, and trying to time the market, nor does it stop market strategists from making bold predictions on how the S&P 500 might react. In these situations, it’s often better to hold a properly diversified portfolio and stay level-headed than to try to guess what happens next. How can long-term investors stay calm in the face of geopolitical conflicts today?

Recent events concerning Russia and Ukraine are troubling but still evolving. On the surface, Russia is seeking to assert its claim to the Russian-controlled regions of Donetsk and Luhansk, with their forces now entering the region after weeks of build-up and intelligence warnings. Like the 2014 annexation of the Crimean Peninsula by Russia, these moves violate the sovereignty of Ukraine. The U.S., Europe and NATO allies have responded with plans for sanctions and their own military action, and Germany has also placed approval of the Nord Stream 2 pipeline, which would carry Russian natural gas, on hold. In reality, the true motivation for Russia goes beyond these two statelets and involves decades of tensions since the end of the Cold War.

The current situation adds to the many geopolitical crises this century that have been intertwined with business cycles. These include: the attacks on September 11, the war in Iraq, the so-called Arab Spring, Russia’s annexation of Crimea, periodic North Korean missile crises, tensions between China and the U.S., the U.S.’s exit from Afghanistan last year, and many more. While each of these episodes is geopolitically impactful, especially when there are humanitarian consequences, this does not always mean there are implications for long-term portfolios.

This is because, while markets may react to a variety of news on a daily and weekly basis, what drives portfolios over years and decades is quite different. Over longer periods of time, slow and steady economic growth, corporate performance, and valuations matter much more. This was true during the conflicts mentioned above as well as in the decades following World War II and during the Cold War when there were several long bull markets.


Geopolitical events can startle markets in the short run

KEY TAKEAWAY:

1. The history of geopolitics and the stock market is mixed. In the long run, markets tend to recover and perform well, primarily because business cycles are what matter over years and decades. In cases like 9/11 and the ensuing wars, markets were down because of bear market conditions already in place.

Some events such as 9/11 and the wars in Iraq and Afghanistan that followed were certainly met with market declines. However, these pullbacks coincided with the dot-com crash which was entirely unrelated. Conversely, the various conflicts since the 2010’s including multiple civil wars in the Middle East, Crimea, and the on-going nuclear threats in North Korea and Iran, were against a backdrop of a strong economic cycle. While there was occasionally short-term market uncertainty, the business cycle is ultimately what drove stock returns. The history of the 20th century across World War II, the Vietnam War, and the Cold War only further underscore this point. Today’s headlines are occurring during a strong economic expansion and just as the market is reacting to the Fed’s imminent rate liftoff.

Energy prices can be affected by these conflicts since they have tended to involve oil and gas producing regions. This is true today with energy prices rising steadily as Brent crude approaches $100 per barrel. As a member of OPEC+, Russia is an important supplier of oil and natural gas to many parts of the world, notably Europe.


Oil prices have been climbing throughout the recovery

KEY TAKEAWAY:

1. Oil prices have been recovering steadily since they collapsed at the start of the pandemic. While regional conflicts can affect energy prices, history shows that this is neither guaranteed nor are there always long-lasting effects.

That said, energy prices had already been rising steadily throughout the pandemic recovery and in response to lower-than-expected OPEC+ production. During the 2014 episode in Crimea, there was little direct impact on oil, and even the 2019 drone strikes against Saudi Aramco by Iran and others, which knocked out 5% of global oil production overnight, saw only a short-lived reaction in oil markets. Thus, the direction of energy prices can be difficult to predict.

Of course, the economy and cash flows are not the only factors that affect stock prices. Markets depend on global stability, the rule of law across regions, and business/consumer confidence. Regional conflicts that could involve the United States and its allies can increase the “risk premium” or “discount rate,” to use finance terminology. In theory, even if corporate profits and cash flows are unaffected, the possibility that they could be affected is enough to hurt investor confidence and stock prices. After all, if the world does destabilize, cash today is worth much more than the promise of cash far out into the future.


The stock market has grown despite a century of major conflicts

KEY TAKEAWAYS:

1. The past century witnessed several major global conflicts including World War II, the Vietnam War, and the on-going tensions of the Cold War.
2. Throughout these periods, the economy and stock market were able to grow steadily. For long-term investors, overreacting to these events would have been the wrong move.

However, history shows that it’s a mistake to make dramatic shifts in portfolios in response to geopolitical crises. Properly diversified portfolios, especially those built around long-term financial plans by a trusted advisor, are designed to handle these periods of uncertainty. It’s always the case that markets can swing wildly at any moment, whether it’s due to wars, economic shocks, financial crises, pandemics, and more.

None of this is to dismiss the severity of the current situation in Ukraine from a geopolitical, humanitarian, or regional economic perspective. While these issues will be closely watched, investors ought to avoid passing judgment with their portfolios. Instead, investors should consider these events in a broader economic and market context. Geopolitical risk is unavoidable when investing over the long run. Investors should stay level-headed and hold balanced portfolios to navigate through the months ahead.


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)

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Portfolio Manager Insights | Weekly Investor Commentary – 2.16.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 2.16.22
Investment Committee

It’s no secret that the prices of everyday goods are rising quickly from their pandemic lows due to strong consumer demand and on-going struggles with global supply chains. Not only does this impact consumers’ wallets but it also has wide-ranging implications for investment portfolios. However, it’s important to keep inflation, consumer sentiment, and the overall growth of the market in perspective when making long-term financial decisions. After all, the same factors that have pushed up the prices of goods have also boosted stock prices, home values and more. How can investors focus on both sides of this equation when it’s tempting to react to individual data points?

In January, the consumer price index rose by 7.5% over the prior year, the fastest pace since 1982. This was fueled by everyday necessities such as food and energy which rose 7% and 27%, respectively. Other major categories continue to be impacted by supply chain disruptions, most notably for vehicle prices which rose 12.2% for new cars and 40.5% for used ones. Basic needs such as housing and apparel are more expensive as well.

There is no doubt that prices have increased significantly and have remained higher longer than many economists originally anticipated. Inflation affects our everyday lives in several ways and, naturally, this disproportionately hurts consumers who either live paycheck to paycheck or who are in or near retirement. However, it also impacts those who have not benefited from a proper set of diversified investments. Thus, it’s important for investors to separate three relevant impacts of rising prices on their financial needs.

First, inflation is already affecting consumer sentiment. Recent surveys suggest that consumers expect inflation to average 5% over the coming year before beginning to decline. This pattern is consistent with what many economists expect, i.e., that inflation will peak around mid-2022. To the extent that strong demand has been one driver of inflation, consumer expectations that dampen buying activity could deflate prices somewhat. This is also because other boosts to buying activity such as the stimulus checks of the past two years are now in the rear-view mirror.

The upshot is that consumer buying activity could slow from their recovery highs to more normal levels. This will likely affect the top-line sales figures of many companies, but it was never sustainable to expect retail sales to remain near multi-decade highs. As long as revenue and earnings growth remain steady, history shows that the stock market and investment portfolios can benefit over time.


Consumers expect inflation to get worse before it gets better

KEY TAKEAWAY:

1. Consumer sentiment has plummeted in no small part due to rising inflation concerns – in some cases higher than many have experienced in their lifetimes. Still, these surveys also show that expectations fall after a year which suggests that consumers do not expect inflation to remain high forever..

Second, while higher prices affect everyone’s pocketbooks, the average consumer is doing well financially. This is because inflation doesn’t just increase costs – it also boosts home prices, asset valuations, savings rates and more. Household net worth in the U.S. is at a record of nearly $145 trillion which can also create a “wealth effect” that supports long-term consumer spending beyond the initial recovery. Thus, it’s important to consider the full consumer income statement and balance sheet when evaluating the impact of inflation.

Finally, all of these factors underscore the need to hold an appropriate portfolio to offset rising expenses. Specifically, this means being aware of spending requirements relative to portfolio yield and other sources of income. With consumer price inflation rising quickly, the average savings account or certificate of deposit not only isn’t keeping up, but its value can be quietly eroded over time.


Household net worth is at record levels

KEY TAKEAWAY:

1. Despite fears that inflation could boost costs, the average consumer is benefiting from the highest level of household net worth in history. In the long run, this wealth effect is what should drive consumer activity rather than the one-time shock of inflation.

Whether inflation continues to rise at this pace depends on what is driving it in the first place. If inflation does prove to be more about supply chains than about monetary policy, for instance, then over-reacting in one’s portfolio by only focusing on inflation may not be the right move. Similarly, if inflation does remain hot but in a way that benefits corporate profits, many parts of the market can still do well even as the Fed hikes rates.


Inflation quietly erodes the value of cash

KEY TAKEAWAY:

1. For many, the primary challenge is that inflation erodes the value of hard-earned cash savings. This underscores the need to properly invest this cash to generate a return in order to preserve purchasing power over time. Stock market returns were robust in the 1960s and earlier, just as they have generally been since the 1980s following the Reagan tax cuts.

As always, it’s best to hold a portfolio that can withstand different economic conditions across a full business cycle, ideally with the help of a trusted advisor, in order to stay on track to achieving long-term financial goals.


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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 2.9.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 2.9.22
Investment Committee

The U.S. Treasury has reported that the national debt surpassed $30 trillion in 2021, a fact that has fueled headlines and concerns. This means that the federal debt has doubled over the past decade and, with very few exceptions, has grown nearly every year over the past century. This also adds to the recurring fiscal debates over the debt ceiling, avoiding government shutdowns, the size of economic stimulus bills, and more. How can investors view government spending with the right perspective and stay focused on what drives markets in the long run?

Naturally, the large and ever-growing national debt is a controversial topic that impacts the economy and markets in complex ways. At its core, budget deficits occur when the government spends more than it collects in taxes and other sources of revenue, which adds to the total debt. Even though tax revenues tend to increase as the economy grows (even without raising tax rates), they have been outpaced by spending over time. These expenditures have grown across “mandatory” programs such as Social Security and Medicare as well as “discretionary” items such as defense and education. The shortfall is funded by government borrowing, i.e., by issuing Treasury securities.

It’s important to distinguish between what should matter as investors and what might matter as citizens, voters and taxpayers. As individuals, many have strong personal and political views on government spending and taxation, and what it may mean for the country over the coming generations. However, this can be distinct from whether deficits directly or indirectly impact the economy and markets. From a portfolio perspective, investors typically worry about how the debt is measured, whether it will cause interest rates to rise, if it will drive up taxes, and more. Here are three facts to keep in mind on what the growing national debt does and doesn’t mean.


The federal deficit spiked during the pandemic

KEY TAKEAWAY:

1. The federal deficit has remained high due to ongoing stimulus programs. While this can be alarming to some, history shows a clear pattern of deficit spending during crises. This then improves once the economy gets back on track.

First, while the dollar amount of the national debt and deficit are important, what matters more is their size relative to the economy. The fact that the national debt has grown significantly may be troubling in isolation, but the economy has also grown roughly 60% over the past decade. The annual budget deficit in particular is large in dollar terms and amounted to 12% of GDP in 2021. This is by no means a small percentage but there have been several periods across history – primarily during economic downturns and wars – when the government has been forced to spend at this level. History shows that, over time, this improves as the economy stabilizes, even if deficits don’t turn into surpluses.

The unfortunate reality is that deficit spending does not seem to be going away, with neither major party focusing on the issue. Thus, it’s important to consider what type of spending is driving the deficit higher. It’s no secret that, over the last two years, the skyrocketing national debt is primarily due to pandemic stimulus programs. Combined, the CARES Act and subsequent bills amounted to about $5 trillion in new government spending.


Most Treasuries are held within the U.S.

KEY TAKEAWAYS:

1. The distinction between total debt and net debt is an important one – the difference being the amount of debt held by the government itself.
2. Additionally, the majority of Treasuries are still held by U.S. individuals and institutions. While international holders are growing in importance, we have not yet reached an inflection point.

Second, about two-thirds of the national debt is held either by the government itself or by U.S. citizens. The amount held by government entities is generally excluded by economists when considering the total size of the debt, since this is the equivalent of moving money from one pocket to the other. Thus, the many headline numbers that focus on total debt rather than “net debt” may not provide the most accurate picture.

That said, many investors worry that growing debt and deficit levels means that Treasuries could be less attractive in the future. In the extreme, this could hamper the government’s ability to roll its debt, possibly leading to skyrocketing interest rates. And while this is a possibility, there have not been signs of it yet. Even in 2011, when Standard & Poor’s downgraded the U.S. debt during the fiscal cliff standoff, investors didn’t sell their Treasuries – they rushed to buy more. Ironically, this is because U.S. debt securities are still the standard for stable, risk-free assets in the world.


Tax rates have fluctuated but markets have done well throughout

KEY TAKEAWAY:

1. While most individuals do not wish for higher taxes, history shows that the stock market has performed well across different tax rate regimes. During the first half of the 20th century, there were many periods when the highest marginal rates were around 90%.
2. Stock market returns were robust in the 1960s and earlier, just as they have generally been since the 1980s following the Reagan tax cuts.

In the near-term, interest rates could rise further due to government borrowing and the Fed beginning to “run off” its balance sheet. This would impact long-term interest rates more than Fed rate hikes, which could affect borrowing costs and valuations across the market. Of course, the Fed will do this while monitoring financial conditions.

Third, and perhaps most importantly, markets have done well regardless of the exact level of the government debt and taxes over the past century. As unintuitive as it might seem, the best time to invest over the past two decades has been when the deficit has been the worst. These periods represent times of economic crisis when the government is engaging in emergency spending, which tends to coincide with the worst points of the market. And while this isn’t exactly a robust investment strategy, it does underscore the importance of not over-reacting to fiscal policy in one’s portfolio.

Thus, the topic of the federal debt can be complex and controversial. As with many heated issues, it’s important for investors to separate their concerns and not react with their hard-earned savings or investments.

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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 2.2.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 2.2.22
Investment Committee

At the moment, headlines are focused on the stock market correction, especially among technology stocks, that has been building for weeks. The NASDAQ has declined about 15% this year, the S&P 500 tech sector has fallen by nearly as much, and some individual stocks have performed much worse. The overall S&P 500 is also near an official correction (defined as the index closing 10% below its recent all-time high).

While short-term market pullbacks are normal and inevitable, especially within volatile parts of the market, many investors are naturally concerned about what this means for the year ahead. Now, more than ever, investors ought to stay disciplined and view market moves with the right perspective. Those investors who can do so might even benefit from market opportunities.

The fact of the matter is that 10% corrections occur on a regular basis, even in years with otherwise strong market returns. No matter how bad pullbacks feel, markets typically recover within a few months which can catch investors by surprise. The current correction may be more striking because it is happening at the start of the year even though this timing is purely coincidental.


The economy continues to reach new peaks

KEY TAKEAWAYS:

1. The overall economy exceeded its pre-pandemic levels in the middle of 2021.
2. As GDP growth continues as a fast clip, the economy is reaching new peaks each quarter. In the long run, this is what matters to investors – not day-to-day headlines.

This is because not all boom-bust cycles are made equal. The root of the global financial crisis was debt, and it is harder for the economy to recover if individuals, businesses and banks are de-leveraging and afraid to expand their spending and investment activities. In contrast, the latest recession was a self-induced shutdown in response to the pandemic. Whether one agrees or disagrees with how this was managed, it’s undeniable that many businesses and factories were able to reopen without losing much know-how or productive capacity. In many ways, this was like turning off and on a light rather than having a bulb burn out.

Of course, this overlooks many challenges across the economy. Not all industries have recovered fully, even as the overall economy reaches new peaks and unemployment hovers around 3.9%. Many individuals have struggled and have yet to get back on their feet. Inflation is also a significant concern, even if it could begin to stabilize in the coming months. The Fed would be in a real conundrum if a wage-price spiral ensues where inflation is baked into expectations in an uncontrolled way.


In 2021, the economy grew at its fastest pace in decades

KEY TAKEAWAYS:

1. The 6.9% quarter-over-quarter growth rate in Q4 is the fastest since Q2 2000, not counting the initial post-pandemic rebound in 2020.
2. While GDP growth should be above average in 2022, investors should expect growth to return to more average levels in the coming years as the effects of the pandemic lockdowns fade.

While this is not what most economists expect, it’s clear that investors ought to have more tempered expectations for growth in the years ahead. The lights are back on but we shouldn’t expect it to keep getting brighter at the same pace. For instance, the Fed’s latest forecast for 2022 GDP growth is 4% before settling down to 2.2% each of the next two years. This is slower, yes, but this level of growth would still be one of the fastest in decades (since the year 2000).


Corporate profitability is strong

KEY TAKEAWAY:

1. Ultimately, investors care about economic growth because it is what drives spending, investment and profits. Zooming out over decades, history shows us that markets do well when corporate profitability is high. This depends on business cycles and long-run trends.

Investors will have to adjust to these trends. However, what matters is not that the economy is perfect – it’s that overall growth will support corporate earnings and thus market returns. At the moment, companies are doing extremely well across the board with an S&P 500 earnings-per-share estimate of $223 in twelve months, despite other sources of market uncertainty. Over the course of full business cycles, it is profitability that propels stocks and portfolios ahead, allowing investors to achieve their financial goals.

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)

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Portfolio Manager Insights | Weekly Investor Commentary – 1.26.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 1.26.22
Investment Committee

At the moment, headlines are focused on the stock market correction, especially among technology stocks, that has been building for weeks. The NASDAQ has declined about 15% this year, the S&P 500 tech sector has fallen by nearly as much, and some individual stocks have performed much worse. The overall S&P 500 is also near an official correction (defined as the index closing 10% below its recent all-time high).

While short-term market pullbacks are normal and inevitable, especially within volatile parts of the market, many investors are naturally concerned about what this means for the year ahead. Now, more than ever, investors ought to stay disciplined and view market moves with the right perspective. Those investors who can do so might even benefit from market opportunities.

The fact of the matter is that 10% corrections occur on a regular basis, even in years with otherwise strong market returns. No matter how bad pullbacks feel, markets typically recover within a few months which can catch investors by surprise. The current correction may be more striking because it is happening at the start of the year even though this timing is purely coincidental.


Stock market corrections are normal and historically recover quickly

KEY TAKEAWAYS:

1. Market pullbacks and corrections are normal, unavoidable, and can occur at any time. Rather than panicking during these episodes, it’s important for investors to focus on long-term goals.
2. Markets often turn around when investors least expect it, with the average correction recovery taking place in four months or less.

For these reasons, the primary challenge of investing isn’t necessarily related to financial or economic analysis and facts. Instead, achieving financial goals has more to do with our emotional and behavioral reactions to short-term adversity. While our innate fight-or-flight response may tell us that market corrections are a time to sell and give up on our financial plans, the irony is that this is often when the market is the most attractive. History shows that investors who stay disciplined through these periods are often rewarded. While the past is no guarantee of the future, those with long time horizons need not overreact to every market setback.

After all, financial markets naturally reflect the different views, goals and needs of a diverse set of investors, both large institutions as well as everyday individuals. When these factors change unexpectedly, markets can swing wildly over short periods of time. At the moment, investors are trying to digest the implications of faster Fed rate hikes, higher inflation, elevated market valuations, geopolitical tensions and more. It should come as no surprise that the most expensive parts of the market have struggled in recent weeks.


Tech stocks have significantly outperformed over the past few years

KEY TAKEAWAY:

1. It is no secret that tech stocks have done very well not just since the pandemic, but also over the last several years. And while these stocks are down significantly over the past few weeks, long-term investors have still done quite well. This highlights the importance of staying diversified across sectors and having the right time horizon.

On top of this, the stock market tries to take into account what could happen in the future, today. This means that, over any short period, the stock market might get it wrong or overreact because it is too optimistic or pessimistic. Over the longer run, as new information arises, markets expectations and reality converge.

This helps to explain many of the challenges investors have faced with fast-growing stocks, primarily in tech, which reflect a number of different themes and trades. For some, tech stocks represented a short-term trade that benefited from work-from-home and the pandemic lockdowns. For others, tech stocks represent the growth of digital tools across sectors over the course of years. Just as there was significant investor enthusiasm during the dot-com bubble of the 1990s, with many stocks doing well for a short period, it ultimately took decades longer for the true winners of that period to be revealed. So, while the stock market and the tech sector may be stumbling, many long-term themes are still attractive.


Having the right time horizon is critical

KEY TAKEAWAYS:

1. While the market is in or near correction territory, those with longer perspectives may see a different picture. Even when measured from the highest point before the pandemic crash, stocks are up nearly 30%.
2. They have done even better over longer time horizons, underscoring the need to stay long-term when markets are the most uncertain.

Current market dynamics also highlight the need for diversification across sectors, styles, and asset classes for a few reasons. First, tech stocks are no longer isolated to the Information Technology sector. Instead, sectors as diverse as Communication Services and Consumer Discretionary consist of what many would consider to be major tech companies. Second, market rotations among sectors and across Value and Growth occur regularly. Since it is difficult, if not impossible, to predict the timing of these shifts, investors often do better by holding an appropriate amount of each. Third, asset classes like fixed income, which struggled in 2021 as interest rates rose, still provide stability to portfolios during uncertain times. Many investors benefited from holding an appropriate allocation of bonds during the initial pandemic crash in 2020.

Finally, perspective matters. Although corrections are never pleasant, investors who held on over the past few years have experienced the S&P 500 gain 30% since the pre-COVID peak, 65% since the beginning of 2018, and 96% over the past 5 years. The fortitude to handle near-term uncertainty is what allows investors to benefit from long run gains throughout the market cycle.

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)

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Portfolio Manager Insights | Weekly Investor Commentary – 1.12.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 1.12.22
Investment Committee

Stocks have fallen to start the year as the prospect of a more hawkish Fed weighs on the market. Areas with high valuations such as tech have been hit the hardest with the NASDAQ Composite down several percentage points. Interest rates have jumped to nearly 1.8%, the highest since before the pandemic, in just a matter of days. When policy is shifting, it is important for investors to have the right perspective on what has truly changed and what hasn’t. In today’s market, there are at least three key facts for long-term investors to remember.

First, although the calendar has changed, the underlying economic trends have not. After all, long-term investors construct their portfolios not based on which assets have done well over recent weeks and months, but based on what will likely benefit from economic growth trends over quarters, years and decades.

Specifically, inflation is elevated just as it was for much of 2021. This is one reason investors spent months last year adjusting to a Fed taper so that when it finally happened, it was fully expected. Last week’s FOMC minutes confirmed that the central bank is worried about inflation and may thus begin to tighten faster. This will require investors to adjust once again. Still, many economists expect inflation to stabilize and perhaps decline in the second half of the year as supply chains improve and year-over-year comparisons ease.


Areas of the market like tech have fallen this year

KEY TAKEAWAY:

1. Markets are adjusting to a shift in Fed policy. This is weighing heavily on areas like tech and other growth stocks. However, history shows that the onset of Fed rate hikes is typically only just the beginning for bull market cycles.

Faster Fed rate hikes may be a short-term shock to markets but they usually signal the beginning, not the end, of market cycles. It’s natural for the Fed to begin hiking rates once the economy is back on solid footing, which it has been for over a year. The fact that many are calling for rate hikes to combat inflation only further justifies these moves. The fed funds rate, which is still at zero today, reached 2.25% prior to the pandemic and even the most hawkish expectations are for the Fed to raise it to 1% by the end of 2022. History suggests that markets can perform well once investors adjust.

Second, stock market valuations in general, and growth/tech valuations in particular, are still lofty. The S&P 500’s forward price-to-earnings ratio sits at 21.7x which, although lower than at the start of the recovery, is still the highest since the dot-com era. The price-to-book ratio of U.S. growth stocks is now 10.7x compared to 4.1x for the overall Russell 3000 and only 2.4x for value stocks.


Interest rates are rising due to Fed expectations

KEY TAKEAWAY:

1. Interest rates have jumped on Fed expectations. This adds to last year’s increase due to the economic recovery and inflation. Rising rates are standard as the business cycle matures.

While valuations do not predict short-term stock market performance, they do reflect expectations for what has to go right. Today’s high valuations are due entirely to the steep rise in prices over the course of this rally. However, earnings are also expected to grow quickly with S&P 500 earnings-per-share possibly reaching $220 in twelve months. As is always the case, the rapid economic recovery and robust earnings growth have been the foundations of this market cycle.

Finally, although the Fed and inflation tend to garner attention, short-term ups and downs in markets are completely normal. Even if this short-term pullback worsens, it is in the context of a significant bull rally that has lasted over 20 months. Staying patient and disciplined throughout these periods is ultimately why long-term investors are rewarded. After all, despite a never-ending list of concerns, the S&P 500 has gained 38% from the peak of the last cycle, 75% over the past 4 years, and 109% over the past 5 years. And while the past is no guarantee of the future, it is a reminder to not overreact to a few days of trading activity.


Focusing on long-term gains is the key to avoiding short-term mistakes

KEY TAKEAWAYS:

1. While shifts in policy naturally attract attention and result in short-term volatility, investors ought to keep these moves in perspective.
2. Despite short periods of market pullbacks, including during the early stages of the pandemic, investors who have stayed patient have historically done well.

The market is adjusting to a more hawkish Fed. However, history suggests that this is both normal and positive at this stage in the business cycle

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)

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Portfolio Manager Insights | Weekly Investor Commentary – 1.5.22

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 1.5.22
Investment Committee

With the ups and downs of the market and the on-going pandemic, the fact that we are approaching the third year of the business cycle may surprise some investors. After the headlines of the past year, one might expect that the market would have struggled. Events during this period include the attack on the U.S. Capitol, the delta and omicron variants, the foreign policy disaster in Afghanistan, Fed tapering, challenges passing new fiscal bills, reddit trades, the rise of cryptocurrencies, China’s bursting housing bubble, inflation at multi-decade highs, supply chain disruptions, and many more. As in most years, there was no shortage of reasons to be pessimistic in 2021.

Yet, the S&P 500 gained nearly 29% with dividends over the course of the year and 119% since March 2020, finishing near all-time highs. Even though markets felt choppy, 2021 was objectively one of the least volatile years on record. There were rotations within the market throughout the year, but in the end, growth stocks gained 26% and value stocks 25%. International developed markets rose 12% and although emerging market equities lost -2% in 2021, they are up 70% from the 2020 bottom. This all occurred even though the 10-year Treasury yield jumped to 1.5% and the Fed is set to tighten policy in the coming months.

2020 and 2021 both underscore the importance of staying invested and diversified. The path of markets and the economy are difficult if not impossible to predict, even in the face of a once-in-a-century pandemic or skyrocketing inflation. These lessons will also likely be true of 2022 regardless of what transpires. Already, investors are worried about a possible first Fed rate hike by mid-year, the midterm election in November, and whether inflation will ease or worsen in the second half of the year.


Markets can do well when investors least expect it

KEY TAKEAWAYS:

1. Despite ongoing concerns around a variety of issues, the S&P 500 achieved 70 new record closes in 2021. This is the most since 1995 during the early stages of the dot-com boom.
2. This is not unusual – the U.S. stock market has historically risen over long periods of time and, by definition, spends much of each cycle at new all-time highs.

In times like these, it can help to focus on the big picture. Although every market cycle is different, we are still quite early in this expansion. The underlying economic trends are strong with businesses growing, earnings rising and employees finding better jobs and higher wages. Inflation is elevated but much of this is due to year-over-year comparisons and supply chain disruptions. High inflation could become “sticky” and sour the mood among businesses and consumers, but it could also begin to subside later this year.


Investors should expect more uncertainty

KEY TAKEAWAYS:

1. Despite the stellar performance of stocks over the past two years, investors were constantly worried on a day-to-day basis. In reality, 2021 was one of the least volatile years on record with only a single 5% pullback that occurred at the end of the third quarter. Thus, there was a wide disconnect between how investors felt and how markets actually performed.
2. At the same time, investors should always expect greater uncertainty and volatility in the stock market. After all, the willingness to take appropriate risks is why investors are rewarded in the long run. Last year’s volatility fell far short of the average decline experienced by the S&P 500 each year.

Even without rising inflation, the Fed would reasonably be expected to raise rates at this stage in the cycle. After all, their job is now to make sure the economy doesn’t overheat. And although we are still in the middle of another delta/omicron surge, this is having a smaller impact on economic growth and will likely subside as well – until the next variant is discovered.

The commentary highlights five key lessons of the past year that will no doubt carry forward into 2022 and beyond.


Fed rate hikes are only the beginning, not the end, of the cycle

KEY TAKEAWAYS:

1. The Fed has accelerated its taper process, which reduces the amount of bonds it purchases each month, and is expected to raise rates by the middle of the year.
2. Although this will no doubt continue to drive market volatility, Fed rate hikes are normal and justified if the economy is doing well. Fed officials currently expect three rate hikes in 2022.

Controversy over these topics is what fuels the day-to-day market debate. Rather than trying to accurately predict every outcome and incur trading costs, the better approach that has worked for decades is to hold an appropriately diversified portfolio that can withstand these uncertainties, while benefiting from the long-term growth of markets and the economy. Doing so in a way that is aligned with broader financial goals, especially with the guidance of a trusted advisor, has stood the test of time.


The value of cash is eroded by inflation

KEY TAKEAWAY:

1. Rising inflation has a number of implications for the economy and investment portfolios. For many, however, the primary challenge is that inflation erodes the value of hard-earned cash savings. This underscores the need to properly invest this cash to generate a return in order to preserve purchasing power over time.


Many parts of the economy are booming

KEY TAKEAWAYS:

1. The economy is doing well. Businesses are hiring at a rapid pace and job openings exceed the number of unemployed individuals.
2. Over time, workers who had previously given up may re-join the labor force while others may receive new job training. Ultimately, this is a positive sign for the economy in the years to come.

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)

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Portfolio Manager Insights | Weekly Investor Commentary – 12.15.21

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PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 12.15.21
Investment Committee

Economics is often called the “dismal science” in part because of its poor track record at making predictions. Perhaps the biggest reason for this is the difficulty in determining whether something is a new trend or a temporary event. This has been the case for inflation forecasts not only over the past two years, but since at least the global financial crisis. What’s different this time is that rapid inflation is rattling markets and consumers alike. How should investors adjust to a world of rising prices for the first time in decades?

Last week’s Consumer Price Index showed that headline inflation grew by 6.8% in November compared to a year earlier, and 4.9% when food and energy costs are excluded. This is more evidence that prices could rise faster than expected for some time. Nearly all components of the index contributed to higher prices, including the cost of energy, cars and meat. This is the fastest rate of price increases in nearly four decades and an acceleration from last month’s reading of 6.2%.

For many, including the Fed, the defining word for inflation has been, until recently, “transitory.” Unfortunately, this has two interpretations. Transitory can be taken to mean “short-lived,” i.e., lasting only a few months or quarters, or “temporary” meaning that the effects are due to a one-time event and will eventually fade. And while these definitions are related, they have different implications for the global economy.


Inflation is the highest in almost 40 years

KEY TAKEAWAY:

Key Takeaway: 
1. Last week’s CPI reading shows that consumer inflation is the highest since 1982. Much of this increase is due to food and energy prices. However, even Core CPI has reached 4.9% – well above the notional 2% target that the Fed and other economists consider to be healthy.

There are a couple points of irony here. The first is that the Fed’s biggest historical success is arguably its handling of the 1970s and early 1980s stagflationary period. By using their interest rate tools, the Fed was able to control inflation, with recessionary side effects.

The second is that the inflation pressures that many feared following the 2008 financial crisis never materialized. There are a number of reasons for this including the deflationary effects of technology and globalization, which make goods more cheaply available, in addition to more arcane details such as the Fed paying banks interest on excess reserves, which increased the incentive to keep money parked at the central bank rather than lending it into the system.


Markets expect inflation to stay high in the near-term

KEY TAKEAWAYS:

1. Various market measures of inflation, including those implied by TIPS, suggest that inflation could remain higher for longer.
2. However, even these measures expect longer-term inflation to fall back to around 2 to 3% once short-term pricing pressures subside. These are due to the pandemic, supply chain problems, energy costs and more.

Whatever the reasons, this time is undeniably different. While the long-term deflationary forces are still here, they are overpowered by the near-term effects of the pandemic, supply chain disruptions, excess demand for goods and services, and rising energy prices. This is making it difficult to predict exactly when inflation might subside. And, even when it does, it may remain above historical averages especially when compared to recent history.

Still, unless the underlying economy were to fundamentally change, it is the case that these effects are “temporary” in nature. This doesn’t necessary mean that they will fade quickly. But, like the old quote puts it, “if something cannot go on forever, it will stop.”

Where does that leave consumers and investors? Rising inflation has already soured the mood among households with near-term inflation expectations jumping and consumer sentiment plummeting. However, consumers are still spending and household balance sheets are still in a strong position. Unlike the 1970s when the economy was contracting and the job market was shrinking, inflation today is rising alongside a robust economic expansion.


Consumers are feeling the pinch

KEY TAKEAWAYS:

1. Consumer sentiment has plummeted in no small part due to rising inflation concerns. However, consumers are still spending and demand remains high.
2. It may take time for consumers to adjust to higher inflation levels than they have experienced over the past couple decades.

For investors, it continues to be important to stay diversified and to hold assets that can adapt to evolving inflationary environments. Many asset classes that investors already own have these properties including stocks, commodities and real estate, to name but a few. Large cap companies, for instance, tend to have pricing power and can therefore adapt over time.

Rising inflation may push up interest rates which makes bond investing challenging, but these trends in rates have occurred in fits and starts. If any asset class is vulnerable in these periods, it’s plain cash. Rising prices erode the value of cash holdings, underscoring the importance of investing in appropriately diversified portfolios for both return and income.

The bottom line? While inflation remains hot, investors should stay invested. Many parts of a diversified portfolio, including stocks, have historically been resilient to inflation.

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)

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