Portfolio Manager Insights | Weekly Investor Commentary – 1.12.22

Click here for the full commentary.

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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 1.5.22

Click here for the full commentary.

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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 12.15.21

Click here for the full commentary.

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)

3:00

Portfolio Manager Insights | Weekly Investor Commentary – 12.1.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 12.1.21
Investment Committee

In less than a week, the COVID-19 variant known as omicron has renewed public health concerns around the world. While the World Health Organization has stated that it could have “severe consequences,” reports from South Africa where the “variant of concern” was first identified suggest that symptoms have been mild. Only time will tell how severe – or not – the public health implications may be, especially as vaccination rates rise and other safety measures become commonplace.

Through all this, it’s more important than ever for investors to distinguish between public health issues – which can be fraught with politics and strong personal beliefs – and what’s best for their portfolios. If the pandemic has taught us anything, it’s that staying focused on the long run is the best approach.


There are growing public health concerns over the new COVID-19 variant

KEY TAKEAWAYS:

Key Takeaway: 
1. Investors have experienced multiple waves of COVID-19 during the pandemic. Still, the most impactful was the first wave when the economy was shut down.
2. Subsequent spikes, including due to the delta variant, have not even come close in terms of their economic and market impacts.

It’s generally accepted that COVID-19 is now “endemic” – i.e., like the flu or common cold, it’s here to stay. Unfortunately, this means that whether due to omicron or another strain, it is only a matter of time before new variants create public health concerns. Like the original COVID-19 strains and later the delta variant, these worries can escalate quickly due to the pace of infection. It’s possible for these variants to spread to multiple continents by the time they are identified, named, and appear in the news.

At the onset of the pandemic, this exponential pace created significant challenges for everyone, not least of which was the emotional toll of isolation and social distancing. Fortunately, the situation today is quite different. Individuals and businesses alike have fresh experience and playbooks for dealing with the pandemic and there is a much better understanding of the risks. Without diminishing the public health challenges ahead, this means that there is a stark distinction between how officials should respond to the ongoing crisis and how investors should respond in their portfolios.


Even before this, cases were rising as winter nears

KEY TAKEAWAYS:

1. Cases have been rising even before omicron due to the colder fall and winter months. Despite this, economic activity has remained solid and job gains have accelerated somewhat.

The delta wave that began in the summer showed that this is the case. Although infections spread rapidly, the death rate remained relatively low. Most importantly for investors, the economic and market impacts were minimal, especially when compared to the initial shutdown measures in 2020. Through that wave and the more recent uptick in cases, economic growth has been strong, hiring activity has accelerated, profits have reached record levels, and markets have continued to achieve new all-time highs. All this despite concerns around inflation, supply chains, politics, the Fed and more.

Of course, investors should always expect periods of market volatility. This is true even in the best of times, let alone when markets are at new highs and valuations are still above average. It is still true that the market has been quite calm by historical standards this year, despite occasional shallow pullbacks. What has made this possible is the strength of the economic expansion which is now over a year and a half in age. While there may be periods of short-term turbulence ahead, business cycles tend to last for many years if not decades.


Diversification is still the best approach for navigating the years ahead

KEY TAKEAWAY:

1. Whether or not the latest variant of concern becomes a serious public health and economic issue, diversification and staying invested are the best ways to invest through the next period.
2. This was true during the initial market pullback last year. While the past is never a guarantee of the future, those investors who stayed focused were rewarded within a matter of months.

In the end, portfolio diversification is still the primary tool for investors to achieve their financial goals while protecting from downside risk. The market crash that began in February 2020 emphasized that while trying to sell holdings and moving to cash are tempting, a rebound can occur when investors least expect it. Holding fast with an appropriate portfolio was the best approach throughout these periods.

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 – 11.17.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 11.17.21
Investment Committee

Perhaps the biggest side effect of the rapid economic recovery is the historic number of job openings across the country. This has led to a wave of individuals quitting their jobs in search of greener pastures, a phenomenon that has been dubbed the “Great Resignation.” Historically, this is often what happens after economic shocks as many find new work that best utilize their skills. While this is great news for many, especially those who can command higher pay or benefits, it also highlights challenges for businesses and the economy. What does the Great Resignation mean for economic growth and investment portfolios in the years ahead?

The labor market affects all investors in many ways. The most obvious manner is that it directly impacts our personal lives, in addition to those of our families, friends and neighbors. For instance, whether or not inflation-adjusted wages have kept pace is a core issue in the wealth inequality debate. It’s no secret that both the 2008 global financial crisis and the pandemic worsened these effects.


Job openings and turnover are near record highs

KEY TAKEAWAYS:

Key Takeaway: 
1. Job openings are near historic levels. This has prompted many to quit their jobs in search of better opportunities.

In addition, work is more than a paycheck. Right or wrong, it often defines who we are and can be an important part of achieving personal fulfillment. While this effect is not directly financial in nature, it does affect societal and economic trends.

Thus, one of the most difficult challenges for the economy over the past two decades has been the decline in the “labor force participation rate.” This occurred as large numbers of working-age people gave up on finding jobs. The participation rate peaked in 2000 and has been falling due to a number of factors including an aging population, globalization and technology. These latter factors have allowed for goods and services to be produced elsewhere and with fewer workers. Especially when the job market is otherwise stagnant, it is easy to become discouraged and then give up altogether.


Long-term unemployment is falling

KEY TAKEAWAYS:

1. One group that has benefited from these trends is those who have been unemployed for half a year or longer. These long-term unemployed are fewer today due to the economic expansion and the sheer amount of hiring activity across industries.

In the long run, this can create labor shortages in certain industries. In the short-term, however, job openings being near record levels – 10.4 million across the country in September – is positive news. This means that positions are available and businesses would like to hire at the fastest rate in history. That the quits rate has accelerated alongside openings to 4.4 million per month means that many are successfully finding attractive jobs or are confident they can find them quickly.

The caveat is that not all jobs are created equal. The fact that these positions are open means that businesses are having trouble finding enough qualified candidates in their industries. This may mean they don’t have the right skills, especially in high-tech sectors, aren’t in the right geographic location, or that there are other mismatches. Like other supply chain bottlenecks plaguing all businesses, a shortage of qualified workers can harm growth and expansion plans.


Participation rates have stabilized

KEY TAKEAWAY:

1. Unfortunately, the labor force participation rate, which measures the number of people who want to work, is still very low. This measure has been declining for decades due to a variety of factors which were worsened by the pandemic.
2. Many hope that the level of job openings can help to get workers off the sidelines and back into great roles.

The hope is that, over time, job openings entice working-age people to come back into the labor force and the participation rate rises. Workers might re-train to match high-growth areas and wages might adjust based on hiring demand. This could help to accelerate economic growth in addition to improving personal financial situations.

From the perspective of long-term investors, the labor market is a broad signal of economic health. It’s for this reason that investors watch the monthly jobs report so closely. The fact that unemployment has fallen significantly, job openings are at records, wages are picking up, individuals are finding better opportunities, and labor force participation has stabilized are all positive signs. Below are three insights that can help investors better understand today’s job market shifts.

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 – 11.10.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 11.10.21
Investment Committee

After much anticipation, the Fed has announced that it will begin reducing its monthly asset purchases. Investors have spent months wondering when this process would start given the strong recovery and ongoing market rally. While markets have been taking this in stride, some investors are understandably nervous about what this may mean for their portfolios. Uncertainty around Fed policy is one reason investors ought to maintain a long-term perspective on their investments and financial goals.

Topics like Fed tapering, rate hikes, the Phillips curve and others can seem complex, but it’s important to separate the how from the why. Mechanically, the Fed’s tapering process is simply the first step toward returning to a more “normal” monetary policy. It begins to slow the purchases of Treasury and mortgage-backed securities that began last year as part of the Fed’s emergency response to the pandemic, based on its 2008 financial crisis playbook.


The Fed is slowing its bond purchases

KEY TAKEAWAYS:

Key Takeaway: 
1. The Fed announced its “tapering” process which simply means that it will slow its bond purchases. Rather than purchasing $120 billion of Treasury and mortgage-backed securities per month, it will reduce this by $15 billion each month beginning in November.
2. Even at this pace, the Fed’s balance sheet will grow to $9 trillion by the time it ends its asset purchases in mid-2022.

The pace of $120 billion per month has caused the Fed’s balance sheet to balloon to over $8.6 trillion – significantly larger than the pre-pandemic peak of $4.5 trillion. By reducing these purchases each month beginning in November, the Fed would still be buying bonds through May 2022. This would add up to $420 billion which would push its balance sheet above $9 trillion.

It’s important to underscore the fact that the Fed is still buying assets, just at a slower pace. Shrinking its holdings may not happen until much later. After tapering began in 2014, the balance sheet did not begin to shrink until 2018.


Interest rates are rising in anticipation of fed rate hikes

KEY TAKEAWAYS:

1.Short-term interest rates have been rising. This is because the tapering process is the first step in eventually raising the fed funds rate.
2. The Fed has communicated via their Summary of Economic Projections that most officials expect to hike rates once by the end of 2022.

While the how is quite involved, the motivation for the tapering process is simple: the Fed is refilling the punch bowl at a slower pace before it removes it altogether. This makes sense at a time when emergency stimulus is no longer needed and when monetary policy is arguably playing a smaller role. After all, inflation is rising not necessarily because Fed policy is too loose, but because of strong demand and supply disruptions. The Fed has made it clear that they have little control over these factors.

At the same time, it could still be considered a policy mistake for the Fed to keep financial conditions too easy for too long as inflation heats up, even if they can’t directly control the underlying causes. This is especially true at a time when consumers and markets are beginning to expect higher short- and medium-term inflation. The classic runaway inflation scenarios, such as a wage-price spiral, involve an ever-higher expectation of inflation which can become a self-fulfilling prophecy. To stop this, the Fed would have to take dramatic steps.


The market expects the Fed to hike rates faster

KEY TAKEAWAY:

1. Market-based expectations, on the other hand, have been adjusting upward. At the moment, fed funds futures suggest that there could be at least two rate hikes by the end of 2022.
2. Over the past year, the Fed has adjusted its expectations toward the market, not the other way around.

Thus, there are conflicting fears among investors around a) the Fed normalizing then tightening policy, and b) the Fed not tightening enough to combat inflation. Fortunately, the market has taken the shift in Fed policy in stride so far, and history supports this. After endless concerns and some market volatility in 2013, financial markets performed well the rest of the cycle. This occurred despite not only tapering but a shrinking Fed balance sheet and several rate hikes. Ultimately, it was the strong underlying trends in the economy that mattered most.

Similarly, while there are concerns building within the market as the “everything rally” continues, it’s unlikely that reduced bond purchases or a few rate hikes will be what derail current trends. Instead, all market cycles have their ups and downs related to growth, profits, interest rates and valuations. Focusing on these factors instead can shed more light on the state of the market than focusing on the Fed alone.

In other words, investors should continue to hold balanced portfolios that match their financial goals, rather than focus too much on when the Fed will finally raise rates one-quarter of one percent.

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 – 11.3.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 11.3.21
Investment Committee

The business cycle is advancing despite a number of investor concerns, one quarter after the economy returned to pre-pandemic levels. And while the pace has decelerated, this is normal after last year’s extreme rebound. For investors, this is important because an economy that is expanding – even at a slower rate – is what supports a robust bull market. What should those worried about their portfolios expect from the economy going forward?

Last week’s data show that U.S. GDP grew by 2% in the third quarter compared to the second. Although this is slower than many had hoped, this was due to factors that were widely anticipated: the delta variant, supply chain bottlenecks and a deceleration in consumer spending. When looking at the bigger picture, not only did the economy grow 4.9% in Q3 from a year ago, but personal consumption expenditures came in better than expected and both investment and government spending flipped from negative to positive.


The economy grew less than expected in the third quarter

KEY TAKEAWAYS:

Key Takeaway: 
1. The economy grew at a 2% annualized rate in the third quarter when compared to the second. This is slower than expected but is due to well-understood factors. What matters is that the economy is continuing to grow despite a number of challenges.

When considering economic data such as these, it’s always important to focus on a broader perspective. The glass-half-empty view is that last quarter’s growth rate is the slowest since the recovery began, especially compared to the previous quarter’s 6.7% figure. The reality is that investors should not expect the types of growth that occurred right after businesses reopened last year, regardless of supply constraints and inflation. The 33.8% rebound in Q3 2020 was possibly a once-in-a-lifetime event and only occurred because the economy shrank by 31% at the start of the pandemic. Clearly, the strong growth rates of the past year benefited from the reopening and should taper off over time.

Of course, the situation never seems perfect. During the previous cycle, investors were constantly faced with intractable concerns such as structural debt problems, Fed policy, government spending, the Eurozone crisis and, ironically, the fact that inflation was too low. Despite this, the S&P 500 rose 400% over the course of an 11 year period. Similar patterns can be found across all business cycles through history.


Consumer spending is the largest part of the U.S. economy

KEY TAKEAWAYS:

1. Consumer spending continues to be a major part of the U.S. economy. The fact that consumers are in a strong and stable position is a positive sign.

While pessimism can occasionally pay off in the short run, it almost never helps in the long run. Even when the situation fails to evolve as investors hope, investment portfolios that are properly positioned often find a way to perform well nonetheless.

Thus, the more optimistic perspective for investors is that the economy can continue to grow at a steady pace. The average consumer is in a strong financial position, especially as the unemployment rate continues to fall, and industrial activity continues to expand. Although not all Americans are doing well, they will begin to benefit with cases of the delta variant low and businesses growing.


A strong economy can support long market cycles

KEY TAKEAWAY:

1.History shows that recessions and market crashes are short while bull market expansions are long – if they are supported by steady economic growth.

For long-term investors, it’s important to keep in mind that recessions and bear markets tend to be sudden and last for months, while bull markets and economic expansions tend to be steady and last for years if not decades. Positioning for the latter, without focusing too much on any individual data point, is the best way to achieve 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 – 10.27.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 10.27.21
Investment Committee

Inflation continues to be a hot topic for investors as markets adapt to worsening supply chain disruptions. However, not all inflation is the same and today’s environment requires a clear understanding of what’s driving prices higher. More importantly, this can affect portfolios and financial plans in different ways. How should investors react to today’s inflation rates with the right perspective?

All investors understand that the prices of individual goods and services can be affected by supply and demand. Common sense tells us that when supply falls and/or demand rises in a competitive market, prices will tend to rise. This is true whether we’re talking about used cars, lumber, houses, computers, sneakers or concert tickets. Business owners are faced with balancing these factors every day.


The market is adapting to higher near-term inflation

KEY TAKEAWAYS:

Key Takeaways: 
1. The market has been adapting to stubborn levels of inflation. Even if inflation is “transitory,” the longer they last, the less investors can ignore their effects.
2. TIPS prices now reflect higher inflation rates over the medium-term before falling in the long run..

In cases where supply is artificially disrupted, there can be a “deadweight loss” to society since there are willing buyers who miss out – not just because prices are temporarily high, but because there may simply not be enough goods available. Recent examples are toilet paper and hand sanitizer at the start of the pandemic when a surge in demand caused widespread shortages. Governments and businesses can try to control prices or impose quotas but this doesn’t solve the underlying problem and can create its own imbalances.

While challenging, few economists would describe the situations above as “inflationary.” Instead, the term inflation usually refers to a broad-based increase in prices across an economy. Historically, these price increases are attributed to factors that can affect the macro-economy, like monetary policy or an overheating growth rate.


Consumers expect higher prices too

KEY TAKEAWAYS:

1. Consumers are feeling the pinch of supply disruptions as price increases affect a variety of daily goods and services.
2. This survey of expectations suggests that consumers believe prices will remain high before coming back down in the medium-term.

This is what makes today’s situation unique. Prices are rising across the board not necessarily because of the Fed, but because bottlenecks in today’s global world affect nearly all industries. This is akin to the supply curves of these industries all being impacted at once and is not dissimilar to the oil crisis of the 1970s. Just as there is no way to avoid higher energy costs, there is no way to avoid long delays for the materials and supplies that businesses and consumers need. This reduces availability and raises costs.

Thus, when investors talk about “inflation” today, what they really mean is “supply chain disruptions.” Similarly, when investors debate whether higher inflation is “transitory” or not, they are really debating whether they are due to short- and medium-term supply problems or longer-term factors such as Fed policy.


Inflation quietly erodes the value of cash

KEY TAKEAWAY:

1.Over time, inflation quietly erodes the value of cash. The average savings account at today’s interest rates is effectively losing thousands of dollars per year due to higher inflation.

How this is resolved requires a combination of macro forces related to global energy and port capacity, and micro forces on an industry-by-industry basis. Still, the longer this goes on, the more it will affect inflation expectations among businesses, consumers and financial markets. Both TIPS breakeven inflation rates and inflation expectations from the University of Michigan’s Surveys of Consumers are near multi-decade highs. Other measures, such as CPI, PCE and PPI, are also near record levels. Only time will tell if they begin to fall once the year-on-year comparisons to the pandemic fade.

For savers, inflation slowly erodes the value of hard-earned cash. If your daily purchases cost more, it doesn’t really matter if it’s due to factory shutdowns in Asia or the size of the Fed’s balance sheet – the effect on a household’s bottom line is the same. Unlike traditional gains and losses which are explicit on a monthly statement, the balance in one’s checking account may stay the same. However, the amount of goods and services that can be purchased with that cash will fall silently over time.

For investors, different causes of inflation can have a big impact on portfolio strategy. Slow and steady inflation lends itself to assets that match this time horizon, possibly including TIPS, real assets and more. Sudden spikes in prices due to supply constraints may lend themselves more to sector and industry tilts. Over time, the differences between these two causes may be blurred – but long-term expectations have yet to rise to the same extent.

Ultimately, it’s important for investors to maintain perspective on today’s price increases. Inflation is a reason to stay invested to offset the negative impact to purchasing power.

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 – 10.13.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 10.13.21
Investment Committee

It’s impossible to understand today’s economy and markets without a clear perspective on global supply chain disruptions. From computer chips to the availability of workers, supply bottlenecks are raising concerns around economic growth and inflation. One major contributor to these worries is the energy sector with oil prices rising above $80 per barrel, the highest since 2014. What implications will this have for the economy and long-term investors?

Even as investors focus more and more on renewable energy sources, the world is still primarily driven by fossil fuels. The International Energy Agency (IEA) estimates that global oil demand was 100 million barrels per day prior to the pandemic and could recover to 96.2 million barrels per day by the end of 2021. The sharp economic rebound has helped to boost demand after oil prices plummeted during the pandemic. At one point, the price of the front-month contract fell to negative territory for the first time in history due to a lack of oil storage capacity.


Oil prices are rising due to supply constraints

KEY TAKEAWAY:

1. Oil prices have been rising over the past 18 months due to surging demand and limited supply. This is consistent with broader supply chain bottlenecks across the global economy.

Supply has been slower to keep up. OPEC and Russia (known collectively as OPEC+) have raised production only modestly and U.S. producers haven’t filled the gap as they have cut costs and improve efficiency. Dwindling natural gas supplies and inventories are expected to spill over into oil markets. Places like the U.K. are dealing with gasoline shortages while China is suffering rolling blackouts. Altogether, these forces are pushing energy prices higher.

Energy prices affect investors in many ways. First, today’s oil and natural gas prices are symptomatic of supply chain issues facing almost all industries. Not only are shortages of raw materials and labor impacting production and manufacturing, but logistics are hamstrung with container ships stuck waiting to unload. While it’s normal for energy costs to rise over the course of a business cycle, as they did before 2008 and during the last cycle, today’s situation is somewhat unique.


U.S. oil production hasn’t kept up with demand

KEY TAKEAWAYS:

1. While U.S. energy companies were expected to serve as the marginal “swing” producers, their production levels have yet to fully recover.
2. Coupled with limited supply increases from OPEC+, rising demand has boosted energy prices to multi-year highs.

Thus, even with U.S. consumers in a strong financial position, supply constraints are impacting economic growth. While this should eventually be resolved, it’s hard to estimate how long it will take and will depend on each industry. Some economists, the Fed included, still believe that these factors are “transitory” and could be resolved in 2022.

Second, higher energy prices are negative for U.S. consumers and businesses since they 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 to over $3.25 today. However, it’s also the case that energy prices, including gasoline, have been relatively low for much of the past 7 years.


The energy sector has benefited from higher prices

KEY TAKEAWAY:

1. The energy sector has benefited from higher prices with the S&P 500 Energy index gaining 50% year-to-date.
2. Many investors had avoided the sector over the past few years due to poor performance. This is further evidence that investors should stay diversified both within and across markets since predicting exact winners and losers is difficult, if not impossible.

Third, from an investment perspective, the energy sector has been a volatile component of diversified portfolios. The shale revolution which began in the early 2010’s, has faced many ups-and-downs as over-supply became an issue before the pandemic. This led to the underperformance of the sector for years, which most likely caused some investors to avoid energy-related assets.

However, for those who are properly diversified, the energy sector accounts for just under 3% of the S&P 500’s market capitalization. The fact that the sector has gained 50% this year alone, and 81% over the past twelve months, emphasizes the importance of investing within and across markets. 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.

Thus, rising oil prices are both a reflection of supply chain problems as well as a factor that will directly impact consumers and businesses. Although oil prices are above $80, there are reasons to believe that the economy can still grow steadily, especially if more supply can come online. Long-term investors ought to stay diversified and focused on the underlying issues rather than the day-to-day movements of energy prices.

Investors should maintain perspective on supply chain issues rather than day-to-day oil price movements. Staying diversified across sectors is still the best way to manage through the current environment and to achieve 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 – 10.6.21

Click here for the full commentary.

PORTFOLIO MANAGER INSIGHTS
WEEKLY INVESTOR COMMENTARY | 10.6.21
Investment Committee

As we begin the final quarter of 2021, the economy is shifting from a recovery phase to a sustained expansion. Investor sentiment has shifted alongside this, swinging from bullishness to bearishness. This is understandable because, while the underlying trends are positive, it’s no longer the case that the economy and markets have nowhere to go but up. Challenges such as the pace of growth, fears of stagflation, debt problems in China, Fed policy, the government debt ceiling and more are weighing on investors’ minds. How can investors balance risk and reward with a long-term perspective during the final months of the year?

The truth is that investing is never easy except in hindsight. In the moment, there are always concerns that worry investors, even when they have a sound financial plan and portfolio strategy. Just this year alone there have been topics as far ranging as the presidential transition to the delta variant and Afghanistan. Yet, the S&P 500 gained nearly 16% with dividends this year through the end of the third quarter. The markets repeatedly show that those who are able to stay disciplined and look past the daily headlines are often rewarded, regardless of how quickly market sentiment turns.


The economic expansion is still strong

KEY TAKEAWAY:

1. The economy is still growing rapidly 18 months after the unemployment rate peaked at 14.8%.
2. U.S. GDP has surpassed pre-pandemic levels, as have corporate profits, and many measures of activity are at multi-decade highs. Despite investor fears, the underlying growth trends are still positive.

Today, the big issues that weigh on markets can seem nearly insurmountable, as they often do. The nature of the short recession last year, which only lasted two months, and the swift recovery have been unlike any cycle in history. This has made it difficult to measure and interpret traditional economic data such as inflation and growth rates. Even when the data return to pre-pandemic levels, the year-over-year percentage changes can be extraordinarily large.

On top of measurement and interpretation issues, there have also been real structural challenges, most notably around global supply chains. Much of this is rooted in the on-going disruptions in manufacturing and shipping that have affected industries from semiconductors to construction materials. While it’s reasonable to expect that these issues will be resolved, trying to predict the exact timing is difficult if not impossible. The computer chip shortage is still a major problem while lumber prices have already fallen significantly.


Inflation remains high and will depend on supply constraints

KEY TAKEAWAYS:

1. Inflation remains elevated across a number of traditional measures. The PCE inflation rate favored by the Fed, for instance, is at its highest levels since the early 1990s.
2. The Fed itself has made it clear that their inflation targets have been reached, setting the stage for a reduction in asset purchases.

These problems not only affect the performance of companies, stocks and sectors, but they are also an input into monetary and fiscal policies. One of the Fed’s key mandates is to keep prices stable which will require reducing asset purchases and eventually hiking rates. At the same time, Congress and the White House are actively pursuing new spending measures, which will also impact tax policy. While these headlines naturally garner investor attention, seasoned investors have been through many such periods over the past two decades. In almost all cases, the best course of action was to stick to appropriately-tailored investment plans, ideally with the support of a trusted advisor.

Perhaps then the biggest shift in markets over the past several weeks is that interest rates have begun to rise after pausing for two quarters. This has put downward pressure on tech-related sectors, counter-balancing improvements in areas such as energy and financials which have benefited from these trends over the past year. Not only will interest rates likely climb further, but investors should continue to expect higher levels of volatility. Only at the end of the third quarter did the S&P 500 experience its first 5% pullback for the year. Such short-term pullbacks are normal for markets and investors should be comfortable with greater uncertainty in the months to come.


The Fed will likely begin tapering soon

KEY TAKEAWAY:

1. The Fed will likely begin tapering its asset purchases in the fourth quarter. The central bank has been broadcasting this possibility for much of the year and has made it clear that tapering will be a gradual process that will last well into 2022.
2. They have also communicated that rate hikes will require a different, more stringent set of criteria and will likely not begin until after their asset purchases end..

It’s important to emphasize that this is all occurring against a backdrop of a strong economy and robust corporate profits – factors that do not depend on how investors feel. Ultimately, long-term investors ought to position themselves for years and decades, not days, weeks or months. By most measures, we are still early in the business cycle despite the shared feeling that the pandemic has lasted a lifetime already. Achieving financial goals requires true dedication and discipline, regardless of what markets are concerned about in the short run.

For many, jobs are the key metric since the pandemic directly impacted individuals’ ability to work and earn a living. Over 75% of the jobs lost during the pandemic have been regained and the unemployment rate has fallen to only 5.2%. While some sectors are still struggling to recover, others are struggling to hire workers fast enough. There are officially more job openings than unemployed individuals – an imbalance that is positive but that speaks to the changing nature of worker skills, job locations and more.


Government spending and the debt ceiling are front and center

KEY TAKEAWAY:

1. Partisanship in Washington is on full display as a number of issues are being discussed. In the short run, the debt ceiling is the most pressing concern for financial markets which fear a repeat of 2011’s fiscal cliff scenario.
2. In the long run, new spending proposals will have an important impact on infrastructure, taxes and more.

Many different factors are often referred to under the term “inflation.” Traditionally, inflation is seen as a monetary phenomenon. This made the 2010’s perplexing to many investors since vast amounts of monetary stimulus failed to materialize in the form of pricing pressures. Today, the biggest inflationary factors are the swift economic rebound and the on-going supply chain disruptions. While impossible to predict accurately, these effects will likely improve over time.

For investors, this means that there will likely be upward pressure on interest rates over a long period of time. Still, investors should not overreact to these gradual rate rises, especially given the extraordinarily low level of rates today.


International markets still have diversification benefits

KEY TAKEAWAY:

1. Although emerging markets have stumbled this year due to the delta variant and challenges in China, staying internationally diversified is still important.
2. Many of the challenges around debt, shadow banking and regulation in China have been in focus for over a decade. And while these issues are coming to a head, the Chinese government is likely to be in a position to cushion any major fallout.

While these developments are important to watch, investors ought to maintain a long-term perspective on the impact of Washington policy on markets. Financial markets and portfolios have performed well across a variety of party leadership and tax regimes. Regardless of how one personally feels about new bills and proposals, it’s important to focus more on staying invested.

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