Welcome to August. Only five weeks left until Labor Day.
Last week, the US Total US Market (Morningstar indices) gained over 4%, capping off the overall market’s best month since 2020 (Morningstar, July 2022).
YTD Performance Highlights:
- US Market is down 14% (Morningstar, July 2022)
- Growth stocks are down 25%, Value stocks are down 3% (Morningstar, July 2022)
- International Stocks are down 15% (Morningstar, July 2022)
- Bonds are down 8% (Morningstar, July 2022)
- Commodities are up 23% (Morningstar, July 2022)
- The Fed, as expected, raised rates by 75 basis points last Wednesday, but markets took off on Fed Chairman Powell’s hawkish tone. He said that he does not believe the US economy entered a recession. "I do not think the US is currently in a recession and the reason is, there are too many areas of the economy that are performing too well." (CNBC, July 2022)
- Despite weakness from growth-oriented tech stocks,Amazon and Apple both definitively beat earnings expectations on their reports from last week (CNBC, July 2022).
- Meta Platforms (Facebook) missed on second-quarter revenue and reported its first-ever revenue drop in history (CNBC, July 2022).
The yield to maturity on the Bloomberg Aggregate Bond Index also dropped last week (by 13 basis points) to 3.45% as of July 29 (Bloomberg, July 2022). The cycle high was on June 14 at 4.03% (Bloomberg, June 2022).
The average money market yield is now 1.43% (up 11 basis points from the prior week) as of July 30 (Crane Data, July 2022).
The average 30-year fixed mortgage rate came down last week and it is now at 5.67% as of July 29 (Bankrate, July 2022).
Deeper Dive
Over the last year (through June 30, 2022), here are the highest Alpha* numbers (vs S&P) on the Orion Portfolio Solutions (OPS) platform:
Alpha – 1 Year
| 1 | PIMCO Commodity Real Ret Strat Instl | 24.54 |
| 2 | AQR Long/Short Equity Strategy | 21.62 |
| 3 | AQR Managed Futures Strategy | 20.78 |
| 4 | Crawford Dividend Yield SMA | 11.27 |
| 5 | Abbey Capital Futures Strategy | 11.19 |
| 6 | Brinker Direct Indexing U.S. Low Volatility Factor SMA | 10.90 |
| 7 | Brinker Capital Real Assets – ETF | 10.01 |
| 8 | Brinker Direct Indexing U.S. REIT Thematic SMA | 8.90 |
| 9 | Chilton Capital REIT Strategy | 6.23 |
| 10 | Genter Dividend Income SMA | 6.08 |
Polen’s second-quarter portfolio reports are out. One choice quip: “If we remain in a more difficult economic environment, we expect to see the resilience of revenue and earnings growth rise in importance in a more growth-challenged world.” (Polen Capital, July 2022)
Last week’s economic numbers included:
- PCE increase in “Inflation figure that the Fed follows closely hits highest level since January 1982” (CNBC, July,29, 2022)
- 2nd Quarter GDP (Initial) report (First Trust, July 28, 2022)
This week’s economic schedule includes the Employment Report for July. The consensus estimate is for 250,000 jobs to have been added, and for unemployment to remain unchanged at 3.6% (Calculated Risk, July 2022).
It has now been seven straight weeks of price drops for the average gas price (AAA, July 2022). It moved down to $4.22 (down another 18 cents from the prior week). The high was $5.01 on June 24 (AAA, June 2022).
As for earnings, second-quarter earnings according to I/B/E/S data from Refinitiv:
- Second-quarter 2022 Y/Y earnings are expected to be 6.2% (Refinitiv, July 2022). Excluding the energy sector, the Y/Y earnings estimate is -3.2% (Refinitiv, July 2022).
- Of the 106 companies in the S&P 500 that have reported earnings to date for second-quarter 2022, 75.5% have reported earnings above analyst estimates (Refinitiv, July 2022). This compares to a long-term average of 66.1% and prior four-quarter average of 80.6% (Refinitiv, July 2022).
- During the week of July 25, 172 S&P 500 companies are expected to report quarterly earnings (Refinitiv, July 2022).
Have you seen the work from Tyler Grimm and Dr. Daniel Crosby regarding Practice Management at Orion.com/Practice-Management? In short, wow.
In the soon to be updated OPS Quarterly Reference Guide, look out for a new slide on how often stocks beat bonds. It should certainly be interesting perspective after this stretch of bonds and stocks moving down together.
Bitwise 30-minute video on Crypto 101: Bitcoin, Blockchain and Crypto (Bitwise Investments, July 2022).
Crypto Corner – Grant Engelbart, CFA, CAIA, Brinker Capital Sr. Portfolio Manager
- Another positive week for cryptocurrencies, capping off a strong month (Arcane Research, July 2022). Despite trading below the weekend highs by Sunday afternoon, Bitcoin rose 5% on the week to near $24,000, likely closing higher by 22% on the month (Arcane Research, July 2022). Ethereum fared even better, up more than 7% on the week and nearly 60% on the month to hover between $1,700-$1,800 (Arcane Research, July 2022). Solana, Polkadot, and Polygon had strong weeks, +8%, +23%, and +10% respectively (Arcane Research, July 2022). Of the top 15 coins, Polygon had the best month, more than doubling in price (+103%) (Arcane Research, July 2022).
- Add CoinFLEX and Zipmex to the list of crypto companies in dire straits (Decrypt, July 2022). FTX continues to make news, as it launched US stock trading and is also reportedly interested in Korean exchange Bithumb (Decrypt, July 2022). A bipartisan bill was introduced last week that would exempt crypto trades of less than $50 or netting less than $50 from taxes (Decrypt, July 2022). The much-anticipated Ethereum merge is now expected to happen on September 19, 2022 (Decrypt, July 2022).
- Crypto ETF launches continue to be light (CoinMarketCap, July 2022).
“The cautious seldom err or write great poetry.” Sir John Templeton (Goodreads, 2022). From fortune cookie circa 1980 eaten by Howard Marks at Oaktree Capital Management, in “I Beg To Differ”, from last week (July 2022).
Last week’s Orion's The Weighing Machine podcast with Matt Werner from Chilton Capital Management went over why REITs make sense for investment portfolios. This week’s podcast is with Dan Villalon from AQR. In short, this was a great podcast, especially if you like globally diversified portfolios! AQR is a highly regarded quantitative investment manager with portfolios that have been thriving in this market environment, especially their alternative strategies. We cover a lot of important ground in this interview. Dan’s a high-energy, positive guy who I hope to have on more podcasts in the future.
How about a peek inside the Orion Nebula? Rusty’s son shared a cool website from NASA. It’s loaded with awesome pictures (Nasa.gov, July 2022).
Jack Raines on Young Money on "The Truth about Work-Life Balance" (July 2022).
Morgan Housel from Collaborative Fund Management: “The Optimal Amount of Hassle” from May 2021. In short, the point of this article is: “If you recognize that BS is ubiquitous, then the question is not ‘How can I avoid all of it?’ but, ‘What is the optimal amount to put up with so I can still function in a messy and imperfect world?’ If your tolerance is zero – if you are allergic to differences in opinion, personal incentives, emotions, inefficiencies, miscommunication and such – your odds of succeeding in anything that requires other people rounds to zero. You can’t function in the world.”
Another rite of summer: farmer’s markets. From the “Reasons To Be Cheerful” website on The Spectacular Comeback of the American Farmers Market (July 2022).
Thanks for reading and have a great week! As always, please let us know what we can do better at rusty@orion.com or ben.vaske@orion.com. Invest well and be well.
1379-OPS-8/3/2022
Orion Portfolio Solutions, LLC, a registered investment advisor, is an affiliated company of Brinker Capital Investments, LLC, a registered investment advisor, through their parent company, Orion Advisor Solutions, Inc.
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