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COTW: Seasonal Strength?

COTW 06.27

The first half of this year has been anything but ordinary—characterized by a banking sector in March, a widespread acceleration in AI adoption and interest in May, and the recent rally of the S&P 500 into a bull market. When looking at historical returns since 1928, the S&P 500 could be entering into a period of seasonal strength over the next couple of months.

May 2023 Commentary: Bulls, Bears, and Bots

May Commentary

In late May, an agreement was made to suspend the debt ceiling until January 1, 2025. As part of the agreement, student loan payments will resume within the coming months, barring a Supreme Court ruling in favor of Biden’s forgiveness plan.

COTW: Ongoing Banking Stresses

COTW 06.14

BTFP usage skyrocketed in March, reaching a peak in April. Since then, BTFP usage remained elevated, albeit at relatively consistent levels. On May 3, BTFP usage started to climb again, and reached record-level use in the first week of June.

COTW: Interest in AI

AI COTW 05.30

More recently, interest in AI has boomed, driven largely by the launch of ChatGPT in November last year.

COTW: Unstoppable Tech

COTW 05.23

Overall, the S&P 500 is up 9.9% year-to-date. However, this perceived market strength is not indicative of the average public company’s performance. Instead, a handful of stocks—Meta, Apple, Microsoft, Amazon, Nvidia and Alphabet—have been driving market strength.

COTW: Longer-Term Inflation Expectations

COTW 05.16

When asked during the latest FOMC meeting in early May whether the Fed would accept a prolonged period of 3% inflation, Fed Chairman Powell clearly reiterated their goal of lowering inflation to 2%, stating, “We’re not looking to reach 3% and drop our tools. We have a goal of getting to 2%.”

April 2023 Commentary: A Series of Unfortunate Events

US CDS

As the debt ceiling debate intensifies, Congress remains at an impasse and has largely ignored warnings from Treasury Secretary Yellen, who now estimates that the U.S. will run out of funds to pay bills by June 1.

COTW: Entrenched Inflation

COTW 05.02

After peaking at 9.1% in June last year, the April CPI print shows that inflation has slowed to 5.0%, indicating the continued cooling of inflation off record-high levels. While this should have been a welcome sign for U.S. consumers of prices starting to ease, there has instead been an uptick in expectations of inflation remaining higher for longer.

1Q 2023 Commentary: Tick Tock

Q1 Commentary

Despite a barrage of economic and policy news, the quarter will be remembered most for the failures of Silicon Valley Bank and Signature Bank.

COTW: The Consumer Squeeze

COTW 04.17

The latest CPI print seems to show good news: Inflation increased by 5.0% year-over-year, and is finally showing signs of easing after peaking at 9.1% in June 2022. However, this is still well above the Federal Reserve’s 2.0% target, which means that there’s still a way to go before prices stabilize.

COTW: Tighter Lending Standards

COTW 04.11

Long before the collapse of Silicon Valley Bank and Signature Bank, U.S. banks had started to report tightening lending standards for commercial and industrial loans for firms of all sizes. The chart below shows how, throughout the first two months of the year, at least 44% of domestic banks have reported tightened lending standards. With Q1 2023 data due in May, which will include the impact of the recent financial stability, expectations are for banks to accelerate loan tightening conditions.

COTW: Sticky Inflation Measures

COTW 04.04

Last week, several important inflation measures were released. The Personal Consumption Expenditure (PCE) Price Index moved down to 5.0% in February, from 5.3% in January. However, since its peak of 7.0% in June 2022, there has been only a very slow downward trend over the last 9 months. It remains well above its 20-year average and the Fed’s target of 2.0%.

COTW: Extreme Interest Rate Spreads

COTW 03.28 1

The spread between interest paid on a bank’s liabilities (e.g. deposits) and the interest received on assets (e.g. investments), known as the Net Interest Margin (NIM), is a key driver of bank profitability. Banks generally benefit from higher interest rate environments as they are able to delay raising interest on deposits, while benefitting from higher interest income from investments.

COTW: SVB Fallout and the Fed’s Rate Hike Path

SVB

Last month, the Federal Reserve slowed the pace of rate hikes, increasing interest rates by 0.25%, following a 0.50% rate hike in December and three consecutive 0.75% hikes at the three prior meetings. In early March, following a series of strong economic data releases in February, expectations were for interest rates to reach a high of 5.44% in July this year, before dropping down to 5.31% at the end of 2023.

February 2023 Commentary: The Money Illusion

Retail Sales Feb

Retail sales rebounded in January, following two consecutive months of declines. However, the impact of ongoing elevated inflation on consumers’ purchasing power remains unclear, as inflation creates an illusion of strength that is not carried through to inflation-adjusted data.

COTW: Inflation and the S&P 500

COTW 03.01

January’s inflation print showed inflation increasing 0.5% month-over-month, to 6.4%. A monthly reading of 0.5% or higher is rare, as there have only been five occasions that inflation has increased by 0.5% or more month-over-month between the Global Financial Crisis in 2008 and 2020. While ongoing elevated levels of inflation are having a material impact on consumers and the prices for goods and services, it is also having an impact on the relative strength of U.S. companies.

COTW: Growth and Value Indices

Index Rebalancing

The S&P 500 Value and S&P 500 Growth indices are two style indices designed to provide investors with exposure to the market’s value and growth segments, with constituents in the indices taken from the S&P 500. Each year, these indices are rebalanced. The 2022 annual rebalancing, which occurred on December 16 2022, saw record turnover, as market trends throughout the year impacted the style classification of many companies—resulting in notable changes in sector exposure in the Growth and Value indices.

COTW: Personal Savings

Personal Savings

During the COVID-19 pandemic, U.S. consumers accumulated more than $2 trillion in excess household savings, enabling them to spend and to continue spending even as inflation reached decade-high levels. In April 2020, personal saving rates reached an all time high of 33%. However, since then, it has steadily declined, reaching 2.4% in September 2022—the lowest levels since 2005. It slowly started ticking up after September, reaching 3.4% in December, albeit still well below the historical average of 8.9%.

COTW: Existing Home Sales – Now vs GFC

Home Sales

Existing home sales have fallen by 2.6 million over the past 23 months, compared to a 2.4. million decline over the same period during the Global Financial Crisis.

4Q 2022 Commentary: Money Like Water

6040 Returns Dec 2022

As inflation showed signs of slowing in the fourth quarter, both stocks and bonds recovered some of their losses from previous quarters, and most assets ended the quarter with positive returns.

COTW: 2022 Market Recap

2022 Market Recap

2022 was one of the worst years for markets since the 2008 Global Financial Crisis. Record-high levels of inflation and subsequent aggressive monetary policy reactions by central banks across the globe saw both stocks and bonds tumble.

November 2022 Commentary: A Fork in the Road

Liquidity Nov22

Two of the most powerful economies in the world, the U.S. and China, are both facing critical decisions, and their choices will create ripple effects for global economic growth.

COTW: The U.S. Debt Ceiling

12.05

Created in 1917, the U.S. debt ceiling limits the amount the federal government can owe. It was initially used as a tool to make it easier for government to borrow money. Currently, the U.S. debt ceiling is set at just under $31.38 trillion.

COTW: Resilient Retail Sales

11.21 1

U.S. retail sales data was released last week, exceeding expectations and proving resilient in the face of high inflation and continued rate hikes by the Fed. Headline retail sales rose +1.3% in October, exceeding the expectation of +1.0%.

COTW: Financial Conditions

11.14 1

The Goldman Sachs U.S. Financial Conditions Index tracks the current position of financial variables in the U.S. that influence economic activity and therefore the future state of the economy. The index includes variables such as short- and long-term interest rates, U.S. dollar strength, credit spreads, and equity valuations. The higher the index, the tighter financial conditions, and vice-versa.

COTW: Not All Tech Companies Are Built Equal

COTW Template

Like most bear market environments, 2022 has seen growth stocks materially underperform their value counterparts. Of the growth stocks, tech has been among the hardest hit, with the S&P 500 tech sector down 33% year to date — trailing the broader index by over 8.0%. One of the key contributors to the underperformance of growth, and tech, has been the sharp rise in interest rates over the year.

3Q 2022 Commentary: Whac-A-Mole

Fed Tightening vs GSFC

In the first half of the quarter, stocks and bonds rallied on the hopes of a Fed policy pivot, but a sharp reversal in the second half brought new highs for bond yields and new lows in stocks for the year.

3Q, 2022 Asset Class Return Quilts

3Q 2022 SpringTide Asset Class Return Quilts 2

Gold and Taxable Bonds remained the best performing asset classes year to date. U.S. Large Cap Stocks continued to rally from the March 23 bear market lows, while U.S. Small Cap stocks lagged.

COTW: U.S. Dollar vs Commodities

09.26

The U.S. dollar has historically had an inverse correlation to commodities. When the dollar strengthens, commodities become more expensive in non-U.S. currencies, which tends to lead to lower demand and thus lower prices. The inverse applies to dollar weakness.

August 2022 Commentary: Stalemate

European Energy Crisis 1

Terrible global conflict continues with Ukraine resolutely defending itself against Russia, Russia dealing with severe sanctions, and western Europe bracing for a winter marked by significantly limited gas and fuel supply, traditionally secured from Russia.

COTW: U.S. Stocks vs Bonds

09.06

The average 1-year correlation between U.S. stocks and bonds has been negative since 2000, meaning that positive returns in the one asset class has generally been accompanied by negative returns in the other and vice-versa.

Market Note: New Bull or Bear Market Rally

Bear Market Anatomy 1

The “pain trade” rally we outlined in Market Scenarios & Risk Levels is well underway with Technology stocks and high yield bonds up 15.2% and 7.0%, respectively, since July 6.

COTW: Bear Market Rally

08.08

U.S. stocks, as proxied by the S&P 500, have rebounded from their June lows, rallying more than 13% in 33 days. While this rally has provided relief to the market, investor should be cautious in calling the end to the current bear market based on this rebound, as bear markets can experience multiple unsuccessful rallies before markets bottom.

2Q 2022 Commentary: When Doves Cry

Economic Slowdown

The past six months have been the worst start to a year for a traditional “60/40” portfolio since 1932 when the U.S. economy was in the Great Depression

2Q, 2022 Asset Class Return Quilts

2Q22 QUILT

Commodities and energy stocks have so far served as the only two bright spots in the first half of 2022, up 18% and 32%, respectively.

April 2022 Commentary: The Tipping Point

Bonds

Global markets have been roiled by a succession of blows in April – higher bond yields, lingering post-pandemic supply chain imbalances, a commodity price shock exaggerated by the war in Ukraine, and lockdowns across most major cities in China

1Q, 2022 Asset Class Return Quilts

1Q2022

For the second time in two years, the global economy has been thrust into a crisis – first from the pandemic, and now from Russia’s invasion of Ukraine.

October 2021 Commentary: Heating Up

October 2021

The S&P 500 Index had its best month of the year in October, rising 7% and bouncing back from September’s 4.7% loss, its worst month since March 2020.

3Q 2021 Commentary: Bond Vigilantes

3Q 2021

Markets delivered bland returns during the third quarter—a welcome development considering the stellar returns achieved earlier in the year.

2Q 2021 Commentary: Taking Stock

2Q 2021

Most asset prices rose during the quarter amidst continued economic reopening and extraordinary levels of policy accommodation.

Market Note: The Inflation Watershed

Inflation Watershed

For over a decade, the Fed has struggled to hit its internal inflation target despite responding to every episode of economic weakness with increasingly extreme and experimental monetary policy, including 0% interest rates and widescale asset purchases.

May 2021 Commentary: Help Wanted

May 2021

Real assets were the top performers for the month of May due to the continued reopening of the U.S. economy and historic levels of stimulus from Washington

1Q 2021 Commentary: Throw the Confetti

March 2021

At the end of the quarter, investors enjoyed the robust returns of riskier asset classes and policymakers’ continued commitment to extraordinary accommodation.

COTW: IPOs Have Left Many Speechless This Year

COTW 20.12.14

Airbnb CEO and Co-Founder, Brian Chesky, was left speechless on Bloomberg TV last week after hearing the opening price of his company’s IPO for the first time. It was a reaction shared by many investors this year when observing the performance of IPOs.

COTW: Small Cap Stocks Playing Catch-up

COTW 20.11.30

While small cap stocks (as measured by the Russell 2000 Index) have lagged large cap stocks (as measured by the S&P 500 Index) year to date, the gap narrowed in November after small cap outperformed large cap by 9.3% (as of November 29). 

COTW: Here We Go Again

COTW 20.11.23

Reminiscent of late 2017-early 2018, risk assets are rallying into year end and bitcoin is leading the charge as it nears its December 17, 2017 high of $19,041.

3Q, 2020 Asset Class Return Quilts

3Q 2020 Asset Class Return Quilts

Gold and Taxable Bonds remained the best performing asset classes year to date. U.S. Large Cap Stocks continued to rally from the March 23 bear market lows, while U.S. Small Cap stocks lagged.

2Q, 2020 Asset Class Return Quilts

2Q 2020 Asset Class Return Quilts 1

Gold and Taxable bonds remained on top, adding to their Q1 performance. U.S. Large Cap Stocks rallied 17.4% in Q2, narrowing the year-to-date loss to 2.8%.

1Q, 2020 Asset Class Return Quilts

1Q 2020 SpringTide Asset Class Return Quilts

Gold, Taxable Bonds, and Cash finished the quarter on top and were the only asset class to post positive gains. U.S. Large Cap Stocks fell 20.2% in Q1, 2020.

COTW: Venture Capital Washout

COTW 20.03.16

According to data from Bloomberg, Venture Capital activity is down 22% since the start of the year. However, that activity had already slowed dramatically prior to the COVID-19 crisis intensifying as the index reached an all time high in June of 2019 and is now d own 52%

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Periodic insights and updates from the SpringTide investment team

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The information contained in SpringTide Partner’s website is of a general nature and for informational purposes only and does not constitute financial, investment, tax or legal advice. These materials reflect the opinion of SpringTide Partners as of the date produced and are subject to change at any time without notice due to a variety of factors, including changing market conditions or tax laws. Where data or analysis is presented that is prepared by third parties, such information will be cited. These sources have been deemed to be reliable by SpringTide but no guarantee can be made as to their accuracy. Any links to third party websites are offered for use entirely at your own discretion. SpringTide Partners is separate and unaffiliated from any third parties listed herein and is not responsible for their products, services, policies or the content of their websites. All investments are subject to varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product referenced directly or indirectly in this website will be profitable, perform equally to any corresponding indicated historical performance levels, or be suitable for your portfolio. Past performance is not an indicator of future results.

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