Displaying items by tag: inflation

There’s no question that 2022 was a tough year for investors, but even with all the volatility, investors remain confident in their advisor’s abilities. That is according to the results of State Street Global Advisors’ ETF Impact Survey: Advisor Edition. The survey found an overwhelming majority of investors who work with an advisor remaining confident in their insight and guidance. The percentage of U.S. investors indicating they value their financial advisors’ knowledge and guidance even more during uncertain times held steady at 89% compared to June 2022, when it was 91%. In addition, 81% indicate their advisor has helped them remain confident during this period of rising inflation and market volatility, compared to 86% in June. The survey also revealed that investors are listening to their advisors and not requesting panic-induced trades as 57% of U.S. investors plan to keep their money ‘as is’ and stick to their long-term strategy. Brie Williams, head of Practice Management at State Street Global Advisors had this to say about the survey results, “Helping clients remain confident and committed during times of volatility can be a challenge for advisors whose clients may have a kneejerk reaction to abandon their investment strategy if markets get choppy. Our survey found 86% of investors have discussed market volatility with their financial advisor and 83% say their advisor has informed them of how volatility will affect their long-term financial goals.”

Finsum:A recent SSGA survey found investors remain confident in their advisors’ guidance amid heightened market volatility and rising inflation.

If you’re looking to hedge your client’s portfolio from inflation, consider investment-grade ETFs. That is according to American Century Investments client portfolio manager Balaji Venkataraman. He spoke at the recent ETF Exchange conference in Miami Beach and noted how the Fed’s moves played a role in the dismal performance of bonds last year. However, he also added that investors may see increased value in fixed-income vehicles this year. He stated, “The rate risk has subsided meaningfully because the fixed income market tends to price in where the Fed is going well before the Fed gets there. And that’s why we’ve seen a decline in yields here today.” Venkataraman also noted that investment-grade bonds, which are a debt of higher-grade securities, could be critical investments during periods of heightened inflation, as yields begin to fall in response to the Fed easing rates. He stated, “The beauty of fixed income in this environment, if the Fed eventually does [come to] its peak in terms of the terminal rate, bond yields should probably continue to come down.” While bonds saw their worst year on record last year, fixed-income ETFs continued to see inflows. That trend continued into this year, as bond funds saw $20.8 billion in inflows in January, the most of any asset class last month, according to ETF.com data.  

Finsum:According to American Century Investments client portfolio manager Balaji Venkataraman, investors should consider investment grade bond ETFs during periods of heightened inflation, as yields begin to fall in response to the Fed easing rates.

You can’t talk about the markets in 2022 without mentioning volatility, and it appears investors are just as nervous now as they were last year. That is according to the results of a recent survey from Allianz Life. The firm’s findings in its Quarterly Market Perceptions Study for the fourth quarter of 2022 revealed that 77% of the survey's respondents believe equities will be volatile in 2023, extending the big swings that eventually drove stocks into a bear market in 2022. Stocks were hit hard last year as high inflation prompted the Fed to raise interest rates. The volatility is making most Americans nervous about their retirement portfolios in the face of a potential recession, while inflation is still running hot. In fact, many investors would rather hold onto cash than risk losing money in stocks. Allianz Life found that 64% said they would rather have their money sit in cash rather than endure market swings. The financial services provider also noted that Americans are so concerned about their financial futures that many are halting retirement contributions and are worried about covering their day-to-day expenses. For instance, 65% of respondents said they will adjust their retirement and investment plans if volatility continues, jumping from 57% during the same period last year. Plus, eighty-two percent of Americans are worried that rising inflation will keep hurting their income's purchasing power over the next six months.

Finsum:After suffering crushing losses last year on account of wild market swings, investors are even more concerned about volatility this year, which could result in them sitting in cash and halting retirement contributions.

While markets in 2022 were crushing for many, some portfolio managers at Capital Group are seeing brighter days ahead this year, but are still playing it safe. At a webinar revealing the firm’s asset allocations for this year, managers stated that they are reacting to a changing environment and that the market’s direction will depend on the movements of the Federal Reserve. John Queen, fixed-income portfolio manager said, “The key is inflation, and the path inflation takes from here is really going to determine what the macro environment looks like, what happens with interest rates here in the U.S., and then how aggressively the Fed is willing to combat that inflation if it stays somewhat elevated.” While the adjustments that the firm is making to its model portfolios are small, they are tilting away from growth and moving toward income, according to the panel. For instance, in its growth and income model portfolio, Capital Group moved 5% of its allocation out of a balanced fund and into a diversified fixed-income fund. Michelle Black, another solutions portfolio manager at the firm stated, “For a 20-year horizon, the starting point matters, and starting after a down year means positive outcomes for long-term investors. It’s probably not surprising to hear we have higher expected returns across the board versus one year ago, stemming really from more attractive valuations, especially in fixed income.”

Finsum:Capital Group portfolio managers are tilting away from growth and moving towards income in their model portfolios due to attractive valuations in fixed income.

After a brutal year in the markets, you wouldn’t blame investors for being cautious in 2023. However, Fundstrat’s Tom Lee believes that history favors a 20% stock-market return in 2023. According to Fundstrat, “Historical data shows there is a high chance that the U.S. stock market may record a return of 20% or more this year after the three major indexes closed 2022 with their worst annual losses since 2008.” Lee basis this on the fact that in the 19 instances of negative S&P 500 returns since 1950, over half of those years were followed by the index gaining more than 20%. He and his team believe that three possible catalysts would enable stocks to produce 20% gains this year. The first catalyst is lower inflation. They expect lower inflation to set the stage for the Fed to stop raising rates and eventually start to lower them. Fundstrat also believes that wage gains will slow and volatility will fall. According to Fundstrat, equity and bond market volatility is likely to fall sharply in 2023 in response to a drop in inflation and a less hawkish Fed. Lee and his team wrote in a note that “Our analysis shows this drop in VIX is a huge influential factor in equity gains, which would further support over 20% gains in stocks.”

Finsum:Due to historical data, lower inflation, slowing wage gains, and falling volatility, Fundstrat’s Tom Less believes that the market will gain 20% or more this year.