Displaying items by tag: stocks

Tuesday, 07 February 2023 14:30

Stocks Getting a Boost from Falling Bond Volatility

After a tough year in the equity markets, this year is shaping up to be a better year for investors as the S&P 500 is up over 7% through Monday’s close. This is happening amid numerous recession predictions across Wall Street. The rise in the stock market this year can be attributed to the growing sentiment that the worst is over when it comes to inflation and rising interest rates. In fact, a gauge of future volatility in the U.S. bond that tracks interest-rate turbulence is now showing an increasingly encouraging trend that is supporting the optimism in the market. The ICE BofA MOVE Index is extending a slide that started in October. It has now fallen to lows not seen since March when the Fed started its aggressive interest-rate increases. The index continued to fall after the Fed’s latest meeting on Wednesday, where according to billionaire investor Jeffrey Gundlach, Fed Chair Jerome Powell “didn't fight back in his speech Wednesday against market expectations that the Fed will soften its rate policy later this year.” The Fed raised benchmark borrowing costs by only 25 basis points, the smallest increase since last March. Over the past year, the trajectory of the S&P 500 has moved inversely to the MOVE index, showing the market's sensitivity to the interest-rate outlook.

Finsum:The stock market has rebounded this year as the ICE BofA MOVE Index, which measures bond volatility, has been sliding since October.

Published in Wealth Management
Friday, 03 February 2023 06:25

Analysts: Big Oil Has Passed its Peak

After two years of surging growth, this earnings season could mark the beginning of energy company profits coming back down to earth. That is according to Wall Street analysts who believe Big Oil has passed its peak. However, the ride down is expected to be slow, with companies still expected to bring in large profits for some time. Last year was a boon to oil and gas companies. The energy sector ended the year up 64.56% as sky-high oil and gas prices were one of the largest contributors to inflation. The sector thrived with a hawkish Fed, high inflation, economic uncertainty, and Russia’s invasion of Ukraine. But analysts don’t believe this will continue for much longer. HSBC Global Research analysts wrote in a note that “Although 2023 should remain a solid year for the integrated oils, there is less headroom than we envisaged just a couple of months ago given the correction in oil prices and halving in European gas prices.” In addition, Bank of America estimates that earnings for the fourth quarter from oil and gas producers will be down 11% from third-quarter levels. Doug Leggate, a Bank of America research analyst, wrote in a recent note that “In our view, upcoming earnings for the US oils will be one of the most consequential in several years. It is now clear that the best quarter for many US oils has passed.”

Finsum:While oil and gas companies thrived in last year’s conditions, Wall Street analysts think profits will eventually come back down to earth due to a recent correction in oil prices and the halving of European gas prices.

Published in Eq: Energy

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.

Published in Wealth Management

Last year, portfolios that were allocated to 60% stocks and 40% bonds were hammered, as both the stock and bond markets sustained heavy losses. The portfolio has generally yielded steady gains with lower volatility since the two asset classes typically move in opposite directions. However, the strategy backfired last year after the Fed’s tightening policy sent stocks tumbling from record highs and drove Treasuries to the worst losses since the early ‘70s. This made advisors and investors question the viability of the 60/40 model. But the bond market’s selloff last year pushed yields so high that analysts at BlackRock, AQR Capital Management, and DoubleLine expect fixed-income securities to breathe new life into 60/40 portfolios. This year, both stocks and bonds have gained, propelling the 60/40 portfolio to the best start to a year since 1987. Their view is supported by the expectations that the Fed is nearing the end of its tightening policy as inflation comes down. If this view turns out to be correct, it reduces the risk of bond prices falling again and allows them to once again serve as a hedge against a potential drop in equities stemming from a recession. In a note to clients, Doug Longo, head of fixed-income strategists at Dimensional Fund Advisors, wrote “Expected returns in fixed income are the highest we’ve seen in years.”

Finsum:Based on the view that the Fed is nearing the end of its tightening cycle, analysts expect fixed-income securities to once again serve as a hedge against stocks in the 60/40 portfolio.

Published in Bonds: Total Market

According to new survey data from SoFi, more than a third (37%) of investors said they made impulsive investment decisions due to heightened volatility in the market last year, with younger investors significantly more likely to do so. Out of the 1,000 investors surveyed by SoFi, 29% said they bought a lot of investments, 17% said they sold a lot of investments, and 55% did not buy or sell. While impulsive trading during heightened market volatility is normal, it’s exactly what financial experts say not to do as it can hurt your portfolio over the long run. Instead, investors should stick to their investment plan and stay the course. Joel Mittelman, president of Mittelman Wealth Management, previously told Money.com that “Ironically, during a period of extreme volatility is exactly when you need the discipline and structure of some investment plan. Unfortunately, that's often when people throw the plan in the garbage." Investors are often unsuccessful at predicting the market, so staying invested is typically the best way to optimize returns over the long term. Plus, when you stick to your plan, you won’t miss out on the eventual recovery.

Finsum: A recent survey by SoFi found that 37% of investors made impulsive decisions due to the heightened market volatility last year, the exact opposite experts recommend.

Published in Wealth Management
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