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Week-in-Review: Week ending in 09.03.21

The Bottom Line

● Domestic equities posted another week of gains but lost some momentum after a disappointing payroll release. European equities faltered on political news out of Germany, while Japanese equities rallied around their own political news.
● Treasury yields fell on the shorter-end with the 2-Year falling -1bps, but the longer-end rose slightly with the 10-Year gaining +1bps.
● Economic news for the week painted a blurry picture with the housing market showing signs of cooling, solid manufacturing that is being stifled by labor and parts shortages, and a gigantic miss on payroll numbers.

Is Growth Slowing?

For most of the week, equity markets were able to grind higher, but started to lose their footing after payroll numbers posted a massive disappointment. Despite this falter, domestic equities were all in the green with the S&P up+0.58%, the Nasdaq up +1.55%, and the Russell posting a gain of +0.65% for the week. European equities couldn’t hold onto their gain and fell -0.09% for the week after political turmoil emerged in Germany. Japanese equities rallied after Yoshihide Suga announced he is stepping down from leadership, but his party will remain in control. The Nikkei was up a whopping +5.38% for the week, most of which was achieved on Friday. Economic releases painted a mixed picture going into the long holiday weekend, with manufacturing showing strong output, but constrained from labor and supply chain shortages, housing markets cooled for the second month in a row, and wages grew but didn’t take employment with it. Market participants will be keeping a close eye on growth metrics and will be paying especially close attention to labor markets looking for any signs of trending weakness that could derail the Fed’s targeted plan to start tapering asset purchases at the end of this year.

Digits & Did You Knows

BRAND NEW HOMES — The median sales price of a new home sold in the USA in June 2021 was $390,500, a record high both on a nominal basis and on an inflation-adjusted basis. The old nominal record was $374,400 in April 2021. The old inflation-adjusted record was $345,800 in May 2017, equal to $383,898 in today’s dollars. (source: Census Bureau, BTN Research).
RED TAPE — Congress approved $46.55 billion in rental aid via 2 bills in 12/2020 and 3/2021. As of 08/25/2021, just $5.1 billion has been disbursed to renters or 11% of the total. (source: Emergency Rental Assistance Program, BTN Research).
THE FIRST ONE — The CDC has changed the date of the first US Covid-19 death from 02/06/2020 to as early as 01/11/2020. The CDC now believes 6 Covid-related deaths occurred before 02/06/2020. (source: CDC, BTN Research).

Click here to see the full review.

Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

© 2021 Prime Capital Investment Advisors, 6201 College Blvd., 7th Floor, Overland Park, KS 66211.

 

Blog Month in Reveiw

Month-in-Review: August 2021

Quick Takes

● Steady ascent. Despite higher COVID cases, rising geopolitical risks, mounting inflation fears, the looming Fed tapering, and waning economic growth, stocks continued their steady ascent with the S&P 500 closing August just below its all-time high.
● Delta damage. With Delta progressively spreading throughout the month, August saw a pullback in consumer activity, with notable declines in visits to Gyms, Grocery Stores, Restaurants, and Retailers. Air passenger traffic also rolled over in August after nearing pre-pandemic levels in June and July.
● Earnings exploding. With less than a handful of companies left to report earnings for the second quarter of 2021, data from FactSet shows the reported year-over-year growth in earnings is 91%–the highest growth since the fourth quarter of 2009.
● Expectations eroding. In the first two quarters of the year, economic results were consistently exceeding expectations. Since the beginning of July, and gaining downside momentum in August, a reversal of this dynamic has resulted in the vast majority of economic data now falling short of expectations.

Asset Class Performance

Returns for most major asset classes were relatively muted in August as U.S. and International Equities were up a bit, while U.S. and International Bonds declined slightly. Bonds are the only asset classes still negative for the year.

Stocks set records despite mixed economics and delta variant

August, traditionally a tepid month for stocks, ended on a high note with the S&P 500 closing at 4,522.68, up from July’s close of 4,395.26 and now the seventh consecutive month of gains. The S&P is now up a healthy +20.41% for 2021. Domestic equities weren’t the only ones to rise during August, European equities rose +1.98% for the month as did Japanese equities, up +2.95% for August. While markets were optimistic, some of the economic releases for the month painted a more mixed picture. On a positive note, CPI metrics came in largely in-line with expectations, which is more consistent with the Fed’s narrative of transitory inflation. Regardless, consumers are beginning to feel the pressures of rising prices and it weighted on Consumer Confidence. The University of Michigan’s Sentiment survey reached its lowest level since 2013 at 70.3. Manufacturing data also retracted, with ISM’s gauge of factory activity falling for a second month in a row, illustrating that supply chain bottlenecks and difficulty hiring labor, especially skilled labor, is still prevalent. Consumers have been hesitant to return to work as the delta variant spread has increased over the summer months, as illustrated in the chart below.

Additionally, the fear of mask mandates and lockdowns returning has curbed consumer spending which fell to +0.3%for the month of July, missing expectations of +0.4%, and well below the prior month’s release of +1.1%. The miss on Consumer Spending came from softer than expected retail goods and automobiles, but service spending increased. If consumer spending continues to soften into the second half of the year, it could lead to stagnating the economic recovery. Despite consumers pessimism, Incomes surged +1.1%, crushing expectations of +0.3%. The advance was due to Child Tax Credit payments, which more than offset a decline in unemployment benefits, which have been tapering off in recent months as the economic recovery progresses. Overall, consumers remain in one of the best financial standpoints in history. Consumers aren’t alone, corporations are posting some of their strongest earnings in history. As earnings season wound down at the end of August, S&P 500 constituents posted a revenue surprise of 4.9% in aggregate, the largest surprise percentage since FactSet began tracking the metric in 2008 and well above the five-year average of 1.46% (dotted line in the chart above). The unprecedented amount of stimulus distributed by the Fed and Congress has been a significant boon to corporations’ top lines. The Q2 sales growth has helped justify stretched valuations, JPMorgan Asset Management reported S&P 500 YTD earnings growth of 19.7% and multiples have compressed down -5.3%. Despite this compression, P/E ratios remain elevated at 21.5x, versus their 5-year average of 16.3x on the S&P 500.

Bottom Line: Equities continue to grind higher despite lofty valuations, temporary setbacks in the economic recovery due to supply chain constraints and labor shortages, the spread of the delta variant, and hesitant consumers. If trends begin to develop in any of these risks, it may stagnant the economic recovery.

Click here to see the full review.

©2021 Prime Capital Investment Advisors, LLC. The views and information contained herein are (1) for informational purposes only, (2) are not to be taken as a recommendation to buy or sell any investment, and (3) should not be construed or acted upon as individualized investment advice. The information contained herein was obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness. Investing involves risk. Investors should be prepared to bear loss, including total loss of principal. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance is no guarantee of comparable future results.

Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a
Registered Investment Adviser. PCIA doing business as Prime Capital Wealth Management
(“PCWM”) and Qualified Plan Advisors (“QPA”).
© 2021 Prime Capital Investment Advisors, 6201 College Blvd., 7th Floor, Overland Park, KS 66211.

Blog

Week-in-Review: Week ending in 08.27.21

The Bottom Line

● The S&P and Nasdaq rose to record levels after Fed Chairman Powell’s comments post Jackson Hole Symposium. Small Cap equities were the biggest winner for the week, gaining +5.05% as investors went risk on.
● Treasury yields were volatile leading up to Powell’s comments but settled after his dovish tone. The 2-year yield dropped -1 bps, but the 10-year yield climbed +5 bps higher for the week.
● Economic news for the week illustrated that supply constraints haven’t abated with orders of goods still outpacing shipments and inflation and delta variant spread is still weighing on consumers’ minds.

Powell Soothes Markets

Investors were able to breathe a sigh of relief after Fed Chairman Powell’s dovish comments on Fed policy moving forward. Markets were mainly concerned over the tapering of asset purchases leading directly into a rate hike. Powell quelled these fears by clearly stating that tapering did not mean hiking. Rejuvenated by this reassurance, traders resumed a risk on mode sending the S&P and Nasdaq to record highs, the S&P ended the week up +1.52% and the Nasdaq was up +2.82%. The S&P is now at a healthy +20.06%return for 2021 thus far and the Nasdaq isn’t far behind at + 17.39% YTD. Small Cap equities were the dominant index for the week, up a whopping +5.05% for the week and + 15.31% YTD. Powell’s comments were heard far and wide with international indexes rising as well. The STOXX Europe 600 gained +0.76% for the week and is now up +18.37% for the year. Troubled Japanese equities were able to catch a bid and returned to positive territory for the year, up +2.32% for the week and now up +0.72% YTD. Yields were ripe with speculation over the Fed’s policy and its effect on the economic recovery, but ultimately, the short end of the curve fell -1 bps and the 10-year yield rose +5 bps.

Digits & Did You Knows

MONTHLY BENEFIT — 54 million Americans receive monthly Social Security retirement benefits, including retired workers, dependents of retired workers, and survivors of deceased workers. 42 million Americans receive monthly assistance from the Supplemental Nutrition Assistance Program (SNAP), aka “food stamps”. (source: SNAP, BTN Research).
AFGHANISTAN — The United States spent $2.26 trillion during its 20-year presence in Afghanistan in fighting the Taliban, rebuilding the Afghan government, and training the Afghan military. (source: Brown University, BTN Research).
SKIP THE PUMP — There are 43,600 electric vehicle (EV) charging stations in the USA. The $1.2 trillion infrastructure bill passed by the Senate allocates $7.5 billion for additional charging stations.(source: DOE, BTN Research).

Click here to see the full review.

Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

© 2021 Prime Capital Investment Advisors, 6201 College Blvd., 7th Floor, Overland Park, KS 66211.

 

Blog

The Three Alternative Investments You Should Research Right Now

There is a current euphoria taking place in the public markets, but if you look forward it seems as though we are borrowing from future returns. Many financial institutions and analysts are projecting lower returns for both U.S. equities and U.S. bonds moving forward, and more broadly across major asset classes. Higher inflation levels are expected in the future as well, and with those higher levels, it’s going to be difficult to find places in the public markets that provide a good return without losing purchasing power.

This is why, for the right investor, alternative investments can really add value to a portfolio today. We look at incorporating alternatives into a person’s portfolio to enhance diversification and improve the risk-reward profile. Said differently, for the same level of risk, alternative investments help us to create portfolios that have a better expected return. But just like most things in life, not all alternative investments are created equally. We like the core, foundational alternatives: private equity, private real estate and private credit. Let’s explore each a little further.

Private Equity

There is tremendous opportunity in private equity. 80 percent of the companies in the United States with sales greater than $100 million are private companies. Now compare that to the shrinking opportunity set in public markets. In the 1990s, there were about 8,000 publicly listed companies in the U.S. but that number is now just under 4,000, meaning the opportunities there have decreased dramatically.

You’ll also see the opportunity in private equity if you look at the overall market cap. The average size of private companies is smaller than public companies, meaning they have more room to grow. And if they have more room to grow, that’s a growth opportunity for the investor.

When you’re looking for returns that are larger than what public markets have offered, private equity offers a huge opportunity partly because of the liquidity premium. Simply put, if you’re going to put your money in something that is difficult to get it out of, you can expect greater returns for that inconvenience.

Now is a great time to explore an investment in private equity because there’s been an amazing evolution in the vehicles and structures that investors now have at their disposal. It used to be that your only option for investing in private equity meant your capital would be locked up for 7-8 years before you’d see a return of your capital. These days, many new investments provide quarterly liquidity opportunities, which provides far greater flexibility for investors.

Private Real Estate

Real estate is a major contributing factor to consumer net worth, which makes these hard assets a great wealth accumulation vehicle. As I look at the current environment, investments in private real estate make even more sense because they serve as a natural inflationary hedge. As interest rates go up, lease rates go up. Landlords are able to pass along rising rates, instead of suffering from them.

Many private real estate investments are also very tax efficient, between the usage of depreciation, taxed deferred growth, and even 1031 exchanges that can allow investors to roll gains from one property or offering forward to another without having to recognize the capital gain at the time of the transaction

Finally, real estate doesn’t necessarily need to be confined to one particular sector. Many people think of retail stores, office buildings, or apartments when they think of this asset class, but other segments such as data centers, industrial warehouses, and even cell phone towers also provide access to secular growth trends in the economy.

Private Credit

For investors who need income ,where can they get it in this current low interest rate environment?

With private credit, you’re also able to extend to other areas of fixed income that you can’t touch in the public markets. For example, collateralized loan obligations or CLOs offer shorter duration fixed income exposure for your portfolio, which helps to limit interest rate risk. If you can get your money returned to you quicker, you face less risk from inflation lessening your purchasing power. Private lending can also offer higher rates of income for the same level of credit risk, again due to the illiquidity premium that is typically associated with these types of products.

Implementation

As we have noted, alternative investments can provide a significant diversification benefit as well as inflationary protection for an investor’s portfolio. But they also help instill better investor behavior. This was evident in March 2020 when the market crashed at the start of the pandemic. Alternative investments are often harder to pull one’s money out of in a hurry, so instead of panic selling, investors stay in and reap the benefits of the recovery.

Today’s environment calls for outside-the-box thinking for investors hoping to achieve healthy returns while maintaining a reasonable level of risk. There is by no means a perfect solution for everyone, and there could be some additional requirements necessary to participate in these types of investments so they must be used carefully, only as a satellite option to complement, rather than replace, a traditional investment portfolio. Because reporting requirements are not as stringent as those for publicly traded securities, a thorough due-diligence process is an absolute necessity before investing, and on an ongoing basis for monitoring purposes. This is where having a research team on your side can be incredibly helpful. If you have questions about alternative investments and how they can best be incorporated into your portfolio, don’t hesitate to reach out to us here at Prime Capital Investment Advisors.

​Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”

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