Month in Review

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.

Month in Review

Month-in-Review: July 2021

Quick Takes

● U.S. Stocks back at all‐time highs. The S&P 500 closed July near record highs, its sixth consecutive monthly advance. But outside of U.S. large caps, the picture in July was much cloudier. U.S. Small cap fell ‐3.6% and overseas emerging markets plunged ‐6.7%.
● Disappearing act. The yield on the benchmark U.S. 10‐year Treasury yield fell ‐0.25 basis points in July, its largest monthly decline since March 2020. Yields are down for four straight months now, the first such stretch since the first four months of 2020. Yields rose four straight months from 12/20 through 3/21.
● China joins inflation and variants as key concerns. Chinese stocks ended July with steep declines, with Hong Kong’s Hang Seng index tumbling ‐9.9%, while the Shanghai Composite fell ‐5.4%. U.S.‐listed Chinese tech stocks plunged more than ‐22% in July.
● Uneven bars. Economic output is returning to pre‐pandemic levels for major economies but is taking more time for some countries than others. Business activity shows divergent recoveries as the U.S. and eurozone continued to rise in July, but Australia and emerging markets saw much weaker data.

Asset Class Performance

Stocks rallied to record highs again in July as the global economic recovery continued. However, sentiment is at risk as the more contagious Delta variant spreads and creates uncertainty about the recovery and the path to normalcy.

Global economies are largely improving, but at varying rates

The Bureau of Economic Analysis announced at the end of July that the U.S. economy has returned to pre‐pandemic levels for the second quarter through June. Although second quarter U.S. Gross Domestic Product (GDP) came in below economist expectations, growing at a +6.5% annual rate versus the forecast for +8.5%, it showed a robust rebound in household demand and put the U.S. economy above its pre‐pandemic peak on an inflation‐adjusted basis. Bloomberg economists noted that most of the downside surprise was from the trade and inventory components. Excluding trade and inventory showed growth at +7.9%. Further stripping out government spending, in which payments to banks for processing PPP loans caused a non‐recurring drop, put final sales to the domestic sector at +9.9%, an at an all‐time high. The Personal Consumption Expenditures (PCE) price index excluding food and energy costs, followed closely by Fed officials, climbed an annualized +6.1% in the second quarter, the biggest gain since 1983. As shown in the chart to the right, China and India have also surpassed pre‐pandemic economic growth. However, some countries have not kept pace and remain below their pre‐pandemic levels. Many European countries locked down more fully than the U.S. and didn’t have quite as much stimulus. And the fast‐spreading Delta variant is thwarting plans to lift lockdowns or pushing areas to return to restrictions.

In Australia, Sydney was locked down for the first time in more than a year. Indonesia, the fourth most populous country in the world, is experiencing a spike in both infections and deaths. It has resisted tighter restrictions, but with only had about 5% of the country fully vaccinated it began additional curbs in hard‐hit areas. Of course, the Olympic games started which began in late July in Tokyo have no live fans after the government declared a state of emergency for the duration of the games. Nicolas Colas of DataTrek Research pointed to Apple mobility data to show the divergent recoveries and the challenges resulting from different levels of restrictions, infection rates, and vaccination levels. Mobility data in the U.S. and Europe showed positive trends and traffic that was near or above early 2020 levels. But Asia was seeing much lower mobility activity with Sydney under lockdown, Bangkok closing public spaces, and India just starting to ease restrictions after their devastating Delta surge.

The chart of PMI data to the left reflects the stark contrast of deviating business activity with the U.S. and eurozone well into economic expansion but Australia falling back into economic contraction. South America has seen little disruption from the Delta variant but is struggling with its own highly infectious Gamma variant.Bottom Line: The global economy experienced a largely synchronized recovery following the initial COVID‐19 pandemic beginning in the Spring of 2020 and the following year. But different levels of vaccination rates, and subsequent waves of COVID variants across—and within—countries, means the recovery is now increasingly divergent. Rebalancing and risk management will take on additional importance in this more challenging environment.

 

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.

Month in Review Week in Review

Q2 Quarterly Client Update

And the beat goes on…

Essentially treading water for the first half of the quarter, markets found their footing and finished positive across every major asset class. Continued vaccination success, massive amounts of fiscal and monetary stimulus, solid economic activity, and earnings acceleration all contributed to the investor optimism that witnessed the S&P 500 deliver positive quarterly results for the fifth consecutive quarter, which is the longest consecutive streak since the nine-quarter stretch that ended in 2017. Though many of the quarter’s headlines centered around fear-invoking risks like inflation and sooner than expected modifications to the Fed’s accommodative policy, the markets appeared unphased as concerns of growth moderation sent yields lower and equities higher. While still lagging other major US equity markets year-to-date with a return of 12.54%, as markets shifted toward higher quality, the more interest-rate sensitive and growth-oriented NASDAQ led the charge with a second-quarter return of 9.49%, as compared to returns on the S&P 500 of 8.55% and 15.25% for the quarter and year, respectively. While only delivering returns of 4.29% in the second quarter, US small-cap stocks, as measured by the Russell 2000 index, garnered solid returns for the year of 17.54%, only to be outdone year-to-date by the S&P MidCap 400 return of 17.59%.

With uneven COVID containment across emerging market countries, along with varying degrees of inoculation success, surging commodity prices, and falling US yields, the MSCI Emerging Market Index delivered a positive return of +5% in the second quarter; bringing the year’s return across developing countries to 7.4%. Conversely, foreign developed countries (primarily Europe and Japan) continue to lag the US in vaccine rollout progress, though France and Germany are approaching 50% of their populations receiving at least one inoculation. Rising concerns over the Delta variant continue to threaten the near-term recovery. Fortunately, recent vaccination success and easing of some travel restrictions drove the cyclical heavy MSCI EAFE Index (Energy, Financials, Industrials, and Materials make up more than 40% of the index) +5.2% for the period, bringing the total for the year to +8.8%

Despite high levels of inflation reported over the quarter, long-term inflation expectations are actually down on average. When coupled with an overly accommodative and reassuring Fed, along with the looming fiscal cliff and Delta variant posing risks to the expansion, the market witnessed the yield on the 10-Year Treasury contract about 30 basis points (0.30%) to end the second quarter at 1.45%; still up more than 0.50% for the year. While the inverse relationship between bond prices and yields pushed the return on the Bloomberg Barclays U.S. Aggregate Bond Index up 1.8% for the quarter, the index remains down -1.6% for the year.

Economy

Though first quarter GDP accelerated at a 6.4% rate, the US still sat below its pre-pandemic growth levels. Massive amounts of Congressional and monetary stimulus continued to drive economic activity back into positive territory in the second quarter. The Conference Board forecasts that US Real GDP in the second quarter will rise to a 9.0% annualized rate and 6.6% year-over-year for 2021. While Bloomberg forecasts have moderated in recent weeks, they’re still anticipating second-quarter growth of 10% (from 11% in March), and 7.2% for 2021 (from 7.7% in March). Growth of 7.2% for the year would be the fastest annual rate since the economy surged out of the 1981-1982 recession. With the effects of the March Congressional stimulus package fading, several key economic indicators have demonstrated some recent softening. While consumer spending was robust in the first quarter (up +11.4%, according to Bloomberg), we’ve witnessed a normalization in retail spending in both April and May. Furthermore, as the economy has continued to reopen, consumers have started to shift their spending preferences away from goods and more toward experiences and services, like dining out and traveling. In general, consumers appear poised to drive significant pent-up demand, as evidenced by their elevated savings of 14.9% (more than double the post-Great Financial Crisis average), unprecedented consumer net worth, and an M2 Money Supply of more than four trillion dollars above average levels – up 18% year-over-year, and 30% higher since February 2020. Given that the consumer comprises roughly 70% of our economy’s output, spending should serve as a significant driver for economic growth for the remainder of the year. That spending should be supported further in the intermediate term from both the monthly child tax credit payments that are going out this month, coupled with the eventual spend-down of excess savings.

The Fed, Inflation, and Labor Market

Over the course of 2021, equity markets have become increasingly more dependent on overly accommodative central bank policy, where Fed policy appears priced to perfection and risks of a policy mistake appears more likely than not, hence the flattening yield curve. Though continually pressured, the Federal Reserve has remained resolute in their current policies and messaging, maintaining their accommodative stimulus through open-ended Quantitative Easing (QE4) and keeping rates historically low. This “anything it takes” mentality has seen the Fed’s balance sheet balloon to more than $8 trillion, with no real signs of slowing. The Fed is currently purchasing $120 billion ($80 billion US Treasury securities and $40 billion in mortgage-backed securities) per month and has indicated the intent to maintain this pace through 2021 and possibly into 2022, before beginning to taper their purchases. As we’ve communicated in the past, taper does not mean that the Fed will halt buying bonds; it means that they will slow the pace of their purchases. Tapering could reduce purchases from $120 billion per month to approximately $100 billion per month in a transparent and well-communicated manner. Perhaps the two most monumental changes coming out of the surprisingly hawkish June Federal Open Market Committee was the mention of “talking about talking about tapering” and revising their projection for rate increases from 2024 to 2023. The Fed continues to communicate that their decisions will hinge on actual data and not forecasted data. In the third quarter of last year, the Fed changed its policy framework to achieve 2% inflation and adopted a soft, or flexible, inflation averaging approach. This soft approach would hypothetically allow inflation to run above 2% for an undisclosed period, as long as the average falls back 2% over the long run. With so much emphasis on inflation, what’s often overlooked is the Fed’s dual mandate to both average their 2% inflation target and their commitment to achieving “substantial further progress” toward the goal of maximum employment.

Inflation measures the rate of increase in prices of goods over a given period, and high inflation levels can damage productivity and economic growth. Last year, prices fell in March and April and remained low in May, creating a low base for future year-over-year readings – resulting in price level changes that might be slightly exaggerated. But in looking at the economic data, it’s hard to deny inflation currently exists. The Consumer Price Index (CPI), a prominent measure of inflation, witnessed Headline CPI come in at 5% and 5.4% in May and June, respectively, which are the highest readings since 2008. After stripping out the more volatile food and energy components, the Core CPI registered its highest reading since 1991, 3.8% and 4.5% for the same respective months. While the increases in the basket of goods measured in the CPI in April, May, and June did include some noise resulting from the base effect, most of the price increases have been a result of significant supply chain disruptions, coupled with a significant surge in demand. During the pandemic, inventory levels were significantly depleted, and once the economy began to reopen, demand surged, causing a bottleneck in the supply chains. Many consumers have felt this if they’ve tried buying a car, buying a house, or even building a deck. This type of supply chain disruption is relatively normal during recovery periods and can be seen as mostly transitory. Therein lies much of the debate around inflation – will it be transitory (temporary) or structural (sticky)? When looking at the most recent two CPI reports, more than half of the total increase in Core CPI can be attributed to used cars, rental cars, hotels, and airfare. These small categories only represent a combined total of Core CPI of about 6%. Their large price jumps are due to reopening and supply chain disruptions, both temporary, or transitory. Conversely, the larger components like rent and healthcare represent roughly 49% of Core CPI and have experienced only modest price gains; though the two consecutive readings of 0.3% for rents is worth noting and will be important to monitor going forward. One of the major issues causing disruptions across nearly every economic sector is semiconductor, or chip, shortages. Our everyday lives have become dependent on chips; they’re found in nearly everything from automobiles, dishwashers, phones, computers, to microwaves, etc. Through May, the average order-to-delivery interval reached all-time highs of 18 weeks. In other words, if a single chip was ordered in May, it took 18 weeks for that single chip to be delivered – hence the severe disruption in production and significant spike in new and used car prices.

Over the coming months, perhaps the most telling variable to monitor for clarity around inflation’s transitory or structural nature will be wage growth. It’s difficult for inflation to be sticky or structural without upward wage pressure. June’s 3.6% year-over-year wage growth is worth noting, though not overly concerning. Should the labor market start to exhibit the same pricing power as we’ve witnessed in commodities, we could witness a wage/price spiral, causing yields to normalize quicker than anticipated and indicating inflation might last longer than expected. When wages increase, businesses must increase the cost they charge for their goods and services to compensate for the higher wages, adding to inflationary pressures. If prices remain elevated, workers will eventually demand another wage increase to offset the increase in their cost of living – making inflation more structural. To correct the labor shortages and hire workers to meet surging demands, employers are getting creative to hire and retain workers, including higher wages. Several retailers, like Walmart, have raised their internal minimum wages to $15 per hour or more. Once these changes are made, an employer can’t reduce employees’ salaries, making these changes more permanent. Additionally, during first-quarter corporate earnings announcements, nearly every announcement mentioned inflation and the rising input costs applying pressure to their margins, and furthermore, their intentions to pass those increased costs along to consumers. Much like wage increases, if a company can successfully pass along cost increases, and consumers are willing to pay those higher prices, then once supply chain disruptions normalize and their cost of goods fall in line, many companies are not willing to slash consumer prices – again making inflation more structural and stickier than transitory and temporary.

We partially agree with the Fed and Treasury Secretary, Janet Yellen that the current supply chain disruptions will start to work out, and price gains will start to normalize. We believe that inflation will be transitory in the sense that it should start to moderate sometime in the third or fourth quarter of this year from its current levels. However, we also think that we could be headed for a regime change in future inflation. In other words, the post-Great Financial Crisis inflation averaged less than 2%, and we wouldn’t be surprised to see the next several years running closer to the 3% range. Outside of that view, when looking at the June CPI numbers of 5.4% and 4.5% on Headline and Core, respectively, it’s understandable investors are fearful. However, we are still dealing with some base effects, which are causing overstated numbers. This same base effect will also impact year-over-year CPI data as we approach the second and third quarters of next year, except then we’ll experience a reverse base effect. This time next year, the base will be these elevated inflation results currently being reported, which could produce negative year-over-year CPI readings. Given the cliff experienced during the heart of the pandemic, followed by sharp V- shaped reversals, we anticipate several variables to suffer from base effects for at least another year or so, continuing to insert noise into the data. When looking at the metrics closer, about 50% of the components tracked in the CPI basket that contributed to growth came from transitory components like buying used cars (up 45% YoY) and dining away from home. Therefore, as production comes back online, many supply chain disruptions should dissipate and lead to a moderation in inflation.

The rest of the Quarterly Update covers the Federal Reserve, Congressional Stimulus, and other Implications moving forward. Read more.

The preceding commentaries are (1) the opinions of Chris Osmond and Eric Krause and not necessarily the opinions of PCIA, (2) are for informational purposes only, and (3) should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results.

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

Month in Review

Month-in-Review: June 2021


Quick Takes

● Global recovery lifts all boats. International bonds and stocks fell in June, but all major asset classes were up in Q2 as the global synchronized recovery continued. Economic activity is expansionary globally and earnings are improving globally.
● Dollar dependent. The direction of the U.S. dollar (USD) has historically been a key contributor to international asset’s performance. In May USD weakness led to international stock and bond outperformance, but in June USD strength led to international assets underperforming.
● The U.S. continues to lead the way. Whether it’s the economy, earnings or markets, the U.S. continues to lead the global recovery. June capped the fifth straight positive month for U.S. stocks and the fifth straight positive quarter, the best streak since 2017.
● Inflation and variants are keys to the outlook. Two of the biggest issues that will shape market and economic behavior in the second half of 2021 are 1) whether inflation is “transitory” or not, and 2) whether vaccinations can mitigate new COVID-19 variants sufficiently to avoid further restrictions.

Asset Class Performance

In a counter trend move from May, June saw the U.S. dollar jump 2.9% and that contributed to international equities and bonds being the only broad asset classes to drop in June. But for the second quarter all asset classes gained.

Stocks sail to records behind vaccinations & improving economies

Stocks closed out June, the second quarter, and the first half of the year with the S&P 500 hitting 4,297.50, an all-time high. It was the fifth consecutive month and the fifth consecutive quarter of positive returns for the S&P. That’s the longest quarterly streak since a nine-quarter stretch that lasted through 2017. And the performance of those five quarters has ranged from +6.2% to +20.5%. Research from Bespoke Investment Group shows that the only other time the S&P 500 has had at least five straight quarters of more than +5% gains was in the mid-1950s – and the following year its was up another +25%. Numerous tailwinds are behind the strong stock performance, with vaccination rates improving, economic activity solidly expanding, and earnings accelerating. More than 325 million COVID-19 vaccinations have been administered in the U.S. with now more than 57%of U.S. adults now vaccinated. Importantly, 90% of the 65+ age group, a cohort that represents over 80% of COVID-19 deaths, are 90% vaccinated. As a result deaths are down -93% from their January peak, a new pandemic low. Meanwhile vaccination campaigns continued to accelerate overseas with Europe now catching up with the U.S. and U.K. With economies opening robust demand for consumer goods has resulted in strong manufacturing activity and as COVID restrictions are lifted services activity is accelerating from consumers that are flush with cash from savings, stimulus checks, and expanded unemployment insurance programs. Earnings for the second quarter will start being reported in the next few weeks and they have a high hurdle after Q1 which was the best quarterly year-over-year earnings growth since Q1 of 2010. J.P. Morgan is forecasting an earnings surprise of +14.6% for S&P 500 companies for the second quarter. That’s lower than the last four quarters but still well above the long-run average of 7%. Moreover, Bespoke Investment Group notes that since June began stocks have reacted more positively to earnings reports than in Q1. For multi-asset class investors, the good news didn’t end with equities. The Bloomberg Barclays US Aggregate Index was up+0.7% in June and +1.8% for the quarter – its eleventh gain over the last twelve quarters and its best quarter since the depths of the pandemic in 2Q-2020. Investment Grade bonds id even better in June, rising 1.6% and +3.5% for the quarter. Bonds benefitted from narrowing yield spreads and declining Treasury yields. Yields on 10-Year U.S. Treasury fell -13 basis points in June and -27 basis points over the quarter, to their lowest levels, 1.47%, since early March. Commodities also continue to work, gaining +1.8 in June and +13.3% for the quarter, the best quarter since Q4-2010, and the sixth positive quarter in the last seven. They’ve benefitted from a U.S. dollar that has declined in four of the last five quarters, though the buck bucked the trend in June, rising +2.9%.

Bottom Line: The bull market is now in its second year and positive trends on the vaccination, earnings and economic fronts are supportive of the breakout to new highs. An accommodative Fed should also continue to help support equities, even at stretched valuations.

 

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.

Month in Review

Month-in-Review: May 2021

Quick Takes

● Heavyweight bout. Much of May was a battle between rising inflation fears and growing optimism from the U.S. economic recovery. Overall, though, the data points to an economy, and corporate earnings picture, that remains in an upswing.
● All’s well that ends well? There were no corrections in May, but trading was choppy. In both the second and third weeks of the month the S&P 500 traded more than ‐4% below the May 7th all‐time high, yet closed May just ‐0.7% off the record. In 11 of May’s 20 trading days, VIX was above 20 but ended at 16.8.
● Everybody’s still a winner. For the second straight month all major asset classes had positive returns, although May’s gains were more modest. Both U.S. and developed international equities are up double digits in 2021, and U.S. real estate is up +18.1%.
● Fixed income was flat. Bonds rose in May, but just barely. The best performers were Treasury‐inflation protected securities (TIPS) and investment‐grade bonds. After a rapid rise in Q1, the 10‐year Treasury yield spent April and May almost entirely in a range between 1.5% and 1.75%, closing May at 1.58%.

Asset Class Performance

May was defined by positive, yet modest, gains for all major asset classes. International developed and emerging market equities led in May. International bonds also finished ahead of U.S. bonds as the U.S. dollar fell further.

Vaccinations & Improving Economy Have Investors Smiling

COVID‐19 trends continue to make material improvements on virtually all fronts. The U.S. has administered over 295 million vaccines, with more than 40% of the population now fully vaccinated. The 7‐day average of new positive cases has declined to the lowest levels since the start of the pandemic and are now down ‐94% from their January highs. The 7‐day average of deaths per day is now under 400, ‐88% from their January highs. The percentage of positive COVID‐19 tests in the U.S. fell below 2% for the first time, a new pandemic low. With all the progress on the vaccination and COVID‐19 case fronts states and businesses began to fully reopen. That has resulted in a U.S. economic recovery unlike any in recent history. Consumers have trillions in extra savings and stimulus funds, banks have amassed capital, business are eager to hire and restock inventories, and new businesses are being established at the fastest pace on record. That all has investors in an optimistic mood. Rather than “Sell in May and Go Away”, investors sent the S&P 500 to new all‐time highs on May 7th while the Cboe VIX volatility index fell to 16.7, near its lowest levels since early 2020. But the remainder of May was a battle between the bulls and bears as the speed of the recovery led to bouts of inflationary scares and shortages of goods, raw materials, and workers. Private sector wages and salaries are up a staggering +19.4%in the past year and are now +5.5% above pre‐COVID levels. Consumer spending was the biggest driver of real GDP growth in Q1, including spending increases for motor vehicles and parts that increased +66.2%, durable goods that rose +48.7%, and food services and accommodations

that jumped +26.6%. Gains like those, even off the extraordinarily low bases from the depths of last year’s COVID lockdowns, are bound to create inflation concerns. U.S. stocks pulled back more than ‐4% from the May 7th all‐time highs in both the second and third weeks of the month, and VIX volatility spiked to about 28 and 26 on each of those declines. But in the end the bulls took the victory as investors pushed aside the inflation fears in favor of recovery optimism. The S&P 500 rose +0.7% to post its fourth consecutive positive month, and sixth of the past seven. The small‐cap Russell 2000 index, which is more leveraged to the economic reopening, posted its eighth straight positive month for the first time since 1995.

Importantly, vaccination rates in Europe have picked up after a relatively slow start. That has helped Eurozone economic sentiment improve for four straight months and hit its highest level since 2018.The COVID crisis in India has also made much needed progress with over 190 million vaccines so far administered–only behind the totals of US and China. As a result, those economies are also rebounding nicely. As seen in the chart above, both developed and emerging international PMIs are rising and are well into expansion levels (above 50). The MSCI EAFE Index gained +3.3% in May, outperforming U.S. stocks for the first time in 2021.

Bottom Line: Global equities rallied for the sixth time in seven months as vaccinations helped accelerate the recovery for most countries. Ongoing fiscal stimulus and improving earnings also boosted investor confidence.

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©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.

Month in Review

Month In Review: April 2021

Quick Takes

● Vaccinations help economy bloom. Nearly 250 million vaccinations have been administered in the U.S. marking 43% of the U.S. population with at least one vaccine dose. Meanwhile, new U.S COVID‐19 cases are down 80% from their peak in January.
● From forecast to fruition. Economic expectations began to rise after the February freeze, therapid vaccination rollout, and the reopening of economies set the stage for big economic growth… and forecasts turned to fact as economic reports during April blew past economists’ expectations.
● Everybody wins a prize. All major asset classes and virtually every equity and bond group was positive in April. Real Estate was the big winner, up +8.1% for the month and now up +17.1% in 2020.
● The late March rotation was real. Small Value (Russell 2000 Value) trounced Large Growth (Russell 1000 Growth) for much of Q1, but Large Growth fought back in late March, and that strength persisted through April. Large Growth finished as the best U.S. style for the month with a +6.8% total return and Small Value lagged with a +2.0% rise.

Asset Class Performance

April saw bond and equity returns blossom with solid gains across the asset class spectrum. April was the fifth positive month out of the past six for the S&P 500, up more than +5%, and bonds rebounded after 3 monthly losses.

Stock market highs correctly signal exceptional economic progress

Equity markets put forth another strong showing in April with the S&P 500 returning +5.3% (including dividends) and global equities (MSCI World Index) not far behind with a total return of +4.7%. April was the third straight positive month and the fifth positive month out of the past six for the S&P 500, and all eleven sectors were positive in April. In just the four months of 2021, it is up a total of +11.8%. In those four months the index has already set 25 all‐time record closing highs. That is still behind the total record highs of the last two years, and well behind the 62 record highs in 2017. But as research from Bespoke Investment Group shows, as a percentage of trading days it’s on a pace to eclipse a record year from more than 6 decades ago. As the chart below shows, 2021 would go down as a record year surpassing both 1964 and 1995 (in which there were 65 and 77 record closing highs, respectively). The continued march to more and more record highs has made many investors question if the market has gotten ahead of itself, or even reached “bubble” levels. No one can be sure on that determination and only time will tell. But the stock market is a leading indicator as investors look beyond present conditions and attempt to look ahead while economic data looks backward. And the stock market appears to be correctly indicating what has turned out to be exceptional economic growth… growth that is consistently exceeding economists expectations. For months now much of U.S. economic data has come in better‐than‐expected.

Moreover, it has been robust, not relegated to one or two sectors of the economy, but rather broad swaths of the economy. Bespoke Investment Group tracks 36 economic indicators across manufacturing, employment, housing, inflation, and the consumer. The recent monthly tally of the 36 indicators had a record high 34 of them accelerating year‐over‐year. Many will point to the easy comparisons from last March’s shutdown lows (i.e. the low base effect) as a primary factor for the exceptionally strong results, but gains of this breadth and magnitude are hard to comprehend.

Manufacturing has shown positive momentum in virtually every category and geographic region. That amount of broad, positive momentum hasn’t been seen since last July when the economy first began reopening. Employment has been strong too, with jobless claims under 600,000 for three weeks in a row now, and at a new pandemic low. Housing saw a clean sweep with all indicators on a torrid pace of year‐over‐year growth: +30% increase in Building Permits, +37% increase in Housing Starts, +67% gain in New Home Sales, and a ‐45%decline in supply! And the recent release of Consumer Confidence for the month of April showed a solid encore to March’s blowout report. While economists were expecting a bounce to 113.0, the actual reading came in at 121.7.

Bottom Line: The stock market is not the economy. Economic data looks backward while the stock market is forward looking. But with a record setting pace of new all‐time highs in 2021, the market has correctly sniffed out a broadly, and ever‐improving, economy.

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©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.