Summer Quarterly Recap with Special Guest Stephanie Link

Five Things You Should Know

1. Equity Markets – finished mixed this week with U.S. stocks (S&P 500) down –0.04% and international stocks (EAFE) rising 0.52%.
2. Fixed Income Markets – moved lower with investment-grade bonds (AGG) down –0.67% and high yield bonds (JNK) falling -0.31% 
3. France Nervy – Both bond and equity markets sold off this week ahead of the nation’s first round of snap elections this weekend, driving 10-year yields to their highest point since November. Early polling suggests Marine Le Pen’s National Rally party will achieve majority of the 577-member legislature.
4. Yen Falters Again – A strong dollar saw the Yen reach its weakest level since 1986 this week, now bringing the currency down 12% against the dollar this year. The Yen also reached its weakest level against the euro ever and sparked speculation that additional governmental intervention will be necessary as the country faces higher import prices.
5. Key Insight – [VIDEO] Some highlights of our big Summer Quarterly with special guest Hightower CIS and CNBC contributor Stephanie Link! [ARTICLE] Tim shares his thoughts on an increasingly manic market with some key takeaways, while stressing the importance of great partners, such as Stephanie Link, in helping to navigate such times.

INSIGHTS for INVESTORS  

Today’s Manic Markets

Let’s be clear there are always plenty of both narratives as well as real possibilities to be either bearish or bullish, that isn’t new. However, rarely do a remember of time where the dominant narratives were shifting back and forth so often whether its regarding the Fed’s next action which as seen wild swings this year, the economy in general or something specific like some of the various tech stock giants.

While in general the US stock market is clearly off to a strong start some of the underlying sentiment continues to erode and even the confidence in some of the key darlings such as Apple or Nvidia have seen strong and sudden shifts in sentiment with the former starting out the year weak and being left for dead by many analysts before its recent rally to the latter being crowned the most valuable company in the world last week only to promptly see its valuation correct by more than 10% (note: none of this should be read as an investment recommendation).

The main takeaway is that investing based on narratives or emotions, while always a bad idea, is particularly precarious today in our opinion.

The potential precarious nature of today’s market is not just something we have concerns about though.

After some of the recent data, in particular, last week’s disappointing retail sales data which also saw May’s numbers be revised to a negative growth number or new homes sales declining double digits (11.3%) and housing starts down 5.5% in May, has a number of market watchers raising the caution flag.

Bloomberg reported this week that “Hedge funds decreased their long-short gross leverage, which measures their overall exposure to the market, by the most since March 2022, according to a note from Goldman Sachs Group Inc.’s prime brokerage desk. The move points to a more cautious stance from the so-called smart money, Goldman’s team wrote. Hedge funds however appear to be more skeptical about further gains from here. The Fed is signaling that it expects to cut rates fewer times than investors had hoped in 2024 as inflation remains stubborn. And economic growth remains uncertain with geopolitical risks seemingly everywhere.”

On one had you had caution expressed from one large asset manager stating, “Investors should brace for drama,” said Solita Marcelli at UBS Global Wealth Management. “The second half of 2024 is shaping up to be a time of transition and volatility. The decisions that investors make now will be key to navigating this period effectively.”

While John Stoltzfus at Oppenheimer Asset Management says he remains positive in the outlook for stocks as prospects for improved fundamentals this year show potential to be realized. “That said, history shows us that stocks and other asset class prices don’t go up in a straight line but rather tend to climb the proverbial ‘wall of worry,’ requiring prudent diversification, patience, and a sense of one’s tolerance to risk and fluctuation for private investors and discipline tied to an institution’s mandate for professional investors,” he noted.

One likely catalyst for a risk-off move? Torsten Slok of Apollo in a recent note pointed out the weakening US consumer, especially among lower-income households (see also the recent retail sales data above), noting “There is a major gap opening up between the mean and the median of long-term inflation expectations, which means that half of the population has long-term inflation expectations that are dramatically higher than the other half … This is a very significant challenge for the Fed because it cannot cut interest rates when inflation expectations are out of control.” (see accompanying chart)

Source: Apollo, 6/22/24

Key Considerations for Today’s Investor

Of course, no one really knows exactly what the future holds and when key moments will arise, which is why the most successful investors preach diversification and multi-streams of cash flow/income to allow you to remain invested through tough seasons to achieve the long-term potential of markets.

Here is a great podcast discussing these exact topics of impending dangers and how to think through asset allocation from one of the all-time great investors Ray Dalio of Bridgewater that I recently listened to. https://podcasts.apple.com/us/podcast/prof-g-markets/id1744631325?i=1000659610574

One of the great exchanges in the podcast is when Dalio is asked what he would think of someone recommending only investing in tech stocks given their recent dominance and strong narrative around AI, etc. He response was, “I think that’s crazy…I’ve been in the markets for 63 years and I’ve been through many many cycles and I know that wonderful technologies, with large changing of the world technologies … they all have a cycle and you also don’t know who the winners end up being in that cycle.” He goes on to say such a concentrated approach has extreme risks and the “holy grail” of investing is to find 10-15 sources of income with low correlations (see minutes 36 through 39).

The good news for today’s investors while much of the world fixates on a handful of tech stocks there are more quality options for investors whether its various high-quality fixed income with equally high-yields, a number of exciting opportunities in institutional real estate taking shape from the wreckage of the last couple of years to very additive overlays to equity strategies that can help investors both diversify and build/improve their income streams.

The Power of Partnership

Discipline/diversification and income generation, as highlighted by Dalio above, are two keys to successfully investing but another key aspect is one’s partners.

No one person can go it alone whether that relates to the behavior finances challenges to saving and investing, or the expertise needed to successfully navigate the array of asset classes one needs to utilize to properly diversify their hard-earned capital.

While I’ve been a part of, or seen, firms whose value propositions revolves around their own prowess TEN Capital from day one has been about finding and surrounding ourselves with the best possible partners both internally and externally. For a long time this meant, and included, building deep relationships with a number of wonderful third-party investment and research firms, but of course over the last year it has most notably meant our new colleagues and partners within the Hightower community.

One such partner is the wonderful Stephanie Link and her team how not only help directly manage some client funds but produce a lot of great thought pieces and are regularly accessible to walk through questions and issues with our team. Of course, this week it also meant that our clients got to hear from and meet with Stephanie in person at our Summer Quarterly Event this Wednesday.

Whether it is Stephanie and her team regarding equities, Robert Picard who we highlighted a few weeks ago (see May 24^th, 2024) and his team that helps provide guidance around alternatives and private markets or some of our partner firms who we regularly exchange ideas with as peers, the need for partnership is something we continually seek for ourselves in our ongoing quest to be the best we can possibly be in service to our clients.

Whether you were able to join us for the event to hear Stephanie and would love to hear more or missed it and want to the chance to hear her thoughts on some key topics, keep an eye out for our 4-part interview series with her starting July 12^th!

In the meantime, check out her very entertaining and enlightening appearance of the following podcast where she discusses her career, approach to investing and thoughts on the current market conditions: https://podcasts.apple.com/us/podcast/the-compound-and-friends/id1456467014?i=1000657390205

Have a wonderful weekend!

Tim and the team at TEN Capital

DATA, JUST THE DATA

U.S. Jobless Claims – fell by 6,000 from the prior week to 233,000 on the period ending June 22nd. This was below market expectations of 236,000 and the claim count fell for a second consecutive week since hitting the 10-month high of 243,000. 

U.S. MBA Mortgage Applications – rose by 0.8% in the third week of June. This was the third consecutive expansion in mortgage applications and marked a 17.5% increase since the start of the month. 

U.S. Chicago PMI – increased to 47.4 in June of 2024 from 35.9 in May which was the lowest reading in four years. This beat preliminary forecasts of 40. 

U.S. Durable Goods Orders – rose by 0.1% MoM in May of 2024. This followed a downwardly revised 0.2% increase in April and was better than market forecasts of a 0.1% fall. 

Eurozone Economic Sentiment – edged slightly lower to 95.9 in June of 2024. This came from an upwardly revised 96.1 in May and fell slightly below initial forecasts of 96.2.