Markets in Focus

Timely analysis of market moves and sectors of opportunity

November 29, 2021: It’s never wise to invest based on headlines — or fear

The markets were anything but restful on a shortened Friday session as worries over a new “variant of concern” had investors running for cover, said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers. Given the increasingly draconian restrictions already being put in place by countries in Europe and Asia to control a rise in cases, Orton said it’s not surprising that many governments also reacted sharply to the news, instituting travel restrictions and threats of further action. But he said the frantic response by governments and markets is likely overwrought given how little we know about the new omicron variant and how much we’ve learned during the pandemic.

“It’s never wise to invest based on headlines,” Orton said, “and the market moves on Friday were just that — entirely based on fear with nothing to substantiate it.”

Something similar happened in the fixed income market, where the Bloomberg U.S. Corporate High Yield Bond Index — the only domestic fixed income sector offering positive returns for the year — began dropping recently on concerns about the outlook for economic growth, then plunged more sharply through Friday.

“People are trying basically to time the top of the market, they want a specific return or specific yield, and they’re willing to take extra risk because they think they can get out at the right moment,” said Barclay Bryla, CFA, Portfolio Specialist with Carillon Tower Advisers. “I think Friday was a perfect example of why that doesn’t work. Everyone was leaning into high yield. They were leaning into these riskier segments of the market, and when people heard about this new variant and the possibility of lockdowns, everyone ran for the exits at the same time.”

Quote Image
Anyone who was dumping growth over the past few weeks in favor of cyclically-leveraged value plays didn’t have a pleasant day Friday.

In light of such reactions, Orton said it’s important to contextualize the fundamental backdrop in which we’re operating. We’re closing out earnings season with a blended earnings growth rate of 39.6% (vs. the 27.3% that had been expected) and with growth forecasts above 20% for the fourth quarter. Margins remain incredibly strong despite inflationary pressures. Additionally, Orton said he believes that gross domestic product growth will remain on a solid, above-trend path in 2022 with or without disruptions from the omicron variant. While monetary and financial conditions are likely to become less accommodative going variant forward, they are by no means tight, he said. Omicron-driven uncertainty also makes it easier for central banks to maintain the status quo, or at least remain behind incoming inflation data. Economic growth is also supported by the fact that some consumers are sitting on significant cash piles accumulated during pandemic lockdowns, which offers a valuable buffer against adverse shocks, Orton said. Vaccine efficacy and flexibility for targeted changes coupled with antiviral treatments should not be understated and will likely prevent more severe mobility restrictions like we saw during the delta surge.

“Overall, the fundamental backdrop remains incredibly strong and that seems to have been forgotten by investors on Friday,” Orton said. “The market continued to do well through the delta variant, the economy did well, and earnings accelerated. All of that is likely not going to change with whatever this new variant ends up being. I continue to believe that downside should be used opportunistically and there are certainly some Black Friday deals following the close to last week.”

Quote Image
Small caps continue to be hurt by some of their anti-quality characteristics compared to large or mid caps.

While a -2.27% move for the S&P 500 Index is hardly a discount, there may be further downside this week as we get more headlines around the omicron variant and investors inevitably react to the unknown. Additionally, many industries and high-quality companies significantly underperformed the broader market. Energy was the worst-performing sector but should continue to benefit from tailwinds of constrained supply and more efficient operating models coming out of the depths of the COVID-19 pandemic. The hotels, restaurants, and leisure industry was down nearly 5%, especially gaming companies, which sold off hard. But those with asset-light models and exposure to online gaming or sports should continue to do well with a consumer flush with cash. Even if we were to see mobility restrictions as a result of the omicron variant, they will likely be the least severe in the U.S. and domestically-focused companies would still look attractive. Even seeing ecommerce companies fall on Friday present opportunities since their businesses have structural tailwinds that should be further enhanced by any COVID-19 worries.

“The price action on Friday is a reminder of why I have been so vocal for keeping balance in portfolios – anyone who was dumping growth over the past few weeks in favor of cyclically-leveraged value plays didn’t have a pleasant day,” Orton said. Instead, we should lean into quality across the market while being cognizant of valuations. Not all tech underperformed earlier last week as rates were moving higher; it was the most extreme valuation names.

Internal trends are oversold

The percentage of stocks above their 20-day daily moving average (DMA) plunged to 15% on Friday. Internals overall point to oversold conditions across the broad market and there is usually a strong probability of seeing higher returns one month later, Orton said.

The broader market suddenly looks oversold

The broader market suddenly looks oversold

Source: Bloomberg, as of 11/26/2021

 

Opportunities in the hotels, restaurants, and leisure industry

Orton said he continues to advocate leaning into quality as we head into 2022 and favors more reasonably valued information technology, healthcare, and energy as a hedge to inflation and prolonged higher commodity prices. But he noted that the consumer is in great shape, and there is an opportunity to utilize some of the recent downside or future moves based on omicron uncertainty in the consumer discretionary space. The sector is nearly 10% off its highs and fell nearly 5% on Friday with certain industries falling much more, including hotels, restaurants and leisure. Domestically-focused, asset-light companies in this group look particularly interesting right now, he said.

Small caps highlight the importance of quality

Orton said the biggest area of concern highlighted by Friday’s selloff was small caps, which are again trading down within their 2021 range after a recent breakout.

“I think small caps continue to be hurt by some of their anti-quality characteristics compared to large or mid caps,” he said. He added that he’s been talking about leaning into quality — “lower-levered companies, companies with more stability for top line and bottom line growth. That’s why active management should be and has been outperforming in this type of environment, particularly within small caps. Quality overall has been improving over the past six months, and especially over the past month or two.”

Be careful with small caps

Be careful with small caps

Source: Bloomberg, as of 11/26/2021

 

What to watch

While the omicron variant will dominate the headlines — at least to start the week – there are a few important economic releases, including the November payrolls report on Friday. Here’s what to look out for:

Monday Empire State Manufacturing Survey, China industrial output and retail sales; Japan gross domestic product and industrial output
Tuesday U.S. consumer confidence; Eurozone Harmonised Index of Consumer Prices estimate; China manufacturing Purchasing Managers’ Index
Wednesday ADP® National Employment ReportTM, Institute for Supply Management manufacturing report, U.S. Federal Reserve Beige Book; Australia gross domestic product
Thursday U.S. jobless claims
Friday U.S. nonfarm payrolls, Services ISM® Report on Business®

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Blended earnings combine actual results for companies that have reported earnings and estimated results for companies that have yet to report.

Overbought is a term used to describe a security believed to be trading at a level above its intrinsic or fair value.

Oversold is a term used to describe a security believed to be trading at a level below its intrinsic or fair value.

Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

The daily moving average (DMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.

A relative strength index (RSI) is a momentum indicator that tracks the magnitude of recent price changes to analyze overbought or oversold conditions in the price of a particular asset. Typically, RSI values of 70 or higher indicate that an asset is becoming overbought or overvalued. RSI values of 30 or below suggest oversold or undervalued conditions.

The Eurozone Harmonised Index of Consumer Prices is a composite measure of inflation in the Eurozone based on changes in prices paid by consumers in the European Union for items in a basket of common goods. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and many other widely used products.

Purchasing Managers’ Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. PMI data features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as gross domestic product, inflation, exports, capacity utilization, employment, and inventories.

The ADP® National Employment ReportTM is a monthly measure of the change in total U.S. nonfarm private employment derived from actual, anonymous payroll data of client companies served by the payroll, tax service and human resources management company ADP. The report measures changes within a group of nearly 26 million U.S. workers and is produced by the ADP Research Institute® in collaboration with Moody’s Analytics.

The global manufacturing Purchasing Managers’ Index (PMI) measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.

The Services ISM® Report on Business® is produced by the Institute for Supply Management (ISM) and is based on data compiled from purchasing and supply executives in a wide variety of industries nationwide. Survey responses reflect the change, if any, in the current month compared to the previous month in supplier deliveries along with seasonally adjusted business activity, new orders, and employment.

The Bloomberg U.S. Corporate High Yield Bond Index is a rules-based, market value-weighted index designed to measure publicly issued non-investment grade U.S. dollardenominated fixed rate, taxable, and corporate bonds.

“Bloomberg®” and the Bloomberg U.S. Corporate High Yield Bond Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Carillon Tower Advisers. Bloomberg is not affiliated with Carillon Tower Advisers, and Bloomberg does not approve, endorse, review, or recommend Carillon Tower Advisers’ Markets in Focus Weekly Insights. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Markets in Focus Weekly Insights.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 98 percent of the total market capitalization of all U.S. incorporated equity securities.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 


CTA21-0728 Exp. 3/29/2022



November 22, 2021: Market wisdom from Mae West

The market hit another all-time high last week led by growth-oriented tech companies on strong chip earnings as well continued strength in consumer-oriented names. Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers, noted that this was the 66th all-time high of the year for the S&P 500 Index and volatility remains incredibly suppressed.

“We haven’t had an up or down move of 1% in 26 trading days — and that has only happened seven times over the last five years,” he said. “I think that’s notable because it reflects the strong underlying upward trend that has been in place for the market.”

Additionally, Orton said we received more data last week that the consumer remains in good health. Retail sales beat expectations and continued to move higher while key retailers reported relatively strong earnings along with an optimistic outlook. One of the most important takeaways from these earnings results was the strength in revenues and gross margins, Orton said. One might have thought that if inflation were going to bite, it would be felt by the big box retailers and home improvement chains, particularly ones focused on everyday low prices. Either these companies would need to take a margin hit by absorbing some of the rise in product costs, or the customer base would need to rein in spending a bit. But he noted in the last quarter at least, neither of these happened. Revenues comfortably bested expectations while gross margins remained at elevated levels.

“This shows that, at least at the levels of inflation that we have right now, given the savings that have been accumulated throughout the pandemic, people are willing to spend money and you’re not seeing much, if any, he sitation or companies being forced to pull back,” Orton said.

Quote Image
People are willing to spend money and you’re not seeing much, if any, hesitation or companies being forced to pull back.

As we see the consumer hold up well and earnings and guidance remain strong, Orton said it’s interesting that many market skeptics are throwing in the towel for 2021 and pushing their concerns back to 2022. Apparently, he said, seasonality is just too strong right now and investors will come to their senses once the new year starts. He said he’s also noticed that many market participants — both professional prognosticators and individual investors — always find something to be shocked about. Some are shocked about the joint richness of stock and bond prices and that equities just continue to march higher, especially some of the most expensive companies. Some are shocked by the continued surge in concept stocks, most recently electric vehicle companies with sky-high market capitalizations.

“If there’s one thing I’ve learned over the last 20 months, it’s that we really shouldn’t be shocked about anything at this point,” Orton said.

“As Mae West once said, ‘Those who are easily shocked should be shocked more often.’ ” That’s exactly what has been happening, he said, though clearly there is still more room to go. But in the interim, he said, all of these shocks can provide additional upside pressure as investors climb the wall of worry.

Orton said he remains optimistic on U.S. equities and continues to advocate balance between both style and size. Growth continues to work, and he said he still advocates for exposure to reasonably valued technology. On a related note, he said, mega-cap technology is performing well, so absent this group rolling over, it’s incredibly hard for any meaningful correction to take place.

Where are small caps going?

Small caps underperformed the market last week, yet again foiling the bulls expecting the start of another period of dramatic outperformance, Orton said. Breadth weakened as we saw underperformance from some key sectors like healthcare and financials. Meanwhile, inflows to the space remained positive and there has been a meaningful increase in upside speculation on the Russell 2000® Index. Further deterioration this week will be concerning, but for now Orton said he gives the benefit of the doubt to the breakout we had two weeks ago.

Small caps gathering strength?

Small caps gathering strength?

Source: Bloomberg, as of 11/19/2021

 

Global value trade at record relative low

The dangers of going all-in on the value trade are being highlighted across the globe. The MSCI World Value Index — a gauge of cheaper economically sensitive developed-market stocks — hit a new record low relative to its growth peer. Value has largely been underperforming for the past 15 years, and even the much-hyped reflation trade has proven no match for investor demand for highgrowth stocks. The reversal we saw earlier this year has all been eroded. Orton said this again highlights the importance of keeping a balanced allocation between growth and value in portfolios.

“As we move past the increased COVID-19 concerns hitting international markets, I would expect to see value start to outperform again,” Orton said. “But if it can’t break this multi-decade underperformance as we (hopefully) see reflation take hold next year, then value investors will have a lot to be concerned about.”

Global value stocks hit a record low

Global value stocks hit a record low

Source: Bloomberg, as of 11/19/2021

 


Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.

Overbought is a term used to describe a security believed to be trading at a level above its intrinsic or fair value.

Oversold is a term used to describe a security believed to be trading at a level below its intrinsic or fair value.

Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.

Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle.

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

Dividend yield, which is expressed as a percentage, is a ratio of the current rate of dividend payout divided by the current stock price.

The price/earnings ratio (P/E) measures a company’s current share price relative to its per-share earnings.

Next-12-months prices/earnings ratio (NTM P/E) is a version of the ratio of price-to-earnings that uses forecasted earnings for the P/E calculation.

The daily moving average (DMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.

A relative strength index (RSI) is a momentum indicator that tracks the magnitude of recent price changes to analyze overbought or oversold conditions in the price of a particular asset. Typically, RSI values of 70 or higher indicate that an asset is becoming overbought or overvalued. RSI values of 30 or below suggest oversold or undervalued conditions.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The MSCI World Index captures large and mid-cap representation across 23 developed markets (DM) countries and does not include emerging markets. With 1,603 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. DM countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the U.K., and the U.S.

The MSCI World Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 developed markets countries. The growth investment style characteristics for index construction are defined using five variables: long-term forward earnings per share (EPS) growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend and long-term historical sales per share growth trend.

The MSCI World Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 developed markets countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 


CTA21-0722 Exp. 3/22/2022



November 15, 2021: Don’t avoid what’s been working

Weakening consumer sentiment and escalating inflationary pressures haven’t been enough to break up the party in equity markets, and Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers, said he doesn’t see that changing in the near future.

“Even though we have some uncomfortable numbers in the near term, it’s not enough to change the market’s overall trajectory,” Orton said. “We also haven’t seen it negatively impact the broad picture of corporate profitability — we’re still at record levels of corporate margins — nor did it stop an optimistic tone from management teams about being able to navigate those challenges. There will of course be winners and losers, but it ce rtainly seems like there are more winners at this point.”

While the S&P 500 Index finished last week slightly in the red (-0.27%), Orton noted that breadth held up well and we saw broad participation in the market — in fact, the S&P 500® Equal Weight Index outperformed and finished positive for the week. At the same time, while it was hard to ignore some of the macro data last week, equities certainly didn’t lose any faith. The Consumer Price Index reached three-decade highs, with a core CPI of 4.6% and a he adline rate of 6.2%, even though pandemic-related contributions decelerated. Similarly, the University of Michigan Index of Consumer Sentiment survey plunged to a 10-year low on inflation worries with a quarter of respondents saying inflation has reduced their standard of living. Not surprisingly, Orton said, expectations for an increased pace of taper and an earlier than expected lift-off in interest rates have increased. This has raised expectations that the U.S. Federal Reserve (Fed) may increase the pace of taper and lift-off earlier than expected and fed funds futures are pricing in a 50% chance for three rate hikes by the fourth quarter of 2022. This week, we’ll hear from 10 Fed speakers, five of whom are voters next year.

Quote Image
Lean into quality. I continue to believe this will be important given the likelihood we see volatility in macro data.

“I’ll be watching closely for any increasing signs of nervousness that tighter policy is needed sooner, which could come via a faster pace of tapering and increasing debate over balance sheet reduction,” Orton said. “Personally, I don’t think we see any rate hikes until after elections next November.”

Regardless of the negative readings last week, Orton said the market trend is resoundingly bullish and momentum remains positive but has slowed down just a bit to move out of overbought territory. Earnings have also remained incredibly strong, and commentary from management teams across various sectors has provided enough optimism around margins and inflationary pressures to keep investors feeling good enough about equities, he said. Seasonal stocks are bullish into the end of the year, too, but Orton said he would point out that doesn’t mean we won’t see consolidation along the way given the nature of the advance from the market’s lows on October 4.

“I continue to advocate for using weakness opportunistically and keeping balance between growth and value,” he said. “Information technology still looks attractive, and so do financials. But one constant theme across both styles that I have been advocating is to lean into quality and I continue to believe this will be important given the likelihood we see volatility in macro data.”

Dips could offer buying opportunities
despite uncomfortable macro data

Dips could offer buying opportunities despite uncomfortable macro data

Source: Bloomberg, as of 11/12/2021

 

SMID caps setting up nicely

The trend is finally turning higher in favor of small- and mid-cap stocks. While the Russell 2000® Index underperformed last week, it has held onto its strong breakout while mid caps have held up well all year and remain near all-time highs. Smaller companies also tend to outperform as inflation expectations are on the rise, and we saw both secular sectors like information technology as well as more cyclical sectors like industrials and financials post strong relative performance. There is still scope for improvement in key small-cap sectors like healthcare, which could provide a tailwind for further index gains and also for growth to narrow its year-to-date underperformance. But Orton noted that there is usually a boost to momentum laggards into end of the year that could make it a more challenging environment for active managers.

Small and mid caps poised for further upside?

Small and mid caps poised for further upside?

Source: Bloomberg, as of 11/12/2021

 

Don’t lose faith in the consumer

Consumer sentiment has been incredibly volatile coming out of the pandemic. Orton said some of the initial weakness and slump over the summer were the result of COVID-19 surges as many Americans simply didn’t feel safe resuming many of their usual activities. But he said the continuation of the slump to the worst sentiment levels in 10 years may seem a bit more perplexing, especially with the economy more or less fully reopen and equity markets at all-time highs. But when we look at the changes in inflation expectations, Orton said it looks much more clear: People feel deflated by all of the endless inflation chatter.

“Worries over inflation, supply-chain backlogs, and rising gas prices are taking a toll,” he said. This can also been seen in recent political polls where despite mixed economic signals — falling unemployment and rising prices — a majority rate the economy negatively, including large percentage who say it is in “poor” condition.

Still, Orton said many American households remain awash with cash from $2.4 trillion in additional savings accumulated during the pandemic. Even as pandemic aid has expired and prices are rising, there’s a lot of pent-up demand ahead of the holiday season, especially from higher-income families.

“As a result we haven’t seen the decline in sentiment impact consumer spending,” he said. “Ultimately that is what matters for the market, and we haven’t heard too much chatter from management teams during earnings season that spending looks set to slow in the near term.” We get earnings results from several major big box retail chains this week, which should give us a glimpse into more current spending as well as expectations for the holidays. We’ll also get October retail sales Tuesday, which will provide another data point about the health of the consumer.

Consumer sentiment weakening,
but consumers continue to spend

Consumer sentiment weakening, but consumers continue to spend

Source: Bloomberg, as of 10/31/21 for University of Michigan Index of Consumer Sentiment and
9/30/21 for inflation-adjusted personal spending.

 

What to watch

Monday Empire State Manufacturing Survey, China industrial output and retail sales; Japan gross domestic product and industrial output
Tuesday U.S. retail sales and industrial output; Eurozone gross domestic product
Wednesday U.S. housing starts; Eurozone Harmonised Index of Consumer Prices; U.K. Consumer Prices Index
Thursday U.S. jobless claims
Friday U.K. retail sales

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Overbought is a term used to describe a security believed to be trading at a level above its intrinsic or fair value.

Oversold is a term used to describe a security believed to be trading at a level below its intrinsic or fair value.

Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.

Secular stocks are characterized by having consistent earnings over the long term constant regardless of other trends in the market. Secular companies often have a primary business related to consumer staples most households consistently use whether the larger economy is good or bad.

The daily moving average (DMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.

A relative strength index (RSI) is a momentum indicator that tracks the magnitude of recent price changes to analyze overbought or oversold conditions in the price of a particular asset. Typically, RSI values of 70 or higher indicate that an asset is becoming overbought or overvalued. RSI values of 30 or below suggest oversold or undervalued conditions.

The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.

The core Consumer Price Index is a version of CPI that excludes more volatile food and energy prices from the measurement of the change of prices paid by consumers for goods and services.

The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.

The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York.

The Eurozone Harmonised Index of Consumer Prices is a composite measure of inflation in the Eurozone based on changes in prices paid by consumers in the European Union for items in a basket of common goods. The index tracks the prices of goods such as coffee, tobacco, meat, fruit, household appliances, cars, pharmaceuticals, electricity, clothing, and many other widely used products.

The U.K. Consumer Prices Index is a measure of consumer price inflation in the United Kingdom based a wide range of household spending, including on food, alcoholic beverages and tobacco, clothing and shoes, housing and utilities, health, transportation, communication, recreation, education, restaurants and hotels, and miscellaneous goods and services.

The S&P 500® Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500® Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.

The S&P 1000® Index combines the S&P MidCap 400® and the S&P SmallCap 600® to form an investable benchmark for the mid- to small-cap segment of the U.S. equity market.

The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.

The S&P SmallCap 600® Index seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 


CTA21-0706 Exp. 3/15/2022



November 8, 2021: Small caps have broken out. Tread carefully.

Small caps have emerged as a focus of interest in a broader equities market where it’s tough to say how things could get much better than they were last week, said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers. The S&P 500 Index enjoyed its fifth consecutive week of gains, closing higher 16 out of 18 recent sessions and posting its best weekly performance since June. The move higher was dominated by a handful of companies — two large tech firms contributed nearly 25% of the gains last week, and that increased to nearly 50% when you included the Big Five companies atop the S&P 500.

“Given the strength of mega-cap tech, it’s not surprising that the Nasdaq Composite Index outperformed, but the strong gains over the past month leave sentiment stretched and the market overbought,” Orton said.

European equities also sit at record highs, moving higher for nine of 10 sessions. But Orton said perhaps the most meaningful move last week occurred in U.S. small caps with the Russell 2000® Index rallying 6.1% and decisively breaking out of the range where it had been stuck since February. Small caps bear watching, he said, but investors should pay close attention to what drove last week’s outperformance — lower quality stocks and some short squeezes, among other things — and should proceed with caution.

“Pay attention to price action in the small-cap space,” Orton said, “A breakout is a breakout, and we need to respect that first and foremost, but be careful with going all-in or making a large allocation until we see some improvement with these kinds of question marks.”

While the price action in the broader market is impressive and not at all surprising, Orton noted that momentum is overbought and sentiment is frothy. However, the fundamental backdrop looks supportive for equities and, if anything, the narrowness at the top leaves scope for a further broadening of participation, he said. As a result, he said he still believes that absent mega-cap tech rolling over, it’s incredibly hard for any meaningful correction to take place. Given the structure of the tape, he said he continues to believe that any setbacks will prove to be buying opportunities.

Momentum and sentiment are extended, but other internals are strong

Even as mega-cap technology continues to dominate at the top, Orton said it’s worth noting that breadth across the broader market has actually increased to its best levels since March. “This has been lost in the market narrative and gives me confidence in my longterm bullish thesis,” he said. That said, the Nasdaq hasn’t been this overbought since 2009, and Orton said he wouldn’t be surprised to see some profit taking in the near term. Overextended sentiment is the biggest risk in the near term, he said, but a shakeout of weak hands — investors easily driven by fear to abandon their strategies — should help to pare back the froth.

Market breadth improving

Market breadth improving

Source: Bloomberg, as of 11/5/2021

 

Growth outperforming, but is overbought

Over the past year, Orton has been bullish on growth and keeping balance in portfolios. He said he continues to believe in the importance of maintaining a healthy exposure to growth, but said in the near term it is overextended, so “I would be hesitant to add to any growth positions here.” And while market breadth has been increasing, he noted that the average stock has actually been underperforming the market. The decrease in the 10-year U.S. Treasury yield (an indicator of broader investor confidence) and continued curve flattening are

Quote Image
Pay attention to price action in the small-cap space … but be careful with going all-in.

definitely at play. In the very short term, Orton said he agrees that this as a sign of concern, but beyond that he said he views it as a reason for the market to continue to move higher longer term as there is scope for the average stock start to outperform.

Russell 1000 Growth/Value Ratio | Relative Strength Index

Source: Bloomberg, as of 11/5/2021

 

Small caps: Off to the races or a false start?

Small caps have been upsetting both bulls and bears for most of 2021. Recently, breadth has improved and underperformance relative to the rest of the market leaves scope for extended upside, Orton said. Earning revisions have also been strong and the bipartisan infrastructure bill takes more onerous tax increases off the table (for now). At the moment, he said the most interesting part of the smallcap market may be small-cap growth. It has lagged meaningfully behind value, largely because of underperformance in healthcare and biotechnology, but small-cap pharmaceuticals and biotech showed signs of strength last week.

“If we’re going to have a rally where money starts to flow in the space, then that is going to benefit all areas of the market, including the most beaten-down or underperforming sectors and industries,” he said. As a result, small-cap growth could be the one exception to the idea of not adding to growth positions right now since it has underperformed small cap value by more than 20% year to date.

At the same time, Orton said he has some reservations about the newfound bullish sentiment toward small-caps, particularly given the continued curve flattening and decline in longer-term rates, and he noted that breadth isn’t quite as good as you would think looking at the charts below. He noted that the drivers of outperformance have been lower quality — the lowest return-on-equity names meaningfully outperformed as did loss-making companies. There were also a number of short squeezes late last week and the highest shorted small cap names were up nearly 10% for the week. But he said the price action needs to be respected and should flows accelerate we could see more upside from here.

“Tread carefully, but be ready to act,” Orton said, “and never underestimate the power of performance-chasing or FOMO — the fear of missing out.”

Russell 1000 Growth/Value Ratio | Relative Strength Index

Source: Bloomberg, as of 11/5/2021

 

What to watch

Monday U.S. Institute of Supply Management manufacturing Purchasing Managers’ Index
Tuesday U.S. Producer Price Index, 10-year U.S. Treasury auction
Wednesday U.S. Consumer Price Index, jobless claims, 30-year U.S. Treasury auction, China Consumer Price Index
Thursday U.K. gross domestic product
Friday Job Openings and Labor Turnover Survey, University of Michigan Index of Consumer Sentiment

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

A short squeeze refers to what happens when the price of an asset rises sharply and forces short-sellers who had bet that its price would fall to buy it instead in order to avoid incurring even greater losses. In turn, those purchases put more upward pressure on the asset price.

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

Overbought is a term used to describe a security believed to be trading at a level above its intrinsic or fair value.

Oversold is a term used to describe a security believed to be trading at a level below its instrinsic or fair value.

Weak hands is a term used in finance to describe investors or traders who either lack conviction in their strategies or who don’t have the resources to carry them out. Typically, the term is used to describe investors who are “shaken out” by normal price movements in the market because, motivated by fear, they sell their positions at virtually any sign of bad news.

Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. The daily moving average (DMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.

A relative strength index (RSI) is a momentum indicator that tracks the magnitude of recent price changes to analyze overbought or oversold conditions in the price of a particular asset. Typically, RSI values of 70 or higher indicate that an asset is becoming overbought or overvalued. RSI values of 30 or below suggest oversold or undervalued conditions.

A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity.

The U.S. Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. It is produced by the U.S. Bureau of Labor Statistics.

The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.

The China Consumer Price Index (CPI) measures inflation by tracking the change in the prices of a basket of goods and services that are typically purchased by Chinese of households.

The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics.

The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.

The Nasdaq 100® is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market. It is a modified capitalization-weighted index.

The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 98% of the total market capitalization of all U.S. incorporated equity securities.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index.

The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 92 percent of the total market capitalization of the Russell 3000® Index.

The Russell 1000® Growth Index measures a growth-oriented subset of the Russell 1000® Index, which tracks approximately 1,000 of the large-sized capitalization companies in the United States equities market.

The Russell 1000® Value Index measures a value-oriented subset of the Russell 1000® Index, which tracks approximately 1,000 of the large-sized capitalization companies in the U.S. equities market.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 


CTA21-0692 Exp. 3/8/2022



November 1, 2021: Hard to be bearish with these earnings

To see what’s going right with the equities market now, start with the five mega-cap technology companies atop the S&P 500 Index, said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers. All reported earnings last week: Some were exceptional. None were disastrous. All reaffirmed the strength of the American consumer and the overall health of these businesses despite well-telegraphed challenges with respect to supply chain disruptions and labor constraints.

Orton noted that the Big Five collectively reported more than $330 billion in revenues, represent about a quarter of the S&P 500’s market capitalization, and together are three times as large as the total market capitalization of the Russell 2000® Index — impressive figures that serve as a reminder of the scale of these businesses. “So go those names, so goes the market,” he said.

Quote Image
Having balance in portfolios is so important — holding onto growth and cyclicals, focusing on quality within both areas.

However, Orton points out that it’s not just those names driving the market. In order to have meaningful upside and hold onto recent gains, he notes that the market needs broad participation — and that’s what we’ve been seeing recently. Earnings reports over the past few weeks have continued to paint a strong demand backdrop and highlight increased productivity measures by companies that have helped to keep operating leverage elevated in the face of input price pressures. With 56% of S&P 500 companies reporting third-quarter results so far, the blended earnings growth rates stands at 36.6%, with 82% of companies that have reported beating estimates. That blended earnings growth rate is both higher than last week and well above the 27.4% that had been expected.

“It’s hard to be bearish with these earnings results — even with the challenges around supply chains and labor,” Orton said.

Overall, Orton said he remains very optimistic on U.S. equities. Earnings have pushed the S&P 500 and Nasdaq Composite Index to new highs and breadth continues to hold up, having improved meaningfully from the pull-back in September. Consequently, absent mega-cap tech rolling over, Orton said it’s incredibly hard for any meaningful correction to take place. That said, with near-term momentum overbought and pockets of froth developing, he said a pause or setback wouldn’t be surprising, creating the perfect time to shake out some weak hands.

“With the market of stocks working better and mega-cap tech in good shape, I continue to believe any setbacks will prove to be buying opportunities,” Orton said. “I wouldn’t be surprised to see the S&P 500 end the year above 4750.”

Market breadth holding up, but
near-term momentum is overbought

Market breadth holding up, but near-term momentum is overbought

Source: Bloomberg, as of 10/29/2021

 

Economic growth slowing, but still above trend

While market breadth held up last week, the equal weighted versions of the S&P 500 and Nasdaq 100® Index both underperformed their cap-weighted counterparts. Small caps also continued to underperform and have the worst breadth across all the market capitalizations. This underperformance of the average stock started when the spread between the 10-year U.S. Treasury bond and the 2-year Treasury note (a bellwether indicator known as the “2s/10s”) took a turn, and it’s worth noting that last week had the largest flattening of the 2s/10s since November 4, 2020 (the day after the election). This certainly doesn’t change the overall narrative, Orton said, but a continued breakdown could be the catalyst to reduce some of the overbought momentum and create another opportunity to deploy capital.

“It’s not that we’re going into a recession or need to be concerned about the growth of the economy,” he said. “It just that it’s going to be slower than initially expected because of supply chain backlogs and labor disruptions. And that’s why having balance in portfolios is so important — holding onto growth and cyclicals, focusing on quality within both areas.”

A Chart

Source: Bloomberg, as of 10/29/2021

 

Small caps continue to underwhelm

Small caps underperformed the broad market yet again last week and have been in a relative downtrend since peaking in February.

“To say this trade has been frustrating for both bulls and bears would probably be the understatement of the year,” Orton said. “While I’m still giving the benefit of the doubt to an upside resolution, and mindful that we are starting a very bullish seasonal period for small caps, we also must weigh the fact that they simply are not showing any relative strength.”

As a result, Orton said he continues to advocate for a wait and see approach with respect to small caps. The macro backdrop of lower yields, combined with potentially some lower commodities, also doesn’t bode well for the trade, he said.

What to watch

Another busy week of earnings — with reports coming from companies in semiconductor manufacturing, energy, consumer goods, hospitality, healthcare, and online gaming — also includes a payroll report Friday and a widely anticipated announcement from the U.S. Federal Reserve’s Federal Open Market Committee about the tapering of asset purchases.

Monday U.S. Institute of Supply Management manufacturing Purchasing Managers’ Index
Tuesday Australia interest rate decision
Wednesday Federal Open Market Committee, ADP® National Employment ReportTM, Services ISM® Report on Business®
Thursday U.S. jobless claims, U.K. interest rate decision
Friday U.S. non-farm payrolls, unemployment

Risk Information:
Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.

Blended earnings combine actual results for companies that have reported earnings and estimated results for companies that have yet to report.

The daily moving average (DMA) is a calculation that takes the arithmetic mean of a given set of prices over the specific number of days in the past; for example, over the previous 15, 30, 100, or 200 days.

A relative strength index (RSI) is a momentum indicator that tracks the magnitude of recent price changes to analyze overbought or oversold conditions in the price of a particular asset. Typically, RSI values of 70 or higher indicate that an asset is becoming overbought or overvalued. RSI values of 30 or below suggest oversold or undervalued conditions.

Overbought is a term used to describe a security believed to be trading at a level above its intrinsic or fair value.

Oversold is a term used to describe a security believed to be trading at a level below its instrinsic or fair value.

Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.

Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.

The U.S. 2/10 Curve measures the difference between the rates of the 10-year U.S. Treasury bond and the 2-year Treasury note. Measured in basis points, it is watched as an indicator of where the U.S. economy is in the business cycle, as it the spread typically narrows as the economy moves through the cycle, reaches a low point and may go negative near the onset of a recession, then widens again during and after a recession.

The Purchasing Managers’ Index (PMI) measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.

The Services ISM® Report on Business® is produced by the Institute for Supply Management (ISM) and is based on data compiled from purchasing and supply executives in a wide variety of industries nationwide. Survey responses reflect the change, if any, in the current month compared to the previous month in supplier deliveries along with seasonally adjusted business activity, new orders, and employment.

The ADP® National Employment ReportTM is a monthly measure of the change in total U.S. nonfarm private employment derived from actual, anonymous payroll data of client companies served by the payroll, tax service and human resources management company ADP. The report measures changes within a group of nearly 26 million U.S. workers and is produced by the ADP Research Institute® in collaboration with Moody’s Analytics.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 75% of the investable U.S. equity market.

The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.

The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.

The Nasdaq 100® is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock market. It is a modified capitalization-weighted index.

The Nasdaq 100 Equal Weighted Index is an equal weighted version of the Nasdaq 100. It includes 100 of the largest non-financial stocks listed on the Nasdaq stock market based on market capitalization and is rebalanced quarterly.

The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 98% of the total market capitalization of all U.S. incorporated equity securities.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8 percent of the total market capitalization of the Russell 3000® Index.

Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and / or Russell ratings or underlying data and no party may rely on any Russell Indexes and / or Russell ratings and / or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication.

 


CTA21-0685 Exp. 3/1/2022