Markets in Focus

Timely analysis of market moves and sectors of opportunity

May 9, 2022: Markets in a COVID time warp

Last week’s Federal Open Market Committee (FOMC) meeting dominated headlines in capital markets and rightfully so, said Sam Wells, CFA, Vice President and Portfolio Specialist at Carillon Tower Advisers. This was an opportunity for U.S. Federal Reserve Chairman Jerome Powell to regain control over the inflation narrative, after both current and former FOMC members have continued to ratchet up hawkish commentary in recent weeks. On the margin, Powell’s remarks could be interpreted as incrementally dovish since he pulled a potential 75-basis point hike off the table. But Wells said Powell’s comments did little to instill faith in a market that continues to grow more skeptical of the Fed’s inflation methodology framework.

“The post-FOMC day selloff is indicative of a market that does not believe the Fed has control of the situation,” he said. “The Federal Reserve’s credibility has been damaged as a result of its misguided inflationary forecasts and the lack of timely policy response over the last 18 months.”

Put simply, he said, current policy rates are not appropriate for an 8%-plus inflationary backdrop. The Fed remains behind the curve and as a result inflationary pressures continue to become more entrenched in the fabric of the global economy. This may ultimately result in much more aggressive monetary policy measures down the road, the prospects of which are likely at least partially responsible for the elevated volatility over the last few trading sessions.

Quote Image
Free money makes everything look interesting. We’re not in a free money regime anymore.

“The Fed has no good options left on the table, just tradeoffs,” Wells said. “It’s possible the Fed will be able to successfully navigate the allelusive soft landing, but it’s becoming increasingly difficult to consider that outcome a base-case scenario.”

Liquidity is very thin across asset classes, and Wells said he expects this will likely lead to big swings in both equities and interest rates in the weeks and months ahead. Over the next three months, the Fed is scheduled to ramp up the balance sheet run off at twice the peak rate in 2018. Market illiquidity will likely lead to elevated cross-asset class volatility, he said, just as it did in 2018. Given conditions are already quite oversold across asset classes, any potential dislocation is likely to lay the foundation for above-trend returns on a go-forward basis, assuming investors have dry powder and use flexible, multi-asset class approaches to investing.

COVID's continuing impact on markets

While broad fixed-income indices are down the most in 40 years year to date, these mark-to-market losses are purely interest-rate driven, said James Camp, CFA, Managing Director of Fixed Income and Strategic Income at Eagle Asset Management, an affiliate of Carillon Tower Advisers.

They’re not credit events, he said, but rather are a by-product of an economy and a market put into hyperdrive by the aggressive fiscal and monetary response to the COVID-19 pandemic.

What the pandemic did, Camp said, was compress time. Both the 2020 recession and recovery were the fastest on record, the fiscal and monetary responses were unprecedented, and those produced the fastest-ever acceleration in inflation. What will bring inflation down is a reduction in aggregate demand, he said, and a deceleration from rapidly rising inflation inevitably will jar markets.

“We ripped the bandage off very, very quickly, and it’s been very painful,” he said. “What I find fascinating about these periods is that all the darling investments that come up in a bull market and with low interest rates — think NFTs, think crypto, think aspirational tech — they all get destroyed. Free money makes everything look interesting. We’re not in a free-money regime anymore. The U.S. had the highest degree of fiscal and monetary stimulus in the developed world. We have the highest inflation rate in the developed world. Those two should not surprise anybody.”

Camp said this also means that the current market turbulence is less a reflection of longer-term macroeconomic trends than previous downturns.

“I do not believe that we are in a secularly reflated economy,” he said. “We are in a moment because we overstimulated after a recession of choice, and we just have to get that right. We have to unwind all that. But this does not mean three to five years from now that we’re going to have a Consumer Price Index at 8%. This is a window. You had a recession that lasted a month. You had $9 trillion thrown in the economy. You had everybody that went home and started spending, pushing aggregate demand off the chart. You had supply chain problems. All of that happened because of a medical emergency, not because of secular trends.”

Earnings are solid. Guidance, not so much.

As of Friday, 87% of the S&P 500 Index had reported earnings, with 79% of companies that have reported beating earnings expectations. The 5-year average beat rate has been 77%, so this has been a strong quarter relative to expectations. Moreover, earnings revisions for both U.S. and European companies are back into positive territory.

Still, many stocks are deeply negative in the wake of strong earnings. While macroeconomic headwinds (e.g., inflation, a hawkish Fed, the tight labor market, low housing affordability, tight liquidity, the Russia-Ukraine war, China lockdowns, etc.) are arguably the biggest driver of the deterioration in investor sentiment, Wells noted that earnings guidance also has been quite poor. Of the companies that have updated guidance, 69% have issued negative forward guidance. It’s no surprise that input costs, inflationary pressures, and the inability to source materials in a timely fashion are common challenges noted by most companies.

Consumer spending is key to growth — and shows some signs of softening

While most economic data releases point to a marked slowdown in growth, there are still a few areas of strength, most notably capital expenditures and the consumer. Many earnings calls have pointed to strong consumer trends this quarter, which is encouraging given how important the consumer is to economic growth (accounting for roughly two-thirds of U.S. real gross domestic product growth). It’s hard to argue that the consumer is not in good shape currently, Wells said. The unemployment rate remains near record lows. Various measures of spending remain at very healthy levels (although have decelerated since the fourth quarter of 2021). High-frequency indicators like mobility, airport security checkpoint counts, and online restaurant reservations suggest strength in services and the willingness and ability of people to get out and spend. Delinquency rates on all types of consumer loans remain near record lows. That said, Wells said a few recent economic releases suggest that consumers are less healthy than they were six to 12 months ago. To be clear, he said, there are no alarm bells (or if there are, they are very faint) pointing to a demand-driven slowdown, outside of tighter monetary policy which will inevitably have an impact on the labor market. Rather, he said the recent deceleration in three sets of data in particular bears watching in the months ahead to see if any trends materialize.

First, he noted, personal savings are back to pre-pandemic levels. Current savings levels are not unhealthy by any stretch, but the deluge of stimulus over the past two years is gone. The consumer blew through about $5 trillion in savings and now has far less dry powder to keep the economy pumping.

U.S. Personal Savings
Healthy, but off its pandemic peak

U.S. Personal Savings Healthy, but off its pandemic peak

Source: Bloomberg, U.S. Bureau of Economic Analysis, as of 3/31/2022.

Second, Wells said one of the more interesting economic releases last week was the Federal Reserve’s report on consumer credit. Of note, total consumer credit, especially revolving variety, increased at the fastest rate on record. Combined with consumers’ drawdown of stimulus payments, Wells said it’s evident that consumers are no longer flush with cash.

A spike in revolving consumer credit

A spike in revolving consumer credit

Source: Bloomberg, U.S. Federal Reserve, as of 3/31/2022.

Third, while wage growth has undoubtedly been a bright spot for consumers, the impact of inflation has more than offset the growth in wages. In fact, real weekly earnings — that is, earnings after inflation — have been negative for 12 consecutive months. Either inflation has to abate, wages need to move much higher, or some combination of the two, Wells said.

U.S. Real Average Weekly Earnings on a 12-month decline

U.S. Real Average Weekly Earnings on a 12-month decline

Source: Bloomberg, U.S. Bureau of Labor Statistics, Federal Reserve, as of 3/31/2022.

Wells said it’s worth noting that the consumer discretionary sector has had the largest percentage of earnings misses in the S&P 500 so far this quarter. Trends in the labor market and spending are arguably some of the most important indicators to follow for the remainder of the year as the consumer will determine whether we experience a correction or a more protracted downturn.

The bursting of the "spec" bubble continues

Within the larger rout in speculative tech companies, Wells said spec healthcare is an area that has gotten absolutely clobbered. For example, the biotech industry in the Russell 2000® Index is down about 65% from its peak in February 2021. Notably, a record number of biotech companies in the Nasdaq Biotechnology Index now trade below their cash value. Valuations may be interesting for longterm investors, he said, but it’s likely to be choppy in the near term. Negative sentiment and the weak macroeconomic backdrop will likely place stress on this industry in the near term.

Active management continues to work

After a challenging March, active management came back into favor in April. At least 50% of managers in each style box category beat the benchmark, with the manager win rate at 70% or higher in six out of nine U.S. style boxes. Wells said this trend is encouraging and should continue to hold as the current set of risk factors continue to weigh on lower quality/speculative stocks, a space in which most active managers have a sizeable underweight.

Active management during April

Value Blend Growth
Large 58% 91% 53%
Mid 70% 80% 56%
Small 81% 90% 70%

Source: Morningstar, as of 4/30/2022.

The large, mid, and small categories shown here represent core Russell market-cap indices — the Russell Top 200® Index for large, the Russell Midcap Index for mid, and the Russell 2000® Index for small — as well as each indice’s growth and value sub-indices.

What to watch

This is a big week for economic data releases, most notably the U.S. Consumer Price Index and Producers Price Index releases on Wednesday and Thursday, respectively. We should see inflation slow down on both a year-over-year and month-over-month basis, Wells said, but if these readings show a continued heating in inflation, expect the hawkish rhetoric to ratchet up even further.

This week's data releases

Monday U.S. wholesale inventories
Tuesday National Federation of Independent Business Index of Small Business Optimism
Wednesday U.S. Consumer Price Index; Eurozone Harmonised Index of Consumer Prices; Mortgage Bankers Association Mortgage Applications report; Real average hourly earnings
Thusday U.S. Producers Price Index; U.S. weekly jobless claims; U.K. gross domestic product
Friday U.S. Import and Export Price Indexes, 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.

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.

Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.

Basis points (bps) are measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.

A policy interest rate is an interest rate set by a central bank or other monetary authority to influence the evolution of an economy’s monetary variables such as consumer prices, exchange rates, or credit expansion.

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

Mark to market is a method of measuring the fair value of assets, liabilities, or other accounts that can fluctuate over time. Mark to market strives to provide a realistic appraisal of a company or institution’s current financial circumstances based on current market conditions. During volatile markets, however, mark-to-market measurements may not accurately represent an asset’s true value in an otherwise orderly market.

An NFT, which is short for non-fungible token, is a unique cryptographic asset, including images, other works of art, or property rights, on a blockchain with unique identification codes and metadata that distinguishes it from any other asset and ensures that it cannot be replicated.

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.

Real earnings, also known as real income or real wages, reflect how much money an individual or entity makes after accounting for inflation. Unlike nominal earnings, which are not adjusted for inflation, real earnings better reflect the earner’s actual purchasing power.

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 U.S. Producer Price Index (PPI), published monthly by the U.S. Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output.

The National Federation of Independent Business Index of Small Business Optimism consists of 10 equally weighted and seasonally adjusted variables. The monthly change of each variable contributes proportionally to the overall monthly change in the index.

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 Mortgage Bankers Association Weekly Applications report covers mortgage application activity that includes purchase, refinance, conventional, and government application data, weekly data on mortgage rates, and indices covering fixed-rate, adjustable, conventional, and government loans for purchases and refinances.

The U.S. Import and Export Price Indexes measure the changes in prices of imported goods and services purchased from abroad by U.S. companies and businesses and exported goods and services sold to foreign buyers. The indexes cover prices of non-military goods and services and are published by the U.S. Bureau of Labor Statistics’ International Price Program.

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 Biotechnology Index contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as either Biotechnology or Pharmaceuticals which also meet other eligibility criteria. The Nasdaq Biotechnology Index is calculated under a modified capitalization-weighted methodology.

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index.

The Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower priceto-book ratios and lower forecasted growth values.

The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap is a subset of the Russell 1000® Index. It includes approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell Midcap represents approximately 26% of the total market capitalization of the Russell 1000 companies.

The Russell Midcap® Growth Index measures the performance of the midcap growth segment of the U.S. equity universe. It includes those Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values.

The Russell Midcap® Value Index measures the performance of the midcap value segment of the US equity universe. It includes those Russell Midcap® Index companies with lower price-to-book ratios and lower forecasted growth values.

The Russell Top 200® Index measures the performance of the 200® largest companies in the Russell 3000® Index, which represents approximately 67% of the total market capitalization of the Russell 3000® Index.

The Russell Top 200® Growth Index offers measures the performance of the especially large cap segment of the U.S. equity universe represented by stocks in the largest 200 by market cap. It includes Russell Top 200® Index companies with higher growth earning potential as defined by Russell’s leading style methodology.

The Russell Top 200® Value Index measures the performance of the especially large cap segment of the US equity universe represented by stocks in the largest 200 by market cap that exhibit value characteristics. It includes Russell Top 200® companies that are considered more value oriented relative to the overall market as defined by Russell’s leading style methodology.

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.

 

CTA22-0309 Exp. 9/9/2022


May 2, 2022: Many April showers, spotty May flowers?

April historically has been a strong month for equities, with the worst monthly return over the past decade being only -0.75% — until now. We’re starting May coming off the worst month for equities in more than two years, with the S&P 500 Index down -8.8% and the Nasdaq Composite Index down -13.3%. Friday in particular was painful as the S&P 500 moved well below the recent 4200 resistance level and set a new year-to-date closing low. It also was the worst April in history for small caps with the Russell 2000® Index down -9.9%: the group’s second-worst start to the year, after 2020.

Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers, said he remains cautious this week as more tech heavyweights step into the earnings confessional, the U.S. Federal Reserve meets, and a host of important economic reports arrive. Yet while there remain a number of near-term headwinds — including abysmal investor sentiment, weak internals, and continued uncertainty with respect to monetary policy — he said there are still reasons to be optimistic as we push into the second half of the year. They include:

  • The consumer’s balance sheet ballast: Strong U.S. household balance sheets are a distinctive and growth-supportive feature of this expansion. Earnings season has highlighted the strength and the ability of the consumer to weather price increases across both goods and services. After all, the government legislated about $5.5 trillion of fiscal support over the course of the pandemic, with most of it going to households. Most households still have sufficient excess cash balances to weather an energy price shock and current level of inflation, though the bottom income quintile is on shakiest ground. “No matter how many times you hear people talk on the news about the consumer not being good, I have yet to see a single terrible earnings report where companies haven’t been able to pass along pricing to consumers and where they’re seeing a pickup in elasticity of demand,” Orton said. “There’s a lot of strong tailwinds coming from the consumer that I think can last at least until the end of this year.”
  • Earnings have been strong: Blended earnings growth for the S&P 500 sits at 7.1% (vs. 4.7% expected) with 80% of companies that have reported so far beating expectations. It’s worth noting that we’re seeing growth amid very difficult comparables as well as macroeconomic headwinds including higher costs, supply chain disruptions, labor shortages, and the war in Ukraine. It’s worth highlighting that the blended net profit margin sits at 12.2%, highlighting the resiliency of corporations in spite of all the aforementioned challenges. “That’s better than what we expected coming into the quarter and higher than we were before the COVID pandemic,” Orton said. “This is very important, because it shows that even with labor inflation, goods inflation, and supply chain disruptions you continue to see corporations doing well, and guidance, critically, has been pretty good from a lot of management teams. I believe that the first and second quarters are probably going to be the worst from an inflationary cost standpoint for companies, so we’re beginning to see a light at the end of the tunnel.”
  • Unemployment remains historically low: The labor market remains incredibly strong, with unemployment sitting at 3.6% and many more job openings than job seekers. Real wage growth has actually been positive for the lowest wage earners, helping to sustain their current level of spending. However, he said there comes a point where this strength is also a problem: The Employment Cost Index data last week was surprisingly strong and feeds into inflationary pressures already being exacerbated by more shutdowns in China.

“You can’t overlook these three factors,” Orton said. “These are huge drivers of the overall economy.”

Still, Orton said caution is warranted in the near-term even if we see a relief rally after the Federal Open Market Committee (FOMC) meeting this week. We had a lot of April showers, but it’s unclear whether they will bring May flowers for the market. If they do, Orton said it will likely only be in select companies and parts of the market where stronger fundamentals have been thrown out with the bathwater. That said, Orton said he believes there are plenty of these and some long-term opportunities in areas such as high-quality information technology and healthcare.

“The good news is that active management has been working, and I believe the focus on quality and solid fundamentals will help managers continue to shine,” he said.

Investor sentiment remains apocalyptic
Ratio of bulls to bears is the lowest since March 9, 2009

Investor sentiment remains apocalyptic Ratio of bulls to bears is the lowest since March 9, 2009

Source: Bloomberg, American Association of Individual Investors Sentiment Survey, as of 4/29/22.

Duration destruction

For tech investors, it’s been the worst start to the year in two decades. The Nasdaq 100® Index wiped out $1.8 trillion in value in April alone as investors feared an economic slowdown and evermore aggressive expectations around the Fed’s rate-hike trajectory. Disappointing earnings from two heavyweight companies also have weighed heavily on investor sentiment, especially around what is perceived as the higher-duration parts of the market. Consequently, the Nasdaq is now in a bear market, off 24% from its high. And with another hike in the Federal Reserve’s interest rate seen next week, Orton said he expects we’ll have more volatility over the coming weeks.

Volatility has spiked
Percentage of days Nasdaq has moved +/- 2%

Volatility has spiked Percentage of days Nasdaq has moved +/- 2%

Source: Bloomberg, as of 4/29/22.

Yet outside of a few disappointments, Orton said it’s clear from recent earnings that the information technology sector is doing well. In particular, he said we’re seeing strength from enterprise software and many higher-quality technology companies. These companies also can perform well during inflationary market environments, and Orton said one software CEO put it best: “Software is just about the only deflationary force out there.” But the pressure from rising yields and uncertainty around the pace of rate hikes continues to hit the sector. Given the strength in earnings (for the most part), Orton said he believes that the sell-off has been driven by duration rather than fundamental risks. The issue is that there are still too many companies with valuations over 50x earnings. This is why Orton said he continues to prefer “prime tech” over “spec tech” going forward and believes there are some noteworthy opportunities now.

Orton said it’s also worth highlighting that while consumer discretionary was a notable laggard last week along with IT and communication services, most of the sector is actually holding up pretty well. Just two of the biggest companies, which together comprise about 45% of the S&P 500’s consumer discretionary sector, are responsible for about 62% and 28%, respectively, of the sector’s April decline in terms of index points. Travel and leisure did well and we’ll hear from a number of key companies exposed to travel this week. Orton said he remains optimistic on companies with exposure to the U.S. consumer, and this price action is a reminder why we always need to look beneath the surface. It’s also a reminder of why active management has been working well this year.

Active management is working

“You can can’t eat relative performance, and the market weakness year to date is certainly painful,” Orton said, “but if there is a silver lining, it’s that active management has been working across market capitalizations.”

We came into this year believing that fundamentals were going to increasingly matter, and we’re seeing that play out, he said. Dispersion has increased across the market, enabling active managers to add alpha for clients. Overall, the percentage of managers beating their index was 70% in April; 51% for the last three months (as of April 29); and 60% year to date, according to data from FactSet; Lipper Analytical Services, FTSE Russell; and Jefferies. But Orton noted that the percentages were larger down the market-cap spectrum: In small caps, 93% of managers beat their core indexes in April; 74% over the last three months; and 90% year to date.

“Active management has been working very well in the small-cap space,” Orton said. “Active managers have been outperforming in general, but they’ve been working particularly well down the marketcap spectrum, just because there’s so much dispersion between different sectors and quality within companies.”

What to watch

Many markets in Europe and Asia were closed on Monday, and Japan is taking three days off from Tuesday through Thursday. But Orton said there is plenty happening in the U.S. between the meeting of the Federal Open Market Committee and earnings from companies in online travel; hotels, resorts, and entertainment; consumer staples; digital payments; phosphate mining; pharmaceuticals and biotechnology; petroleum; semiconductors; online vacation rentals; coffee shops; car services; pharmacies and health insurance; online retailing; cybersecurity; restaurants; beer; electric vehicle manufacturing; food delivery; sports equipment and apparel; managed healthcare; and sports betting.

This week's data releases

Monday Japan consumer confidence
Tuesday U.S. IHS Markit manufacturing Purchasing Managers’ IndexTM, plus factory orders, durable goods, and light vehicle sales
Wednesday U.S. interest rate decision
Thusday U.S. initial jobless claims; U.K. interest rate decision; France industrial output; Germany factory orders
Friday U.S. unemployment and payrolls; Consumer price indexes from Japan and Taiwan

 

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.

Internals refer to quantitative market indicators that investment professionals monitor to spot trends and forecast movements within securities markets. A subset of technical indicators, internals include a number of formulas and ratios, such as the number of stocks moving in the same direction as a larger trend, the ratio of securities with rising and falling prices, the ratio of new highs to new lows, and price and volume indicators that are seen as indicators of overall market sentiment.

A quintile is a statistical value representing 20% of a given set of data. The first, or lowest, quintile represents the lowest fifth of the data (1% to 20%), and the highest quintile represents the top fith (81% to 100%).

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

A blended net profit margin combines actual net profit margins from companies that have reported earnings and estimated margins for companies that have yet to report.

The Employment Cost Index measures the change in the cost of labor, free from the influence of employment shifts among occupations and industries, for three- and 12-month periods. The U.S. Bureau of Labor Statistics collects data for the index from thousands of private and government employers nationwide.

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. Investors and market analysts watch certain yield curves for signs of inversion, when yields for longer-term debt instruments fall below yields on short-term debt with the same credit quality. Inversions are watched as potential signs of a weakening economy and in certain cases, a harbinger of recessions.

The American Association of Individual Investors Sentiment Survey reflects answers offered each week by AAII members to the question: What direction do they feel the stock market will take in the next six months? Answers are sorted into bullish, neutral, and bearish categories.

Equity duration is the cash-flow weighted average time at which investors can expect to receive the cash flows from their investment in a company’s stock. Long-duration stocks include fast-growing technology companies, including those that may not pay any dividends in their early years, while short-duration stocks tend to be more mature companies with higher ratios to dividend to price.

Alpha is a measure of the difference between a manager’s actual returns and its expected performance, given its level of risk as measured by Beta. A positive Alpha figure indicates the manager has performed better than its Beta would predict. A negative Alpha indicates the manager performed worse than expected based on its level of risk. Thus it is possible for a manager to outperform an index and still have a negative Alpha. In general, however, the higher the Alpha the better.

Beta is a measure of the volatility or systemic risk of a security or portfolio compared with the market as a whole.

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 Japan Consumer Price Index, released monthly by the Statistics Bureau of Japan, tracks core inflation by monitoring price changes in a wide variety of goods and services, excluding fresh foods but including energy, purchased by households nationwide.

The Taiwan Consumer Price Index, released monthly by the National Statistics Bureau of the Republic of China (Taiwan), tracks prices paid by Taiwanese consumers for a wide range of 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 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 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% 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.

 

CTA22-0296 Exp. 9/2/2022