Markets in Focus

Timely analysis of market moves and sectors of opportunity

April 25, 2022: Earnings can’t save us from ourselves

It was a tough week for most sectors, and Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers, said the set-up heading into this week doesn’t offer much cause for short-term enthusiasm.

“There’s a risk now of re-testing the February lows, if not a little bit lower,” Orton said. “But the longer-term outlook still looks more optimistic. If you asked me where the market will be in six months, I would say pretty definitively higher than where we are today. That’s because the actual underlying fundamentals of the economy and of the market are still incredibly sound. I think that the market has just found itself in this negative feedback loop around what the U.S. Federal Reserve is going to do and that we’re going to throw ourselves into a recession as a result of these rate hikes. I just don’t think that gloomy outlook really holds water.”

Price action on Thursday and Friday was downright awful: 489 constituents of the S&P 500 Index moved lower on Friday, pushing the market into oversold territory while breadth continued to deteriorate. Orton said it’s understandable to see heightened volatility as investors contend with rapid moves in the fixed income market, including real yields briefly crossing into positive territory. Also, for the first time since 2000, the market is pricing in the U.S. Federal Reserve (Fed) raising its target interest rates by 50 basis points (bps) at each of the next three meetings in May, June, and July. None of this should be too surprising, yet the market moved and moved swiftly. Even more surprising — and challenging — is that the narrative has been incredibly negative for some time, and no amount of good news has been able to change it, Orton said. The doom and gloom is all about inflation right now. Until we start to see some positive reactions to good news, it’s hard to get too excited about the broader market. Orton said he does believe that when sentiment starts to change and breadth improves along with it, we’ll start to see some sustained upside.

“And I believe we’ll get there in the next few months,” he said. “But until then, tread carefully.”

Last week was pretty eventful, but this week has even more potential landmines for investors to navigate. Earnings results from mega-cap technology and, importantly, the reaction to them will be absolutely critical in setting the short-term direction of the market, Orton said. He said his biggest concern is that earnings have actually been quite strong so far, but you wouldn’t know that by reading headlines. “Earnings misses” have been blamed, along with the Fed, for the bad price action on Thursday, Friday, and really the past two weeks. However, the actual blended earnings growth rate for the S&P 500 stands at 6.6% (versus the 4.7% that was expected on March 31), with 79% of the companies that have reported beating expectations and only eight companies releasing negative guidance. More importantly, the blended net profit margin is better than expected at 12.3% (versus the consensus of 12.1%), which is the fifth-highest net profit margin reported by the index since FactSet began tracking this metric in 2008. There’s a plethora of good news that has been almost completely ignored in the prevailing market narrative:

  • The admirable ability of a major electric-vehicle manufacturer to beat estimates and navigate supply chain shortages;
  • Consumer staples companies navigating spiraling inflation with strong demand;
  • Transports have been hammered with fears of an economic slowdown, but one major railroad doesn’t see a 2022 recession in the freight market;
  • Airlines highlighting incredibly strong demand, with one Dallasbased carrier going as far as to project that the second quarter will be its best in terms of revenues in its history. “That sort of optimism amid all this volatility and uncertainty that we have means a lot for a CEO to go out and say that publicly to the market,” Orton said.

In short, that’s a lot of good news, and it provides evidence that “fundamentals are solid,” he said. “They are in place. The outlooks going into the rest of this year and into next year have not changed. If anything we’ve even seen some strengthening across certain metrics.” But he noted, that’s “being ignored by the market right now.” And Orton said that has him more uneasy than usual, especially if mega-cap tech reports good numbers that aren’t rewarded.

Negative sentiment levels that have persisted for some time now certainly play a role in the negative reception investors have had to earnings, Orton said. Last week he highlighted how individual investor bullish sentiment in the American Association of Individual Investors Sentiment Survey hit its lowest level since 1992. It didn’t improve much on the most recent survey with only 18.9% of investors in the bullish camp, a level that’s still lower than the worst reading in the Global Financial Crisis or the Corona Crash of early 2020. Updated data from the University of Michigan Index of Consumer Sentiment was similarly glum. Until we can start to see improved readings on the back of good earnings results and sustained economic growth, Orton said it becomes ever more important for investors to be judicious with their entry points and tactical with respect to asset allocation. There are certainly some opportunities out there right now, he said, and those who look past the negativity and lean into the volatility could be rewarded over the long term.

Real rates have jumped higher

S&P 500 Net Profit Margin First quarter 2018 through first quarter 2022

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

Stop telling consumers how poorly they’re doing

Orton said he can’t describe how frustrating it was to read article after article over the weekend about the negative state of the consumer given rising rates and persistently elevated inflation. Clearly nobody’s following the earnings, he said, which is too bad since without that the prevailing narrative just doesn’t paint an accurate picture. There are risks for sure, he said, but there have been risks for a year and look where we are. Coming into 2022, household debt service ratios are the best they’ve been in decades and consumers were sitting on over $2 trillion in savings. The switch from goods to services spending has been picking up, and the consumer has been more than willing and able to go out and travel. One financial services company on Friday reported that spending on its cards for travel and entertainment just about matched the pre-pandemic 2019 level in March. Rising prices might be squeezing people at the pump, but it doesn’t yet seem to be a big deterrent to travelling. A second bank further corroborated this trend, seeing its airline card spend volume flat in March 2022 versus 2019, the first time the bank had seen a recovery to pre-pandemic levels. A third bank has seen a large bump in travel and entertainment spending, while it also noted that spending for its customers with annual incomes under $50,000 was up strongly from 2019 in the first few weeks of April. Two consumer-facing companies — in swimming pool accessories and automotive parts — also reported great results last week with strong commentary around their core customers.

The consumer is clearly in good shape, and it’s also worth highlighting that risks of a self-inflicted recession due to rate hikes are overstated, Orton said. Three weeks ago the U.S. 2/10 Curve, known as the 2s10s curve, inverted and investors were very concerned that the Fed was hiking into a slowdown and that recession was inevitable. Orton said that was never his base case, and noted that now the curve actually steepened by almost 50 bps with the back end actually moving. The rise in longer-term rates certainly doesn’t point to collapsing economic growth, he said, and he continues to believe that healthy corporate investment coupled with a strong consumer will provide a buffer that has been largely ignored or written-off by the market.

Noteworthy improvement in the U.S. 2/10 Curve

S&P 500 Net Profit Margin First quarter 2018 through first quarter 2022

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

Amid the rubble, opportunity awaits

The broad brushstrokes being used to paint many sectors and industries is “crazy,” Orton said, and creates long-term opportunities for investors who are patient. For example, consumer discretionary

“Pretty soon you may be able to buy a U.S. Treasury bond in the expectation of making a positive return in real terms when it pays off,” he said. “That says good things about future growth and inflation and leaves some ammunition for future central bank cutting should it be necessary down the road.” has been weighed down by the homebuilding industry and anything tangentially related as well as autos. This concern weighed on companies tied to travel and leisure until the recently when three major airlines posted decent quarterly results accompanied by incredibly optimistic outlooks. Similarly, healthcare had finally started to break out given some positive results and pretty compelling valuations, but bad results from a few hospitals last week as soured sentiment and led a strong sell-off across the sector. Hospitals have been and will likely continue to be a challenging space, Orton said, especially given labor issues and rapid wage inflation, not to mention ongoing COVID-19 and regulatory concerns. That has created opportunities for long-term investors, said Orton, who added that he continues to like the space due to its counter-cyclical and defensive characteristics as well as strong earnings growth and margins.

Information technology also remains incredibly oversold, he said, adding that valuations for many higher quality companies are becoming compelling. The impact of aggressive rate hikes is fully baked into the market right now, he said, while strong topline growth can provide a buffer to economic fears. Margins are also pretty resilient and have held up better than most other sectors. Orton’s approach of focusing on high-quality prime tech versus speculative tech has been playing out, and he said he believes it should continue to work in the current environment. The information technology sector also is incredibly oversold with only 8% of its members trading above their 10-day daily moving average (DMA), so he said there is definitely opportunity once we bounce.

What to watch

Along with macroeconomic reports from across the globe, this week’s earnings calendar is crammed with 50% of the S&P 500 market cap reporting results. Companies reporting include those in soft-drink bottling; video games; managed healthcare; information technology; auto manufacturing; restaurants; package delivery; manufacturing; pharmaceuticals and biopharmaceuticals; banking; airlines; foods; social media; telecommunications; heavy equipment manufacturing; aerospace and defense technology; online retailing; electronics and software; tobacco; online payments; oil and gas; and pizza delivery.

This week's data releases

Monday ifo Institute Business Climate Index for Germany
Tuesday U.S. durable goods, consumer confidence, and new home sales
Wednesday U.S. Mortgage Bankers Association applications survey; U.S. wholesale inventories; Consumer price indexes for Australia and Brazil
Thusday U.S. gross domestic product (GDP), jobless claims and core Personal Consumption Expenditures Index quarter-over-quarter data; Japan monetarypolicy decision, Consumer Price Index, GDP forecasts, retail sales, and industrial output
Friday University of Michigan Index of Consumer Sentiment; U.S. Employment Cost Index, personal income and spending

 

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.

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

Real yield curve rates, commonly referred to as “Real Constant Maturity Treasury” rates, on Treasury Inflation-Protected Securities (TIPS) at “constant maturity” are estimated by the U.S. Treasury from the Treasury’s daily par real yield curve. These par real yields are calculated from indicative secondary market quotations obtained by the Federal Reserve

Bank of New York. The par real yield values are read from the par real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years. This method provides a par real yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.

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.

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%.

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 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.

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 U.S. 2/10 Curve, known as the 2s/10s, is a bellwether indicator that 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 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.

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.

Defensive stocks provide consistent dividends and stable earnings regardless whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.

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.

The ifo Institute Business Climate Index for Germany is based on a monthly survey of about 9,000 firms in manufacturing, the services sector, and construction, plus wholesale and retail sales about their characterization of their current business and their expectations for the next six months. It is published by the ifo Institute for Economic Research, based in Munich.

The Mortgage Bankers Association Weekly Applications Survey 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 Australian Consumer Price Index is a quarterly report from the Australian Bureau of Statistics measuring household inflation. It includes statistics about changes in price for a wide range of categories of household spending.

Brazil’s Extended National Consumer Price Index (IPCA), calculated by the Brazilian Institute of Geography and Statistics, measures the inflation rate for selected retail products and services, including food and beverages; housing; household articles; wearing apparel; transportation; health and personal care; personal expenses; education; and communication. The index is constructed to cover 90% families living in 13 geographic zones: the metropolitan areas of Belém, Fortaleza, Recife, Salvador, Belo Horizonte, Vitória,

Rio de Janeiro, São Paulo, Curitiba, Porto Alegre, as well as the Federal District and the cities of Goiânia and Campo Grande.

Core inflation is measured by the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, also known as the core PCE price index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy — where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.

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 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.

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.

 

CTA22-0274 Exp. 8/25/2022


April 18, 2022: Three reasons for confidence in the face of inflation

Earnings season takes off this week with a cross section of many sectors and industries as well as some blue-chip stocks. Earnings from the large-cap banks that reported last week were just fine, said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers. There were no red flags, and management so far has simply reinforced what we already knew about the economy.

That said, “overall sentiment is just incredibly negative,” Orton said. The percentage of bulls in last week’s American Association of Individual Investors Sentiment Survey was 15.8%, the lowest reading since September 1992. “Bullish sentiment is lousier now than it was during February and March 2020 at the start of the COVID pandemic. It’s worse than it was during the Global Financial Crisis. That extreme bearishness should result in a powerful rally at some point. The question is when. I hope that earnings season gives us the catalyst to see some improvement, but it’s going to take some time to digest all of the upcoming reports.”

As we start to hear from more consumer-oriented companies in the coming weeks, we will get some critical information regarding the impact of inflation on demand as well as margin trends moving forward. And the ability of companies and consumers to navigate inflation over the next few quarters will be critical in setting the market direction, Orton said. Consumer prices increased by 8.5% in March, the largest year-over-year increase since 1981, and last week’s Producer Price Index showed the costs of goods and services for producers soar by a whopping 11.2% from a year ago. But, he noted, the Consumer Price Index (CPI) came in below expectations for the first time “in a very long time.”

“That, in and of itself, was positive for the overall markets,” Orton said. “Perhaps we have seen a peak in the CPI and consumers are finally getting some relief at the pump. Looking ahead, I believe there are still at least three key reasons to be optimistic.”

First, corporate margins are expected to hold up

The market has been understandably concerned about higher inflation. But Orton said the narrative has never focused on how well the majority of companies have navigated through supply chain disruptions, wage increases, and rising commodity prices, ultimately maintaining margins above pre-pandemic levels. The blended net profit margin for the S&P 500 Index for the first quarter of 2022 is 12.1%: below the expected 12.3% for the quarter on Dec. 31 and below the year-ago net profit margin of 12.8%. However, Orton noted, it’s above the 5-year average net profit margin of 11.2%, and it also would mark the fifth-highest net profit margin reported by the index since FactSet started tracking the metric in 2008. It’s also worth noting that profit margins are holding up best not only in commodity-exposed sectors like energy and materials, but also in information technology and healthcare.

The chart below tells the entire story, Orton said. Profit margins are expected to rebound next quarter, but even if they stayed at current levels, profit margins would remain above pre-COVID levels and well above the 5-year average.

S&P 500 Net Profit Margin
First quarter 2018 through first quarter 2022

S&P 500 Net Profit Margin First quarter 2018 through first quarter 2022

Source: Bloomberg, FactSet consensus estimates, as of 4/14/22.

Next, the consumer is doing better than we think

Orton said he has been very constructive on the consumer for quite a while now and remains sanguine moving forward until proven otherwise. Despite consumer sentiment data consistently painting a negative picture and contending that consumers are inclined to cut back in response to higher prices, consumers have continued to spend. Retail sales have continued to increase at the same time that consumers have started to get out and spend on services such as vacations and dining out. Recent banking data show that consumers’ finances, particularly of those in lower income groups, are holding up, and Orton said that data counters the pessimistic findings of consumer sentiment surveys.

“Having spent a lot of time in airports over the past few weeks to visit with clients, I’ve encountered packed airports, crowded hotels, and restaurants broadly at capacity,” he said. “There is still a tremendous amount of savings still left to be deployed – more than $2 trillion – and even the consumers in lower income groups continue to spend.”

Last, Orton still believes recession is unlikely

With the backdrop of a strong consumer and healthy corporate profits, Orton said he just doesn’t see recession playing out anytime soon. Gas prices are starting to come down, and we’re seeing record bookings across airlines and online travel companies. Additionally, real yields are continuing to move higher – real 10-year U.S. Treasury note yields ended at the highest level since March 23, 2020, the day of the U.S. Federal Reserve’s pandemic-rescue package. A lot of ink has been spilled on the recession signal from yield curve inversion, but Orton said he believes that a positive real 10-year yield should be considered a healthy sign for any economy.

“Pretty soon you may be able to buy a U.S. Treasury bond in the expectation of making a positive return in real terms when it pays off,” he said. “That says good things about future growth and inflation and leaves some ammunition for future central bank cutting should it be necessary down the road.”

So where do we go from here?

Orton said he continues to believe that the market will trade in a range driven by knee-jerk reactions to earnings reports and economic data releases.

“Investor sentiment remains downright awful, and it’s hard to find a bull wherever I go,” he said. “It’s understandable that investors feel the pressure with correlations between rates and stocks moving negative over the past couple of months.”

In fact, Orton noted that the recent environment has been so anomalous that an 80% stock/20% bond portfolio would have outperformed a 60% stock/40% bond portfolio in the first quarter despite negative equity returns.

“Part of the challenge for equities is that the market is positioned as if a recession is brewing,” he said. “I believe that recession and crash fear are high and probably overdone, for now. Until we have a sustained breakout in stocks, I believe in continuing to use downside opportunistically and not chasing the market higher.”

As we move deeper into earnings season, Orton said we’ll start to get more insight from the information technology sector, including mega-cap technology, which has weighed heavily on the market so far this year. Earnings are expected to remain strong and margins are expected to hold up better than the broad market. If this plays out and management teams deliver some optimistic commentary, Orton said he would expect to see a strong bounce. The S&P 500 information technology sector is oversold, with just over 10% of its constituents trading above their 10-day daily moving average (DMA). On the other hand, he said, staples and other defensive sectors have moved significantly and are overvalued and overbought and could be on the wrong side of re-allocation.

What to watch

It will be a busy week with some important global economic data releases and earnings season picking up in the U.S. with earnings reports from companies in banking; financial services; transportation and logistics; consumer goods; pharmaceuticals; technology; online streaming; energy and petroleum production; health insurance; medical devices; electric vehicles; airlines; semiconductors; used car sales; telecommunications; tobacco; social media; casinos and resorts; and mining.

This week's data releases

Monday China reports on industrial output, retail sales, and gross domestic product
Tuesday U.S. housing starts
Wednesday U.S. Fed Beige Book; existing home sales; Eurozone industrial output
Thusday U.S. initial jobless claims, Federal Reserve Bank of Philadelphia’s Manufacturing Business Outlook Survey; Eurozone Harmonised Index of Consumer Prices
Friday U.K. retail sales; Japan core Consumer Price Index

 

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.

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.

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 U.S. 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.

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. Estimated profit margin numbers are based on FactSet consensus estimates.

Real yield curve rates, commonly referred to as “Real Constant Maturity Treasury” rates, on Treasury Inflation-Protected Securities (TIPS) at “constant maturity” are estimated by the U.S. Treasury from the Treasury’s daily par real yield curve. These par real yields are calculated from indicative secondary market quotations obtained by the Federal Reserve Bank of New York. The par real yield values are read from the par real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years. This method provides a par real yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.

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 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.

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.

Defensive stocks provide consistent dividends and stable earnings regardless whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.

The Federal Reserve Bank of Philadelphia’s Manufacturing Business Outlook Survey is a monthly survey in which manufacturers in the Third Federal Reserve District, which includes Pennsylvania, New Jersey, and Delaware, indicate the direction of change in overall business activity and in various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, delivery times, prices paid, and prices received.

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 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 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.

 

CTA22-0261 Exp. 8/18/2022


April 11, 2022: Is April really the cruelest month? Maybe not for equities

Buckle up, said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers, because it’s going to be a bumpy ride.

“The S&P 500 Index is down 5.8% year to date,” Orton said, “but there is massive dispersion between the sectors. I believe there’s just north of a 57% difference between the top-performing sector and the bottom-performing sector, and there’s also a very definitive bent to the market right now. Your top-performing sector is energy, followed by utilities, consumer staples, and healthcare. So outside of energy, there’s a very defensive feel to the market. It’s also important to highlight that there’s also some massive dispersion between industries, with oil and gas equipment services up about 54% and the worst-performing is homebuilding, down about 33%.”

As expected, equities took a breather after three weeks of solid gains pushed the major indices toward overbought territory. While he said he remains biased to the upside, Orton expects to see further consolidation and a range form as investors react to corporate earnings results, additional comments from the U.S. Federal Reserve, and a slew of important economic data releases. This is why Orton said he continues to advocate for not chasing upside and using downside opportunistically. It will be difficult for the market to break out with so much uncertainty, he said, but it will also be difficult to sustain meaningful drawdowns given solid corporate fundamentals and clean investor positioning. This week marks the beginning of first-quarter earnings season with big banks reporting results as well as some important reads from airlines and healthcare. First-quarter earnings might also help reaffirm the story of relative resilience for U.S. equities and remind investors that earnings are indeed still growing, Orton said. Specifically, if companies can provide some comfort on margins, he said that could help to stabilize markets and provide tailwinds moving toward the back half of the year.

The poet T.S. Eliot famously wrote that “April is the cruelest month.” For equities, however, April has been a seasonally strong month over the past decade. On a close-to-close basis, the worst April performance over the past 10 years is down just 75 basis points. Moreover, the months that contain earnings seasons – January, April, July, and October – have on average more than two times better returns and lower negative returns than the remaining eight months. For April specifically, we need to go back to 2002 to find more than a 5% down month, and that year coincided with a significant earnings downgrade cycle.

“There’s certainly a lot of statistical noise, but it’s just a reminder that there are indeed some tailwinds to the market right now, even if it continues to feel pessimistic,” Orton said.

Going forward, Orton said he continues to prefer larger companies (large- and mid-caps over small), especially since it will be a few weeks before we start to hear earnings from companies in the Russell 2000® Index. Orton has been positive on healthcare for a while, and going forward he said he continues to like the sector, which has been notably strong over the past month or so. He noted that there are still opportunities in healthcare equipment and supplies. There are also some positioning anomalies that Orton said he thinks will start to reverse as investors focus more on fundamentals and idiosyncratic risk going forward. For example, utilities — the most negatively-correlated sector to rising rates — ended at all-time highs last week while financials — the most positively-correlated sector — has lagged notably in contrast. Price action seems more consistent with a defensive yield curve flattening story, rather than the higher absolute level of interest rates, Orton said. He noted that we have seen similar defensive price action in technology. Semiconductors, one of one of the most cyclical parts of tech, is close to year-to-date lows relative to the broader tech sector.

“The sector rotation story heading into earnings season seems to reflect cyclical pessimism, and perhaps too much, in my opinion,” Orton said. “Thus, I will be watching financials and semiconductors heading into earnings season.

Maximum and minimum monthly performance for the
S&P 500 over the last 10 years

(green and red denote earnings months)

Maximum and minimum monthly performance for the S&P 500 over the last 10 years

Source: Bloomberg, as of 4/8/2022.

Quick takes

Small caps: “I believe economic concerns and a quality bias will continue to weigh on small-cap equities and make it difficult to own the index,” Orton said. “This is definitely an area where being active is a must since dispersion is high across sectors and companies.”

Sentiment: From the American Association of Individual Investors Sentiment Survey: “Bullish sentiment, expectations that stock prices will rise over the next six months, decreased by 7.2 percentage points to 24.7%. The drop puts optimism at unusually low levels (below 27.9%) for the 10th time out of the last 13 weeks. Bullish sentiment levels are also below the historical average of 38.0% for the 20th consecutive week.”

Transportation: The downside may have seemed pretty benign across the market, but it has been anything but that for the transportation sector. The Dow Jones Transportation AverageTM has now meaningfully underperformed for two weeks in a row after putting in one of its worst days of relative performance on April 1. The transports average lagged the S&P 500 by 5.2% to end the first quarter and again lagged by 5.5% last week, and April 1 was its seventh-worst day against the broader market since the start of 1928. When looking at the 10 worst relative performance days in history, the results were pretty startling, Orton said.

“We typically only see this kind of price action after some of the most traumatic episodes in U.S. market and economic history,” he said. The only days that were even worse for transportation relative to the broader market than April 1 during that time period included the first day of trading after the terrorist attacks on 9/11; the first day of trading after the Oct. 13, 1989 mini-crash; the day after the Black Monday crash on Oct. 19, 1987; the day after the Black Tuesday crash on Oct. 29, 1929; a day in May 1948 six months before the economy went into recession; and a September day in 1953 when the economy was already recession.

22Dow Jones Transportation Average & Ratio of Dow Jones Transportation Average to S&P 500

Source: Bloomberg, as of 4/8/2022.

Any anomaly like this is worth following and the transportation sector definitely needs to be watched closely going forward, but Orton said he doesn’t think this is a harbinger of economic recession or significant market pain. Retail spending has been slowing (as expected) as consumers transition away from goods consumption toward services. Supply chain backlogs have also been a constant headwind for many of these companies. However, Orton said, the degree to which the index underperformed right around the end of the quarter feels more like a shift in asset allocation than something more pernicious. This, he said, fits with the defensive positioning of the market and a marked move away from cyclicality.

What to watch

Earnings season starts in earnest this week with a particularly busy calendar for large-cap financials, plus reports from companies in healthcare; airlines; used car sales; grocery stores; retail home goods; and cryptocurrency trading. There are also some important economic data releases, notably inflation data in the U.S.

This week's data releases

Monday China Industrial Sector Producer Price Index and Consumer Price Index; U.K. monthly gross domestic product
Tuesday U.S. Consumer Price Index
Wednesday U.S. Producer Price Index; U.K. Consumer Prices Index
Thusday U.S. retail sales, initial jobless claims; University of Michigan Index of Consumer Sentiment; European Central Bank policy decision
Friday Empire State Manufacturing Survey; U.S. industrial output

 

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

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%.

Defensive stocks provide consistent dividends and stable earnings regardless whether the overall stock market is rising or falling. Companies with shares considered to be defensive tend to have a constant demand for their products or services and thus their operations are more stable during different phases of the business cycle.

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.

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 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.

The Dow Jones Transportation Average is a 20-stock, price-weighted index that represents the stock performance of large, well-known U.S. companies within the transportation industry.

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.

The China Industrial Sector Producer Price Index (PPI) is released monthly by the National Bureau of Statistics of China and reflects the trend and level of prices change when the products are sold for the first time. The survey of industrial producers covers the prices of industrial products in 40 major industrial categories and more than 1,300 basic categories.

The China Consumer Price Index (CPI), released monthly by the National Bureau of Statistics of China, measures changes over time in prices of goods and services in eight categories and 268 basic divisions covering consumption by urban and rural residents, including food; tobacco and liquor; clothing; residential costs; household articles and services; transportation and communication; education, culture, and recreation; healthcare; and other articles and services.

The U.S. 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 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 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 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 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.

 

CTA22-0247 Exp. 8/11/2022


April 4, 2022: The low-hanging fruit has been picked

Equity investors welcomed the end of the first quarter following three months of volatile trading induced by a backdrop of persistently high inflation, rising rates, and a war breaking out between Russia and Ukraine.

“This is the kind of environment where it’s useful to remember the benefits of active management, and why it’s important not just to own the index, particularly in fixed income,” said Matt Orton, CFA, Chief Market Strategist at Carillon Tower Advisers. “Being able to have a different approach is really important. This environment highlights why good stock-picking can matter, especially as you go down the market cap spectrum, because there are a lot of stocks that you just don’t want to own right now.”

Despite what might sound like a very negative set-up, the S&P 500 Index closed down -4.6% for the quarter after staging a strong recovery over the past few weeks and. It was fixed income investors, however, who endured the most tumultuous quarter, with rate volatility jumping and the Bloomberg U.S. Aggregate Bond Index underperforming the S&P 500 with a -5.9% drop. Short-term rates moved incredibly quickly to start the year, and the asymmetry in positioning for higher yields has now diminished: Yields are now high and the market is very short. As a result, Orton said he expects to see some normalization in the short term. On the flip side, equities are moving into overbought territory and we’re likely to see some sideways trading or temporary weakness as we have only headlines to look forward to for the next few weeks until earnings season kicks off in earnest. He said he continues to advocate for using setbacks opportunistically and not chasing the market higher.

“I think the setup continues to look positive over the long term,” Orton said. “I think we’re probably due for a pause in the near term, because, as I look at the market across a number of different metrics, we look overbought. We’ve seen high-quality companies jump, and we’ve seen some of the junk surge higher as well. Now we’re at the point where there’s probably going to be a separation where I think the junkier, lower-quality companies struggle a bit more as we head into earnings season with analysts and investors focusing on the actual fundamental growth prospects.”

Orton said his central case for equities remains bullish because of corporate earnings growth, a consumer who remains willing to spend, abating negative sentiment, and a clean positioning backdrop. It’s also worth highlighting the case for equities during an inflationary environment, he said. Equities are a nominal asset, with earnings expressed in nominal terms. Stocks should benefit in the case of broad-based inflation, all else equal. He said there is some evidence of this holding true in a broad sense, with equity revenues much better correlated to the nominal gross domestic product rather than real gross domestic product. However, Orton said, margin compression certainly remains a risk, but companies have been navigating inflationary pressures very well over the past few quarters with S&P 500 margins holding up. This will be critical to follow during the upcoming earnings season.

Orton said he continues to favor large- and mid-cap equities over small, following another challenging quarter for the Russell 2000® Index. He said he also believes that high-quality tech still has room to recover given the massive multiple correction that occurred to start the year. Semiconductors have moved nicely, and he said he believes that software also is an area to watch in the short term, especially if earnings are strong. Healthcare also continues to improve, especially up market cap as large-cap biotechnology looks to be tracing out of a bottom formation. Orton said he doesn’t like homebuilding and associated sectors as they continue to unravel amid markedly higher mortgage rates. Overall, he said, there is plenty of opportunity but we must be careful not to chase the market higher and be willing to make tactical adjustments as the market narrative evolves rapidly.

Rapid rise in interest rates has dented investor sentiment

Rapid rise in interest rates has dented investor sentiment

Source: Bloomberg, as of 3/25/22.

But sentiment looks to have bottomed
Ratio of bulls to bears in American Association of Individual Investors Sentiment Survey

But sentiment looks to have bottomed, Ratio of bulls to bears in American Association of Individual Investors Sentiment Survey

Source: Bloomberg, American Association of Individual Investors, as of 3/31/22.

First quarter in review

It was a challenging quarter for equities where every style box ended in the red. Large caps once again outperformed small, but the performance gap narrowed from past quarters. Orton said it’s also worth noting that midcaps performed very close to large and outperformed small caps by nearly 2%. In fact, mid caps have held up remarkably well during environments when small was dramatically outperforming and also when large took the lead. Looking at style, value once again outperformed growth across all capitalizations by significant margins — more than 10% in mid- and small-caps. We’ve seen growth start to bounce off historically oversold levels relative to value and Orton said he expects this to continue, especially as we get to earnings season and are reminded that many high-quality companies have been thrown out with the bathwater. It’s also a reminder that the value trade, especially in the U.S., has become overextended. In fact, Orton said, the outperformance of growth since 2017 has been almost entirely eroded in small caps. The relative resiliency of mega-cap tech has helped to prevent such extreme moves in large.

2022 year-to-date returns
By market capitalization and style

Value Core Growth Value
Cap
Large -0.7% -5.1% -9.0% 8.3%
Mid -1.8% -5.7% -12.6% 10.8%
Small -2.4% -7.5% -12.6% 10.2%

Source: Bloomberg, as of 3/31/22.

The large, mid, and small categories shown here represent the core Russell market-cap indices — the Russell 1000® Index, Russell Midcap Index, and Russell 2000® Index, respectively — as well as each indice’s growth and value sub-indices.

What to watch

While earnings season kicks off in earnest next week, Orton said there are some important economic data releases this week, plus the minutes of the U.S. Federal Reserve’s Federal Open Market Committee, that bear watching.

This week's data releases

Monday U.S. factory orders, durable goods
Tuesday U.S. trade; Eurozone Services Purchasing Managers’ Index; France industrial output
Wednesday U.S. Federal Open Market Committee minutes; Russia Consumer Price Index; China Caixin Services Purchasing Managers Index; Eurozone industrial producer price index
Thusday U.S. initial jobless claims; Eurozone retail sales
Friday Japan balance of payments and trade consumer confidence

 

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.

Short is a term used to describe a strategy in which investors anticipate that prices of securities will fall in the short term, so, typically, they sell securities with plans to repurchase them later at a lower price.

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.

Nominal values refer to the current price without taking inflation or other factors into account as opposed to real values, which include adjustments changes in general price levels over time.

Nominal gross domestic product (GDP) is the total value of all goods and services produced in a specified time period, typically quarterly or yearly. Real GDP is nominal GDP adjusted for inflation.

The federal funds rate, known as the fed funds rate, is the target interest rate set by the Federal Open Market Committee of the U.S. Federal Reserve. The target is the Fed’s suggested rate for commercial banks to borrow and lend their excess reserves to each other overnight.

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.

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 Eurozone Services PMI (Purchasing Managers’ Index) is produced by IHS Markit and is based on original survey data collected from a representative panel of around 2,000 private sector service firms. National data are included for Germany, France, Italy, Spain, and the Republic of Ireland. These countries together account for an estimated 78% of Eurozone private sector services output.

The Russian Consumer Price Index, according to the Organisation for Economic Co-operation and Development, measures inflation as defined by the change in the prices of a basket of goods and services that are typically purchased by specific groups of households. Inflation is measured in terms of the annual growth rate and in index, 2015 base year with a breakdown for food, energy and total excluding food and energy.

The China Caixin Services Purchasing Managers Index is compiled from responses to questionnaires sent to purchasing executives in over 400 private service sector companies.

The Eurozone industrial producer price index (PPI) tracks transaction prices for the monthly industrial output of various economic activities in the European Union. The index measures price changes from the seller’s perspective and serves as an early indicator of inflationary pressures in the economy and records the evolution of prices over longer periods of time.

A balance of payments is a statement of all transactions in goods and services made between all individuals, companies, and government agencies in one country and the rest of the world over a defined period, such as a quarter or a year.

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 Bloomberg U.S. Aggregate Bond Index is composed of the total U.S. investment-grade bond market. The market-weighted index includes Treasuries, agencies, commercial mortgage-backed securities (CMBS), asset-backed securities (ABS) and investment-grade corporates.

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 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 93% 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.

The Russell 3000® Index measures the performance of the 3,000 largest U.S.-traded stocks, which represent about 97% of the total market capitalization of all U.S. incorporated equity securities.

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.

“Bloomberg®” and the Bloomberg U.S. Aggregate 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’s Markets in Focus Weekly Insights. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Carillon’s Markets in Focus Weekly Insights.” and the Bloomberg U.S. Aggregate 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’s Markets in Focus Weekly Insights. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Carillon’s Markets in Focus Weekly Insights.

 

CTA22-0236 Exp. 8/4/2022