The speed of the reflation through 1H21 increases the odds that 2H21 will see decelerating growth and inflation (with increased volatility)
Continued deceleration expected in year-over-year growth and inflation, but absolute inflation level still expected to be elevated in 2022
Global manufacturing activity improved at a slower pace in August with developed countries fairing significantly better than emerging countries
65% of U.S. population has had at least one dose whereas 56% are fully vaccinated
Industrial production and leading indicators have peaked as base effects have waned
Trend of U.S. unemployment claims and equity drawdowns begs question: will this cycle peak before the labor market is healed?
Global inflation remains elevated due to higher commodity input costs, labor tightness, housing prices, etc.
Price increases have decelerated ahead of indicators, but trend remains intact; capacity utilization has started to normalize
Market-implied inflation expectations remain elevated; the market may be starting to question the “transitory inflation” narrative
Real yields have continued to trend lower; gold was rallying, but weakness continues after initial selloff on July Payrolls data
Relative rate expectations are getting dramatic, driving dollar strength in recent months
Expansion continues – three-month average increase of $92 billion brings Fed balance sheet to a staggering $8.4 trillion
U.S. large cap stocks fell the most in September as interest rates rose and valuations remain higher than in international and emerging markets
FAAMG underperformed S&P 500 ex-FAAMG by 4% in September
FAAMG underperformed S&P 500 ex-FAAMG by 4% in September
The VIX rose over 30% in September as the S&P 500 declined just 4% from its all-time high
Unprecedented policy support has helped 2021 become one of the least volatile years for stocks in half a century
U.S. equity valuations remain stretched, but strong earnings growth has closed the gap dramatically since the start of the year
Cyclically-adjusted P/E (CAPE) multiples by country; >4% yields in Turkey, Russia, Brazil and United Kingdom
In recent pullback, equity sentiment dropped sharply from high levels; sentiment is no longer a near-term risk factor
Value has outperformed growth since the vaccine announcement; growth’s recent outperformance may be a sign of the trend reversing
Growth valuations remain substantially elevated versus history, value valuations below average
EM equities remain relatively cheap vs. developed markets, but “value trap” risk remains due to less policy support and slowing growth rates
The weight of technology and consumer discretionary stocks in the S&P 500 fell slightly to 39% in September, still near record high
Renaissance IPO Index fell in September and is now 16% off of ATH, S&P 500 is down 4% from its ATH
High yield bonds and bank loans held up well in September, outperforming other fixed income and credit categories
Treasury yields rose in September as inflation remains elevated and treasury issuance is expected to accelerate in 4Q
The Treasury yield curve has steepened modestly year to date
3-month/ 10-year treasury spread widened in September potentially on supply and inflation concerns
Muni-treasury ratio: short-term muni yields look relatively attractive while LT munis are only slightly above Treasuries on a taxable-equivalent basis
Mortgage rate spread vs. 10-yr Treasury narrowed in September
Credit spreads below median across sectors with very few pockets of opportunity
Credit spreads were mixed in September, broadly remain near June lows
High yield-to-IG muni spreads near tightest levels since 2007
High yield spreads through the COVID-19 crisis speak to episodic nature of volatility
Performance across real assets was mixed in September
Crude and gas inventories rose modestly but remain near lowest levels in 5 years
As expected, the snapback in energy consumption is outpacing production; production may match consumption in 1Q 2022
Putting the rally in broad commodities in context
Real yields and aggregate amount of global negative yielding debt fell in September, gold weakness continued
Closed-end funds showed weakness in September but are still outperforming the opportunistic space year-to-date
CEF discounts widened in September, remain >1 σ above average
CEF discounts mixed by sector, taxable bond CEFs still trading at a premium
U.S. Dollar Index will be driven by real yields and relative deficit and monetary policy expectations of Fed, ECB, BoJ
Modest improvement in twin deficit may be providing some support for USD
Futures spec positioning shows shorts in several commodities, U.S. tech positioning (NASDAQ) turned bearish in September
Copper/Gold ratio corroborated the local high in Treasury yields, potentially signaling an increase in rates
Expected returns for passive “60/40” portfolio near all-time low
The case for a structural change to strategic 60/40 allocations
S&P 500 Index: Widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.
MSCI ACWI: (ACWI: All Country World Index) a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
MSCI EAFE Index: (EAFE: Europe, Australasia, Far East) a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
MSCI EAFE Small Cap Index: (EAFE: Europe, Australasia, Far East) a free floatad justed market capitalization index that is designed to measure the small cap equity market performance of developed markets, excluding the US & Canada.
MSCI EM Index: A free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.
Russell 1000 Index: Measures the performance of the 1,000 largest companies in the Russell 3000.
Russell 2000 Index: Measures the performance of the 2,000 smallest companies in the Russell 3000 Index.
Russell 3000 Index: Measures the performance of the 3,000 largest U.S. companies based on total market capitalization.
Cambridge Associates U.S. Global Buyout and Growth Index: Based on data compiled from 1,768 global (U.S. & ex – U.S.) buyout and growth equity funds, including fully liquidated partnerships, formed between 1986 and 2013.
Cambridge Associates Private Equity Index: Based on data compiled from 1,468 U.S. private equity funds (buyout, growth equity, private equity energy and subordinated capital funds), including fully liquidated partnerships, formed between 1986 and 2017.
Cambridge Associates Venture Capital Index: Based on data compiled from 1,807 US venture capital funds (1,161 early stage, 210 late & expansion stage, and 436 multistage funds), including fully liquidated partnerships, formed between 1981 and 2018.
Bloomberg Barclays U.S. Aggregate Bond Index: A broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixedrate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays Global Aggregate Index: A multi-currency measure of global investment grade debt from twenty-four local currency markets. This benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Global Aggregate ex-USD Index: A multi-currency measure of investment grade debt from 24 local currency markets. This benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Bonds issued in USD are excluded.
Bloomberg Barclays Municipal Index: Consists of a broad selection of investment- grade general obligation and revenue bonds of maturities ranging from one year to 30 years. It is an unmanaged index representative of the taxexempt bond market.
Bloomberg Barclays US High Yield Index: Covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.
Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index: Includes all publicly issued zero-coupon US Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible.
J.P. Morgan Emerging Market Bond Global Index (EMBI): Includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.
Alerian MLP Index: A composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for the asset class.
Bloomberg Commodity Index: Composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc
S&P Global Ex-U.S. Property Index: Measures the investable universe of publicly traded property companies domiciled in developed and emerging markets excluding the U.S. The companies included are engaged in real estate related activities such as property ownership, management, development, rentaland investment
MSCI US REIT Index: A free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). The index is based on the MSCI USA Investable Market Index (IMI), its parent index, which captures the large, mid and small cap segments of the USA market. With 150 constituents, it represents about 99% of the US REIT universe and securities are classified under the Equity REITs Industry (under the Real Estate Sector) according to the Global Industry Classification Standard (GICS®), have core real estate exposure (i.e., only selected Specialized REITs are eligible) and carry REIT tax status.
Cambridge Associates Private Real Estate Index: Based on data compiled from 1,001 real estate funds (including opportunistic and value-added real estate funds), including fully liquidated partnerships, formed between 1986 and 2017.
S&P Global Infrastructure Index: Designed to track 75 companies from around the world chosen to represent the listed infrastructure industry while maintaining liquidity and tradability. To create diversified exposure, the index includes three distinct infrastructure clusters: energy, transportation, and utilities.
LBMA Gold Price Index: The global benchmark prices for unallocated gold and silver delivered in London. ICE Benchmark Administration Limited (IBA) operates electronic auctions for spot, unallocated London gold and silver, providing a market-based platform for buyers and sellers to trade. The auctions are run at 10:30am and 3:00pm London time for gold and at 12:00pm London time for silver. The final auction prices are published to the market as the LBMA Gold Price AM, the LBMA Gold Price PM and the LBMA Silver Price benchmarks, respectively. The price formation for each auction is in US Dollars.
HFRI Indices: Equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 4 main strategies, each with multiple sub strategies. All singlemanager HFRI Index constituents are included in the HFRI Fund Weighted Composite, which accounts for over 2200 funds listed on the internal HFRDatabase.
HFRI Equity Hedge Index: Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities. EH managers would typically maintain at least 50% exposure to, and may in some cases beentirely invested in, equities, both long and short.
HFRI Event Driven Index: Investment Managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments.
HFRI Relative Value Index: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities.
HFRI Credit Index: A composite index of strategies trading primarily in credit markets. It is an aggregation of following 7 HFRI sub-strategy indices. HFRI ED: Credit Arbitrage Index, HFRI ED: Distressed/Restructuring Index, HFRI ED: MultiStrategy Index, HFRI RV: Fixed Income-Asset Backed Index, HFRI RV: Fixed Income-Convertible Arbitrage Index, HFRI RV: Fixed Income-Corporate Index, and HFRI RV: Multi-Strategy Index.
HFRX Short Bias Index: Short-Biased strategies employ analytical techniques in which the investment thesis is predicated on assessment of the valuation characteristics on the underlying companies with the goal of identifying overvalued companies. Short Biased strategies may vary the investment level or the level of short exposure over market cycles, but the primary distinguishing characteristic is that the manager maintains consistent short exposure and expects to outperform traditional equity managers in declining equity markets.
HFRX Macro/CTA Index: Macro strategy managers trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long and short-term holding periods.
HFRX Equity Hedge Index: Equity Hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of strategies can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. Equity Hedge managers would typically maintain at least 50% and may in some cases be substantially entirely invested in equities, both long and short.
ASSET CLASS DEFINITIONS
Asset class performance was measured using the following benchmarks unless stated otherwise:
U.S. Large Cap Stocks: S&P 500 TR Index
U.S. Small & Micro Cap Stocks: Russell 2000 TR Index
Intl Dev Large Cap Stocks: MSCI EAFE GR Index
Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index
U.S. Interm-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond
U.S. Interm-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index
U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index
U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index
Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index
Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index
U.S. REITs: MSCI U.S. REIT GR Index
Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index
Commodity Futures: Bloomberg Commodity TR Index
Midstream Energy: Alerian MLP TR Index
Gold: LBMA Gold Price
U.S. 60/40: 60% S&P 500 TR Index 40% Bloomberg Barclays U.S. Aggregate
Bond TR Index
Global 60/40: 60% MSCI ACWI GR Index 40% Bloomberg Barclays Global
Aggregate Bond TR Index
Alpha: The excess return generated by an active manager or fund relative to its benchmark.
Bear Market: A bear market is a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Although figures vary, a downturn of 20 percent or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over a two-month period is considered an entry into a bear market.
Bull Market: A bull market is the condition of a financial market of a group of securities in
which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies and commodities. Because prices of securities rise and fall essentially continuously during trading, the term “bull market” is typically reserved for extended periods in which a large portion of security prices are rising.
Credit Spread: A credit spread is the difference in yield between a US Treasury bond and a debt security with the same maturity but of lesser quality.
Default Rate: The default rate is most commonly referred to as the percentage of loans that have been charged off after a prolonged period of missed payments.
Excess Returns: A security’s return minus the return from another security in the same time period.
Full Employment: The condition in which virtually all who are able and willing to work are employed.
Implied Volatility: The estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.
Large Cap: Sometimes “big cap”, refers to a company with a market capitalization value of more than $10 billion. Large cap is a shortened version of the term “large market capitalization.” Market capitalization is calculated by multiplying the number of a company’s shares outstanding by its stock price per share.
Long/Short Equity: Long-short portfolios hold sizeable stakes in both long and short positions in equities and related derivatives. Some funds that fall into this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover through bottom-up research. Some funds may simply hedge long stock positions through exchange traded funds or derivatives. At least 75% of the assets are in equity securities or derivatives.
Price-to-Earnings (P/E) Ratio: The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio can be calculated as: Market Value per Share/Earnings per Share.
Price-to-Book (P/B) Ratio: The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. Also known as the “price-equity ratio.
Sharpe Ratio: The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. It also known as the Reward-to-volatility Ratio.
Shiller P/E: Valuation measure that takes into consideration the price and cyclicallyadjusted earnings of a security, adjusted for inflation.
Small Cap: Small cap stocks are generally defined as the stock of publicly traded companies that have a market capitalization ranging from $300 million to about $2 billion. Small cap stock companies often have a high stock price. It’s the number of available shares that make them “small.”
Spread Changes: Changes in the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
Standard Deviation: Measures the historical dispersion of a security, fund or index around an average. Investors use standard deviation to measure expected risk or volatility, and a higher standard deviation means the security has tended to show higher volatility or price swings in the past.
Yield: The income produced by an investment, typically calculated as the interest received annually divided by the investment’s price.
Yield-to-Duration: A ratio used in fixed income investing to compare the amount of return (yield to maturity) an investor is receiving per unit of duration or interest rate risk.
Z-score: A Z-score is a numerical measurement of a value’s relationship to the mean in a group of values. A Z-score of 0 represents the score as identical to the mean score. Positive and negative scores reflect the number of standard deviations that the score is either above or below the mean, respectively.
Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any macroeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.
This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this
report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are
forward-looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and
Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been
adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund,
manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the reinvestment of all dividends and interest.
The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any
security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the
investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.
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