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Topical Research – U.S. Equity Trends

- June 30, 2022

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PRICES AND TECHNICALS

U.S. EQUITY RETURNS

The U.S. equity selloff has been broad-based in 2022 with stocks entering bear market territory in June

MARKET RETURNS AND DRAWDOWNS

The S&P 500 is currently 20% from its all-time high, marginally worse than the average drawdown of 15% over the last 50 years

U.S. EQUITY SECTOR RETURN QUILT

Energy has been the clear outperformer year-to-date, but has been the worst performer over the past 10-years

Defensives have unsurprisingly been the top performing factor for the year-to-date, while small caps have been battered

S&P 500 SECTOR WEIGHTS

In the S&P 500, technology and comm services squeezed out traditional value sectors like energy & financials for much of the last decade

S&P 500 VS. TOP 5

GAMMA (formerly FAAMG) has underperformed S&P 500 ex-GAMMA by over 14% for the year-to-date

GROWTH VS VALUE

Large cap growth remains the top-performing long-term style box; growth has underperformed YTD, with large cap outperforming small cap

Value generally outperforms during risk-off periods, similar pattern playing out recently; small cap growth down over 30% from peak

Value has outperformed growth year-to-date, but over the rolling five-year period still trails substantially

EARNINGS AND VALUATIONS

CALENDAR

S&P 500 VALUATIONS

S&P 500 forward valuations have come in substantially due to sell-off but remain elevated relative to history; focus now shifts to actual earnings

U.S. equity valuations approach longer-term average, as strong earnings growth and current bear market drawdown dramatically closes valuations

VALUATIONS VS FORWARD RETURNS

Forward P/Es have no predictive power for one-year forward equity returns, but have been reasonably predictive over longer time horizons

EQUITY RISK PREMIUM

A loose correlation exists between the S&P 500 equity risk premium and 1- year forward returns; S&P 500 equity risk premium currently at 2.7%

A loose correlation exists between the S&P 500 equity risk premium and 1- year forward returns; S&P 500 equity risk premium currently at 2.7%

SALES & EARNINGS GROWTH

Sales and earnings growth expected to decelerate but remain healthy in 2022; impact of inflation is a wild card

SENTIMENT

SPRINGTIDE EQUITY SENTIMENT COMPOSITE

US equity sentiment has rebounded to 24.4% from 12.8%, the lowest level since the GFC; extreme low readings have historically been good buying opportunities

Average forward returns have been significantly higher when composite reading <30%; short-term range of returns however remains unpredictable

S&P 500 MOVING AVERAGE

The percentage of stocks trading above their 200-Day M.A. crossed above 15% (currently 16.2%); previously moves back above 15% have provided good buying opportunities

CONSUMER SENTIMENT

UofM Consumer Sentiment cratered to 50 in June, the lowest reading since the inception of the survey, as inflation eats into households purchasing power

CONSUMER CONFIDENCE

Consumer Confidence has trended lower over the past year, but remains elevated relative to consumer sentiment

SENTIMENT VS CONFIDENCE

Historically, when Consumer Sentiment is at extreme lows relative to Consumer Confidence, U.S. equity performance has been poor; currently at record lows

APPENDIX

VALUATIONS (TRAILING 12-MONTH PRICE/EARNINGS RATIO)

DISCLAIMER

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 microeconomic 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 economic cycle.

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-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.