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CWG Investment Committee: Spring Has Arrived! Thumbnail

CWG Investment Committee: Spring Has Arrived!

The gusty winds of March have come and gone. Living up to its reputation, March, named after Mars the Roman god of war, witnessed the Ukraine - Russian conflict play out in real time. Sad tales of crumbled cities combined with growing inflationary effects has divided the world into two major spheres of influence, putting more strain on supply chains and provoking less trust in free trade. 

Stocks seemed to have found a double bottom with higher lows on March 8th and March 11th. Bearish investor sentiment peaked on March 16th with 49.8% Bears and only 22.5% Bulls, according to AAII.

The S&P 500 rallied as much as 9% in 10 days during March, erasing much of the year-to-date loss. The stock market rally was strong and surprising, considering rising inflation plus rising interest rates on both the short and long end of the yield spectrum.

Consumer confidence, according to the University of Michigan survey, plunged to 59.4 down from over 100 just three years ago.

AGG - the iShares Aggregate Bond Index sold off 6.11% YTD, representing a greater decline than the S&P 500, -4.28% YTD. Energy and utilities have been havens for the bulls as are gold and other commodities.

The Russian invasion has caused a rethink of the wholesale embrace by the EU and the Biden Administration away from fossil fuels at breakneck speed. Foreign competitors and enemies are taking advantage of the West's plan for a "pollution free" planet. Eighty percent of energy we use on earth is still provided by fossil fuels. More realistic green energy planning by the US and other allies may need to occur while technology catches up. 

Reality knocked loudly as even Germany with 67% reliance on Russian energy resources has promised to pay it's 2% share of GDP into NATO coffers and send more than blankets to war-torn Ukraine.  

While Putin's brutal assault on Kyiv has stalled so far, he commits war crimes with impunity. Our former close allies in the Middle East, namely the UAE and Saudi Arabia will not help the Biden Administration while it tries to work a new treaty with Iran. President Biden has therefore tapped 1 million barrels of oil per day from the US Strategic Reserve to help lower prices at the pump and stave off a November rout by Republicans in mid-term elections.

The yield curve has begun to invert, that is, short-term interest rates are higher than long-term interest rates, possibly signaling a recession months into the future. Two-year UST notes yield 2.46 % while 10-year UST bonds yield 2.43%.

What does this all mean for investments?

  1. Bonds are likely to underperform stocks as the Fed is forced to deal with 7.9% inflation vs a 2% target. 
  2. Stocks can protect against rising inflation if it does not ratchet up too dramatically.
  3. The Fed must avoid panicked tightening so as not to cause as recession.
  4. Alternative investments like gold, commodities, real estate, as well as buffered investments can steady a portfolio.
  5. The current P/E ratio of 20.03 times the $227.8 FactSet 2022 earnings estimate is likely as high as it will get until the fogs of war, inflation and the Fed tightening cycle clear.  

Enjoy the spring weather and please feel free to set up a review if you have questions or concerns.

Crown Wealth Group Investment Committee
Doug Coppola - Executive Director & Investment Committee Chairman
Steve Lindgren - Chief Investment Officer & Partner
Bob LeBeau - Research Director & Investment Committee Executive