August Market View

By Argent Wealth Management, LLC on August 1, 2023

Conclusions

• It is a bull market for stocks until proven otherwise.  Expect all time highs from various indices.
• Inflation continues to come down, and the job market has stayed resilient.
• The main risk is the Fed has or will tighten too much and this could eventually cause a recession.
• Near-term, investors have become complacent, and we are in a weak seasonal time of year.  Do not be surprised to see volatility climb before the rally continues in q4.

S&P 500

• The S&P 500 is up ~30% since the October 2022 low.  It is about 6% away from all time highs. 
• If the bull market continues new highs are more likely than not.

ACWI (All Cap World Index)

• The ACWI is up ~30% since the October 2022 low.  It is about 9% away from all time highs. 
• If the bull market continues new highs are more likely than not.

Small Cap Stocks

• The Russell 2000 index of small cap stocks is up ~18% since the October 2022 low.  It is about 25% away from all time highs. 
• If the bull market continues new highs are more likely than not.

Seasonality

• The stock market tends to exhibit seasonal patterns.
• The blue line represents what a forecast of historical seasonal patterns would portend for the S&P 500.
• The dotted orange line is what has happened.
• This chart would suggest investors should expect some seasonal weakness until we approach year-end.

Sentiment

• The NDR crowd sentiment poll went from pessimistic, where equity returns are the greatest, to optimistic, where equity returns are more muted.
• This only strengthens the case that investors should expect some seasonal weakness in the next few months.

Valuations

• Valuations look reasonable, especially for small cap stocks relative to the S&P 500.

Earnings Estimates

• Earnings per share estimates for the next twelve months (NTM) continue to increase.

Employment Situation

• There remains ~1.6x the amount of job openings per unemployed in the U.S., suggesting there remains more demand than supply for labor.
• Simultaneously, wage growth is decreasing.
• A tight labor market is supportive of economic growth.
• Wage growth declining supports inflation declining.

Credit Conditions

• The availability of credit to consumers and businesses is improving. 
• If a recession was imminent, credit conditions would be worsening.

Inflation

• The job market remains robust, credit conditions are improving, and inflation is on a downward trajectory.

The Federal Reserve

• Currently, investors expect the Fed to potentially increase the FFR one more time, and then stay above 5% for the foreseeable future.
• We have still not seen the full effects of the fastest tightening cycle in history on the economy. A recession could still be looming in 2024.
• However, the Fed has more room to lower rates than they have had since 2001, the last time the FFR was this high.

Overall Stimulus

• The Fed has tightened significantly since March of 2022, but overall stimulus (both fiscal and monetary) is trending positively again, partially due to COLA (Cost of Living adjustments) for social security.
• When this measure is above 8.8, as it is now, stocks gain 16.4% per annum since 1/31/1974.

The Consumer and the Economy

• Consumption is about 70% of GDP in the U.S.  The U.S. consumer has had higher than normal excess savings.  A major reason for this was extraordinary stimulus during the COVID-19 pandemic.  After tax disposable income remains robust and is trending positively.
• Therefore, the economy could stay resilient and even grow despite the fastest tightening cycle in history.

Balance Sheets

• Confirming consumer strength, financial obligations ratio and debt service ratio remains low relative to history.
• Consumers remain in good shape.

Yield Curve

• The yield curve is inverted (short-term yields are generally higher than long-term yields).
• Historically this portends a recession.
• The yield curve is also a reflection of inflation expectations.  Investors expect inflation to be high in the short-term and come down longer-term.

Appendix

Market History Chart: Bear Markets

• We were about here in October, when the S&P 500 hit its recent low.  (See Yellow Circle)
• The average for a “cyclical bear within secular bull.”
• Averages are calculated on the bottom left.
• Green dots are associated with shallow bear markets, red dots with deep bear markets, and the black square is the average.

U.S. Dollar

• Questions have come up recently due to media attention on the prospects that the U.S. Dollar could lose its global currency reserve status.
• This seems unlikely given that 88.4% of all forex transactions occur in U.S. Dollars.
• Most countries do not have a relatively stable currency, freedom, democracy, transparent stock and bond markets, rule of law and enforced property rights like the U.S. 
• The best hedge long-term to fiat currencies, and government mismanagement might turn out to be Bitcoin (next section).

Bitcoin, Cryptocurrency, and Blockchain Technology

• Bitcoin as a monetary good.
• Money is durable, divisible, fungible, portable, verifiable, and scarce. 
• Bitcoin possesses the scarcity and durability of gold, with the ease of use, storage, and transportability of fiat (even improving on it). 
• Only 21 million bitcoins will ever be created.  Inflation rate is set, as opposed to Fiat, where no one knows the inflation rate.
• It allows the oppressed, underbanked, and those around the world living in unstable currency or political regimes (over 80% of the world) to have more control of their life.
• ESG:  For review on the case that BTC is an ESG asset, see articles by Daniel Batten and his team: https://bitcoinmagazine.com/authors/daniel-batten

• It is a decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.
  • Triple entry bookkeeping system.  http://financialcryptography.com/mt/archives/001325.html

• Users have full control over their money with no government or central authority.
• Transactions are secure, irreversible, and do not contain any personal information. 

Argent Investment Strategies

www.argentwm.com/investment-strategies.html

• Macro Asset Allocation (for over 25 years).
  • ETF & Mutual Fund versions
    • Tactical Macro Strategy

• Argent Stock Strategies – Focused on long-term societal and macro trends (since 2012).
  • High Dividend
  • Value
  • Growth
  • Long/Short

• Private Equity and Real Estate (since 2006)

For fact sheets and performance, please reach out to acook@argentwm.com

Biography

Matt Sapir Ristuccia, MBA, CFA
Chief Investment Officer

Matt is Argent’s Chief Investment Officer (CIO).  Matt joined Argent in 2011 as an Analyst.  In 2013 Matt was named Director of Investment Research, and in 2017 Matt was named Co-CIO before being named CIO in 2019.

 As the CIO, Matt leads all aspects of Argent’s investment programs and processes.  This includes setting the direction and oversight of internal and external asset allocation strategies, equity strategies, fixed income strategies, and private equity and private real estate investments. 

Matt joined Argent in 2011 after graduating summa cum laude (top 5% of class) from Olin Graduate School of Business at Babson College where he also received The Student Leadership Award.  Matt completed all three levels of the CFA program in 2011 as well.  The CFA Designation is globally recognized as the highest set of credentials in the investment management industry.  In 2017 Matt completed the Investment Management Workshop at Harvard Business School (HBS).  Started in 1968, this selective executive education program brings together leading HBS faculty with leading investment executives from around the world and focuses on investment and business strategy. 

At Babson Matt was selected to help manage Babson’s Endowment specializing in healthcare stocks.  During this time Matt worked closely with the head of this program who was the former Head of U.S. Equity Research at Fidelity.  Matt received his B.A. from Wheaton College where he was a First Team All-New England soccer player and helped lead the team to a final four appearance in 2003.  Before attending Olin and after graduating in 2005, Matt worked with his grandfather, Louis Sapir, an esteemed disciple of Benjamin Graham, “the father of value investing.”

Email: mristuccia@argentwm.com

Disclosures

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