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Perspectives

Risk / Reward Not Favorable

by Fortem Financial May 22, 2023

Stocks were higher last week (S&P 500 +1.6%), lead once again by the tech-heavy NASDAQ (+3.0%). YTD NASDAQ is +20.9%, S&P 500 +9.7% and DJIA +0.8%. The S&P 500 broke above 4200 for the first time since last August. The news backdrop featured seemingly positive progress on the debt ceiling negotiations. Best sectors were technology (+4.2%) and communication services (+3.1%); worst sectors were utilities (-4.4%) and real estate (-2.4%).

While we are reasonably certain that inflation has peaked for this cycle, we also believe that inflation is likely to remain stubbornly high for structural reasons. The most important implication of that for investors is the Fed will be unable to subsidize the cost of capital for Uncle Sam and Corporate America at large. Theoretically, this should be a boon to active managers who can feast on a greater dispersion between strong and weak companies. The “everyone gets a trophy” era of capital is over. In the short term, however, the increasingly narrow nature of market leadership is problematic for the active manager. Together, Apple and Microsoft are valued at almost double the combined market capitalizations of the entire Energy and Materials sectors. Apple itself is worth more than the Russell 2000 and J.P. Morgan is worth more than all publicly traded regional banks. The irony in this is that it renders the chief virtue of indexation and passive investing – risk diversification – moot. In truth, we do not know what the catalyst for a change in this dynamic will be. We do think it is important to remember, however, that in a recession, everything – from breakfast cereal to cloud computing - becomes cyclical. A company previously perceived to be unassailable can look vulnerable. The greatest differences in the performance between the market cap and equally weighted sectors can be found in Communications, Technology, and Consumer Discretionary.

The Market is dislocated now, and we are more concerned with what will happen in the next few months so we are staying conservative with our allocation at this time. Here is a good chart on where we are at as to the possibility of an upcoming recession if we are not already there now.

7 of the 8 Items on Our Economic Team's Recession Checklist are Marked Off

Source: Strategas

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by Refinitiv.

Market and Index Changes for the Week Ending 5-19-23

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

 

Latest News

 

Fed's Kashkari: "Close call" on June rate hike or pause - CNBC

Minneapolis Federal Reserve President Neel Kashkari on Monday said it was a "close call" on whether he would vote to raise interest rates at the central bank's meeting next month or take a pause and leave rates where they are.

Reuters

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Analysis: G7's nuanced pledge to 'de-risk' from China reflected concerns from Europe and Japan

TOKYO, May 22 (Reuters) - The leaders of the Group of Seven (G7) rich democracies this weekend pledged to "de-risk" without "decoupling" from China, an approach that reflected European and Japanese concerns about pushing Beijing too hard, officials and experts said. U.S.

Reuters

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Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

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