The Fed gets a breather
For the time being, attention has turned from the Fed, and all eyes are on the President and Congress, as the game of chicken regarding the debt ceiling takes us perilously close to the unthinkable. And with the headline inflation print coming in at 4.9%, below March’s 5.0% number and slightly below expectations, it does appear that the heavy lifting by the Fed is behind us. In fact, the futures markets are assigning a 91% probability that Powell and Co. will be in easing mode by December, reflecting growing evidence of a slowdown that can be seen in both business and consumer sentiment. Curiously, while small business optimism is near a decade low, job openings at those very same companies remain near their all-time highs.
For the gainfully employed, job switching and the newfound flexibility that many positions now offer, post-pandemic, has led to the happiest workforce in history, which would seemingly be a boon for productivity going forward. As higher productivity is anti-inflationary, that would help support the “easing” scenario, although, to be fair, output per hour in recent quarters has been stuck in the red, so the happiness = productive concept may be more theoretical.
After two months of declines in retail spending, the consumer bounced back in April, with growth in auto sales and dining out, according to the Commerce Department. So while economic growth may be waning, there is still hope for the soft landing scenario.
Thus far in May, the smallest names, which have struggled year-to-date, are rebounding, with the Russell Microcap Index up 2.4% through the 17th. Growth stocks across the market cap spectrum are also having a solid month, with large-cap growth stocks up about 2% and small-cap growth names gaining about 1%. With better-than-expected Q1 earnings, analysts are starting to lift their second-half earnings estimates, which is certainly giving equities a boost. But on the other end, REITS (-2.5%) continue to suffer in what is an increasingly difficult environment, especially for the office sector.
In the bond market, the yield on the 10-year Treasury is at 3.57%, which is about where it began the month, but despite what that may imply, the month of May has not been kind to fixed-income investors. The overall market is down 0.9%, and every major fixed-income sector is in the red, with long-term Treasuries off by almost 3%. To end on a positive note, managed futures funds have been well positioned; all of the funds that we utilize are up for the month, offsetting some of the losses in fixed income.
Past performance is no guarantee of future returns. Performance discussed represents total returns that include income, realized and unrealized gains, and losses. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any type of securities, and no investment decision should be made based solely on information provided herein. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for an s investor’s financial situation or risk tolerance. Diversification and asset allocation do not ensure a profit or protect against a loss. All performance results should be considered in light of the market and economic conditions that prevailed at the time those results were generated. Before investing, consider investment objectives, risks, fees, and expenses. Frontier may modify its process, opinions, and assumptions without notice as data is analyzed.
Information provided herein reflects Frontier’s views as of the date of this newsletter and can change at any time without notice. Frontier obtained some of the information provided herein from third-party sources believed to be reliable. Still, it is not guaranteed, and Frontier does not warrant or guarantee the accuracy or completeness of such information. The use of such sources does not constitute an endorsement. Frontier’s use of external articles should in no way be considered a validation. The views and opinions of these authors are theirs alone. Reader accesses the links or websites at their own risk. Frontier is not responsible for any adverse outcomes from references provided and cannot guarantee their safety. Frontier does not have a position on the contents of these articles. Frontier does not have an affiliation with any author, company, or security noted within. Frontier reserves the right to remove these links at any time without notice.
Exclusive reliance on the information herein is not advised. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Assumptions, opinions, and estimates are provided for illustrative purposes only. They should not be relied upon as recommendations to buy or sell any securities, commodities, treasuries, or financial instruments of any kind. This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, accounting, legal, investment, or tax advice. Frontier does not directly use economic data as a part of its investment process.
Certain information contained in this presentation has been obtained from third parties. While such information is believed to be reliable for purposes used herein, no representations are made as to the accuracy or completeness thereof and none of Frontier Asset Management or its affiliates take any responsibility for such information. Certain information contained in this presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.
In reviewing the performance information presented here, we recommend that you consider both the returns generated and the level of risk that was assumed in generating those results. We believe that performance information cannot be properly assessed without understanding the amount of risk that was taken in delivering that performance.
Frontier provides model strategies to various investment advisory firms and does not manage those models on a discretionary basis. The performance and holdings of model strategies may vary from strategies managed by Frontier.
© Morningstar 2023. All rights reserved. Use of this content requires expert knowledge. It is to be used by specialist institutions only. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied, adapted, or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information, except where such damages or losses cannot be limited or excluded by law in your jurisdiction. Past financial performance is no guarantee of future results.
It is generally not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third-party investable instruments (if any) based on that index.
Frontier Asset Management, LLC is a Registered Investment Advisor. Frontier’s ADV Brochure and Form CRS are available at no charge by request at email@example.com or 307.673.5675 and are available on our website www.frontierasset.com. They contain important disclosures and should be read carefully.
|ASSET CLASS||INDEX||INDEX DESCRIPTION|
|U.S. Microcap Equity||Russell Microcap||Measures the performance of the microcap segment of the US equity market.|
|U.S. Small Cap Equity||S&P 600||Measures the small-cap segment of the U.S. equity market.|
|U.S. Large Cap Equity||S&P 500||Represents US large company stocks.|
|Long-Term Treasuries||Morningstar US 10+ Yr Treasury Bond||Measures the performance of fixed-rate, investment-grade USD-denominated Treasury bonds with maturities greater than ten years.|
|U.S. REITS||FTSE NAREIT Equity REIT||A free-float adjusted, market capitalization-weighted index of U.S. equity REITs.|