When J.H. Powell speaks, people listen
The Fed concluded its virtual Jackson Hole meeting last week and the comments from Chairman Powell were well received. Powell reiterated the position that inflationary pressures are transitory, as they are limited to sectors most affected by the pandemic. He also commented that the longer-term pattern of low inflation due to technological advancement, demographics, globalization, and the “…commitment of central banks to maintain price stability”, is likely to resume.
It is now expected that the Fed will begin tapering its bond buying activities by year end, but that actual rate hikes will be on hold for quite some time. The market interpreted Powell’s comments to mean that inflation will be allowed to run a bit hot, and thus, inflation sensitive sectors, e.g., energy, materials, mining, as well as small caps in general (as measured by the Russell 2000 Index), ended the week on a strong note.
With the beginning of September comes the return to the classroom for most school age children and the end of Federal emergency unemployment benefits of an extra $300 per week for roughly 11 million people. Both events are expected to attenuate the jobless situation, which companies of all sizes, but especially smaller, service-based firms eagerly welcome. There are still about 6 million fewer people employed today compared to February of 2020, according to the U.S. Bureau of Labor Statistics, so getting those people back to work is a priority to keep the economy humming.
With the easy earnings comparisons now behind us, fund managers are becoming much less optimistic about earnings growth from here (in stark contrast to sell side analysts), which is reasonable given the expected deceleration of top line growth and increasing pressures on margins.
Investors wooed by the red-hot SPAC (Special Purchase Acquistion Company) market may be experiencing buyer’s remorse, according to recent research from JP Morgan. SPACs have been great for sponsors, the investment banks who help create and sell them, and for arbitrageurs, but not so much for actual shareholders. Shocking, I know.
Investor enthusiasm for this market, as well as fear of the short-squeeze-happy reddit mobs, has kept short sellers on the sidelines, matching the early 2000 low…and a hush falls over the crowd.
Corporate America, realizing a good deal when they see it, has been issuing new equity at a record pace on a trailing twelve-month basis. Give the people what they want, right?
And lastly, in what is a truly sad statement on the complete collapse of Venezuela, the country with the largest proven oil reserves in the world can’t produce any oil.
 Cnet.com, “Could pandemic unemployment benefits be reinstated after Labor Day? What we know”, August 31, 2021
Past performance is no guarantee of future returns. Performance discussed represents total returns that include income, realized and unrealized gains and losses, but gross of advisory fees. Nothing presented herein is or is intended to constitute investment advice or recommendations to buy or sell any types 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 at any time 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, but 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.
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 2021. 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.
Frontier’s ADV Brochure and Form CRS are available at no charge by request at firstname.lastname@example.org or 307.673.5675 and is available on our website www.frontierasset.com.
Frontier Asset Management is a registered investment adviser with the U.S. Securities and Exchange Commission; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Additional information about Frontier and its investment adviser representatives is available on the SEC’s website at www.adviserinfo.sec.gov.
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.
Measures the performance of the small-cap segment of the U.S. equity universe