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With the markets, its not all that bad…or great. #MixedEmotions

Yesterday seemed to give a little extra meaning to the word that symbolizes the July 4th holiday...Freedom. It felt like we had it for the first time in a while. The fireworks just felt better & brighter. The time with family & loved ones had a tad more meaning. After a chaotic year+ of many firsts for all of us, the 4th brought out more of a sense of gratitude for all of those who came before us and dug the proverbial “well” that we all get to drink out of today.

The global economy continues to impress (and shock) many. However, many respected money managers seemed to have remained very defensively positioned and missed upside. Boosted by massive amounts of worldwide stimulus and historically low interest rates, stocks at large posted an extremely strong first half performance in 2021. Below are some key dynamics at present that we think are very important to acknowledge:


  • Globally, profit expectations have bounced back to pre-pandemic levels, and nearly 50% of S&P 500 companies have raised their full-year outlook over the past three months, one of the highest percentage levels since 2010.


  • In the first three months of 2021, companies in the S&P 500 spent $171.5 billion on stock repurchases. While still below pre-pandemic levels, the buying was a big jump from the last three months of 2020, when companies bought greater than $120 billion of their own stocks. Tech companies have been the biggest buyers as the sector accounted for nearly a third of buybacks.


  • During the past year, almost 750 money-losing companies have sold shares in the secondary market, exceeding profitable businesses shares by the biggest margin since at least 1982.


  • US equities have outperformed the rest of the world by 7% a year over the past 13 years. In the last 50 years, 75% of US 10-yr out/underperformance streaks were reversed the following decade.


  • The 10-year US Treasury bond yield rose from 0.81% at the start of the year to a peak of 1.74% at the end of March. Rates have since plunged to roughly 1.4%. (Recall with bonds: yields up/prices down and vice versa.)


  • The price of WTI Crude Oil has increased approximately 60% this year to just over $75 per barrel. This is in notable contrast to the aforementioned price action of long duration U.S. interest rates. Historically long duration government interest rates are positively correlated to the oil price.


  • Federal Reserve Chair Jerome Powell and colleagues have begun debating when and how to slow their asset- purchase program, while the People’s Bank of China is already curbing credit growth. Inflation is the key variable. If longer-term inflation expectations drift higher, the Federal Reserve could bring forward monetary tightening and rates hikes could become a possibility in 2022. (Post July 4th “fireworks” could proceed.)

The following are some important items we are watching or acting on across portfolios & strategies:

  • After successfully taking advantage of areas of the stock market that benefited from the economic reopening, we are now looking to opportunities in areas of the market where earnings are likely to continue growing once the initial boost of post covid economic normalization has faded.


  • So called “stock factors” have experienced high levels of volatility over the last year. Specifically, the correlation between stocks categorized as “growth” and those grouped as “value” has declined to low levels never before seen on a trailing 200-day basis. Simply put this means that investors are not being rewarded by concentrating heavily on specific groups of stocks. As a result, we have laser-like focus on diversification. We believe this type of nuanced risk management is extremely important in the modern stock market. Much has changed and we strive to always adapt. “Adapting” today could mean not taking too much risk when the rewards aren’t clear.


  • We are avoiding longer duration debt as the reward in this low yield environment does not match the risks to principal in our opinion. Furthermore, upward trending oil prices could support higher inflation and we are eager to risk manage our fixed income exposures around this looming possibility.

FACT: markets do go up and down*, but it’s not always the end of the world when markets sell-off a bit. Periodic corrections are often healthy to long-term bull markets. If this were to happen today or anytime soon, we would be well prepared and able to take advantage of select opportunities. With a tremendous amount of noise across the internet, television, social media and various other media outlets; it is paramount to remember that much of what you hear is simply opinion often using cherry-picked pieces of information. It’s a balancing act and we stay grounded in a data-driven risk management process.




Ryan A. Mumy, CFP®, AIF®

Chief Investment Officer

rmumy@capital-invest.com


*Feel free to send me a virtual punch for typing and making you read this....I hope you heard it in Dwight from The Office’s voice.


Disclosures: The information provided in this paper is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal or tax advice. Capital Investment Advisory Services, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of or reliance on the information. This information is subject to change and, although based on information that Capital Investment Advisory Services, LLC considers reliable, it is not guaranteed as to accuracy or completeness. Source information is obtained from independent financial data suppliers. For investment related terms definitions, please visit: www.investopedia.com Past performance is no guarantee of future results. Advisory services through Capital Investment Advisory Services, LLC. Additional information about CIAS and its From ADV Part 2A are available on the SEC’s website at www.adviserinfo.sec.gov




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