Market Commentary — August 21, 2023

Stocks retreated for the third consecutive week, as sentiment has turned negative due to a sharp increase in long-term bond yields and fears of a severe slowdown in China. The S&P 500 Index is down 5% from its July 26th peak. Interestingly, growth shares have actually held up better than value peers over this down period, which is counter to conventional wisdom with regard to higher interest rates.

Consumer trends remained strong in July, with retail sales up 0.07%, which was twice the consensus estimates. Sales at restaurants gained 11.9% and online purchases remain the “sweet spot” of retail, surging 10.3%.

Heading into its August Jackson Hole Summit on August 25th, the Fed is on the hot seat as long-term rates continue to rise and the Atlanta Fed’s GDPNow forecast (the EconomyNow is a great phone app btw) for Q3 growth now sits at 5.8%. Other positive economic data has raised the idea of a “no landing” scenario, as industrial production grew above expectations to 1%, and housing starts also rose more than forecasted.

The yield on the 10-year is at its highest level since October, ending the week at 4.25%. And mortgage rates have soared to their highest level in 21 years, averaging 7.09% for a 30-year fixed-rate mortgage. Markets are trying to gauge the Fed’s next move. And based on July’s meeting notes, the Fed remains worried about inflation. Markets are betting this means more rate hikes ahead.

In ETF news, there are rumors that the SEC is poised to approve Ether Futures ETF, which caused a double-digit surge in Ethereum. In the spot Bitcoin camp, Grayscale is hiring, signaling optimism about the results of its lawsuit against the SEC regarding its conversion of GBTC into a spot Bitcoin ETF. And the next SEC filing deadlines for many issuers such as Blackrock, Bitwise, VanEck, Wisdom Tree, Invesco/Galaxy, Fidelity, and Valkyrie are coming up at the beginning of September.

Investors who took off their interest rate hedges, appear to have been premature. Interest rate hedged products like Simplify’s PFIX have rallied sharply, up over 30% in the last month. And the hedged version of LQD (LQDH) is beating the non-hedged version by 5% YTD.

AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN) is closing after losing 74% of its value since its launch. Tema launched 2 new thematic ETFS: Tema Oncology ETF (CANC) and Tema Global Royalties ETF (ROYA) focused on companies generating income from royalties or intellectual property. And Global X launched two active ETF funds providing single-country exposure to Brazil (BRAZ) and India (NDIA).

In my first week as a “just dropped both kids off at college, empty-nester”, there is a hurricane named Hilary heading toward Southern California. The National Weather Service has created a PSA that may also be applicable to investing, “Turn Around, Don’t Drown.”

Jane Edmondson
CEO and Co-Founder

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