Market Commentary — December 5, 2022

The market rallied last week, buoyed by the possibility that the pace of Fed rate increases may be slowing. Fed Chair Jerome Powell signaled smaller rate hikes going forward, but for a longer duration. But markets sold off on Friday on a hotter-than-expected jobs report ahead of next week’s Fed mid-December policy decision.

The U.S. gained 263,000 jobs in November, 63,000 more than the consensus estimate. While this was good news for American workers, it was bad news for investors as higher wages equate to higher inflation. The report called out job gains in leisure and hospitality, health care, and government with employment declines in retail, transportation, and warehousing. The unemployment rate remained at 3.7%.

Other economic data was mixed. Consumer spending increased by 0.8% in October, amid evidence of a strong holiday shopping season. But the PMI for manufacturing slipped to contraction levels for the first time since May 2020, as economic uncertainty appears to be stifling manufacturing demand.

In ETF land, more than $1.5 billion poured into long-term Treasuries in the form of the iShares 20+ Year Treasury Bond ETF (TLT) on Thursday, the second-largest one-day inflow in the fund’s history. According to Bloomberg, over half of the flow was tied to a single $851 million trade. It appears that someone was trying to increase duration exposure after the Fed signaled they would be slowing or hiking less aggressively, only to be derailed by Friday’s job report.

The State of Florida announced it was divesting $2 billion in assets managed by Blackrock in negative backlash to the asset manager’s ESG investment stances. The move is the latest development in the Republican party’s campaign against sustainable investing, especially against BlackRock—which manages $8 trillion in assets globally and is the largest issuer of exchange-traded funds in the U.S. In October, the Republican-led red states of Missouri and Louisiana pulled $500 million and $794 million, respectively, from BlackRock due to the asset manager’s ESG investment practices.

YouTube personality “Meet Kevin”, Kevin Paffrasth launched the Meet Kevin Pricing Power ETF (PP) with $500,000 in assets. The ETF will hold companies with a “track record of disrupting mature industries (e.g., electric vehicles) or operating within disruptive industries (e.g., social media, blockchain), and/or a company’s historical patterns of launching hardware or software products that are first-to-market.” More than a fifth of the fund is in shares of Tesla Inc.

And in case anyone missed it, here is the link to Sam Bankman-Fried’s cathartic interview with Andrew Sorkin at the NYT DealBook Summit. The FTX saga is going to make a fascinating Netflix movie – as sometimes reality is stranger than fiction.

Have a great week everyone!

Jane Edmondson
CEO and Co-Founder

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