The expert team at Infrastructure Capital Advisors provides key insights and advice on current market conditions and economic outlook for April 2022 and the com
ing months. Review below but be sure to register to join our April Webinar where Jay Hatfield reviews this executive summary and provides deeper and more up-to-date insights for April and coming months.
Recent discussions of multiple 50bp rate hikes shortly after the release of a dot plot that implied 25bp hikes are a major headwind for the market. While this slightly increases the probability of a recession in 2023, we don't believe that a recession will occur.
Quantitative tightening in the second half of the year will be a significant headwind for stocks. Monetary policy acts with a lag and there has already been a tightening of financial conditions with the 30-year mortgage rate rising from an all-time low of 2.80% to over 4.60%, and housing is the key sector that has crashed in 11 out of the 11 post-WWII recessions.
Although we think that the housing sector will slow down dramatically in the second half of the year, there is now a shortage of homes and we believe this factor will support the market.
Stock Market Outlook:
We believe investors should focus on defensive dividend stocks such as preferred stocks, utilities, telecom services, pipelines, and consumer staple stocks with significant dividends.
We expect higher risk investments such as profitless technology stocks, meme stocks, SPACs, and crypto to underperform or decline as excess liquidity is extracted from the market by the Fed.
Most large capitalization stocks, including tech stocks, have similar duration and sensitivity to changes in interest rates with a .5% treasury rate increase lowering the theoretical value of a typical stock by approximately 10%.
Tighter Fed policy is likely to flatten the yield curve which will keep a lid on long term rates.
We continue to believe that 10-year treasury bonds will find a bottom in the 2.0-2.5% yield area. There are approximately $52 trillion of global pension assets and only 28% are allocated to bonds.
Global growth and demand for credit is likely to be sluggish in Europe as a result of the energy crisis in China in response to regulatory crackdowns and in the US due to hawkish Fed policy.
We have been bullish on oil prices in 2022 but maintain a forecast of a range of $80 to $100. Until there is resolution of the Ukrainian war, we expect oil to trade in a volatile $100-120 range.
The Biden Administration finally recognized natural gas as the key energy transition fuel by agreeing to expand US exports to Europe by 1.5bcf/day, which would be more than a 10% expansion of current US exports of approximately 13bcf/day.
We view the COP26 focus on the reduction in coal and use of cap and trade as extremely positive for US energy products that are cleaner (i.e., LNG and NGL). Wind and solar only provide 4% of total US energy and are only growing at a rate of 10%.
While we continue to urge any investor to research and educate themselves before making a decision, we believe that under the current market environment, picking attractive sectors can be more important to your portfolio construction than individual stock picks.
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AMZA Exchange Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. MLP Interest Rates: As yield-based investments, MLPs carry interest rate risk and may underperform in rising interest rate environments. Additionally, when investors have heightened fears about the economy, the risk spread between MLPs and competing investment options can widen, which may have an adverse effect on the stock price of MLPs. Rising interest rates may increase the potential cost of MLPs financing projects or cost of operations, and may affect the demand for MLP investments, either of which may result in lower performance by or distributions from the Fund’s MLP investments. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulation, or factors affecting underlying assets. No Guarantee: There is no guarantee that the portfolio will meet its objective. Performance Data: Performance data quoted backtested results. Backtested Performance was derived from the retroactive application of a model developed with the benefit of hindsight. Backtested performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please visit https://www.virtus.com/products/virtus-infracap-us-preferred-stock-etf#shareclass.742/period.quarterly for performance data current to the most recent month-end and the Fund’s standard performance information. You should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. For PFFA, PFFR, and AMZA funds, contact VP Distributors LLC at 1-888-383-4184 or visit www.virtusetfs.com to obtain a prospectus which contains this and other information about the Fund. The prospectus should be read carefully before investing.
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Past performance is not indicative of future results.
The links to the fund fact sheets will provide standardized performance and risk disclosures.
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