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April 2023 Market & Economic Outlook Report



New York -April 10, 2023 ~ The team at Infrastructure Capital Advisors has completed our new report providing key insights on current market conditions and economic outlook for this month and the coming months. See this month's full report below but be sure to register to join our Monthly Market & Economic Outlook Webinar scheduled for Thursday, April 13th at 1:30 pm ET where Jay Hatfield, CEO/CIO, provides even more recent updates and insights to this report and the changing market and economy.


Jay Hatfield - InfraCap CEO and Fund Manager

Economic Market Outlook Jay Hatfield InfraCap Infrastructure ETF

Economic Outlook:

We are forecasting that the job market will slow down this quarter, which should allow even this fundamentally flawed Fed to hold rates steady in May and signal a pause in rate increases. Recent jobs data has been relatively weak with the Jolts data well below expectations and major layoff announcements from Disney and McDonalds. We believe that we are currently experiencing a significant deflation, however, unfortunately the Fed is focused on lagging indicators and the labor market.


  • The Fed almost exclusively focuses on the labor market to predict inflation. The labor market is a lagging indicator so the Fed policy is usually about 12 months behind changes in inflation and the economy. The Fed executed the fastest rate increase in financial history, ignoring the fundamental precept of monetary policy, which is that it has long and variable lags. The increase of 4.75% is only slightly higher than the 4.25% executed prior to the last financial crisis, but was executed in half the time. These increases have inverted the yield curve, which puts pressure on regional and community bank profitability and dramatically reduced the economic capital of all banks. When the Fed executes rapid rate increases there is always a sector that cracks.

  • The Fed and FDIC have created a killing field for regional and community banks. Despite being warned by Wall Street and congress that it would break something, the Fed pursued a rapid, unprecedented increase in rates. It is now public consensus, including on Wall Street, in academia and in Congress, that the Fed is ill-equipped to address current conditions.

 

Stock Market Outlook:

We expect the market to be range bound through April in the 3,800-4,200 range (4,500 year-end target) as we head into earnings season, which was a positive catalyst, although we still have Fed and macro concerns overhanging the market. We expect the stock market to trade better as we head into April earnings season. It is likely that the banking crisis calms down as the FRC situation is resolved and there is movement on legislation to expand deposit insurance.

  • Earnings estimates for 2023 and 2024 have only declined 3% and 1%, respectively, this year. The economy continues to be resilient and earnings estimates have only declined slightly. We expect economic growth to be near 0% as credit tightens due to Fed policy and the ongoing bank crisis offset by post Pandemic tailwinds and the enormous decline in energy prices.

  • Investors have been relatively calm about the crisis as it is substantially offset by the likely pause in interest rate increases. The Fed had been the key overhang on the market.

 

Bond Outlook:

We expect that 10-year treasury bonds will find a bottom in the 4% yield area and potentially rally into the 3-3.25% range during 2023. We believe bond markets are finding a bottom and 2023 will be a strong year with gains of more than 10% as inflation declines rapidly in the first 6 months of the year and bond yields also decline.


  • The Fed is likely to pause rate increases after the May meeting, which is likely to be a huge catalyst for both the stock and bond markets. Near term tight Fed policy is likely to flatten the yield curve which will keep a lid on long term rates.

  • Global growth and demand for credit is likely to be sluggish in Europe due to the energy crisis, in China due to regulatory crackdowns and in the US due to hawkish Fed policy and a large reduction in the government budget deficit. The US 10yr. is 1.5% higher than German 10yr. and Japanese bonds are near zero.




 

Commodity Outlook:

We expect oil to trade in the $75-95 range while the Ukrainian War continues, with European natural gas prices at the energy equivalent of oil being at over $90/barrel. The European energy crisis is likely to offset weak global demand for oil. The end of China’s Zero Covid policy will result in a recovery of oil demand. We believe WTI will rise above $90 as we finish the winter heating season.


  • It is not possible for the US to stop using hydrocarbons as wind and solar only represent less than 6% of US energy production and are extremely difficult to expand rapidly as siting/NIMBY issues are huge barriers to expansion. We believe that the fastest way to reduce carbon emissions is drill for more natural gas, which will displace coal.

  • High European natural gas prices are driving fuel oil/distillate prices as distillate can be used as a substitute for natural gas and is easy to ship. Margins for refining distillates, including heating oil, are near all-time highs at over ~$55.


 

Quick Tip:

Riskier tech stocks may outperform in the second half of the year, but are likely to be volatile during the first six months as the Fed pursues its overly aggressive monetary tightening and earnings are under pressure from unfavorable comparisons and a strong dollar.

 

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Jay Hatfield, CEO & CIO for Infrastructure Capital Advisors LLC

Follow Jay Hatfield's Twitter account for instant updates and insights as he sees important changes and information occurring in the US market and economy. twitter.com/jdhatfield_icap.


 

ABOUT US


Infrastructure Capital Advisors, LLC (ICA) is an SEC-registered investment advisor that manages exchange-traded funds (ETFs) and a series of hedge funds. The firm was formed in 2012 and is based in New York City. ICA seeks current income opportunities as a primary objective in most, but not all, of ICA's investing activities.


DISCLOSURE


Not for distribution to the public. Opinions represented above are subject to change and should not be considered investment advice. Past performance is not indicative of future results. The links to the fund fact sheets will provide standardized performance and risk disclosures.


FUND RISKS Investors should consider each Fund's investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit the Fund's webpage. Please read the prospectus carefully before investing.


ICAP Exchange Traded Funds (ETF): Investing involves risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in equities securities, dividend-paying securities, utilities, small-, mid- and large-capitalization companies, real estate investment trusts, master limited partnerships, foreign investments and emerging, debt securities, depositary receipts, market events, operational, high portfolio turnover, trading issues, active management, fund shares trading, premium/discount risk and liquidity of fund shares, which may make these investments volatile in price. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small and Medium-capitalization companies, foreign investments, and high-yielding equity and debt securities may be subject to elevated risks. The Fund is a recently organized investment company with no operating history. Please see the prospectus for a discussion of risks. Distributor, Quasar Distributors, LLC


PFFA 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. Preferred Stock: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets. 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. No Guarantee: There is no guarantee that the portfolio will meet its objective. Prospectus: For additional information on risks, please see the Fund’s prospectus.


PFFR Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Real Estate Investments: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management. 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. Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the underlying index may result in the Fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy. Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index. Market Volatility: Securities in the Fund may go up or down in response to the prospects of individual companies and general economic conditions. Price changes may be short or long-term. Prospectus: For additional information on risks, please see the Fund’s prospectus.


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, regulations, 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 that contains this and other information about the Fund. The prospectus should be read carefully before investing.


Virtus ETF Advisers, LLC serves as the investment advisor, and Infrastructure Capital Advisors, LLC serves as the sub-adviser to PFFA, PFFR, and AMZA. These three funds are distributed by VP Distributors, LLC, member FINRA, and a subsidiary of Virtus Investment Partners, Inc.


Past performance is not indicative of future results.

The links to the fund fact sheets will provide standardized performance and risk disclosures.

© 2023 Infrastructure Capital Advisors, LLC




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