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July 2024 Market & Economic Outlook Report & Webinar Invite


June 2024 Market Report and Webinar with Bryan Perry

New York - July 05, 2024 ~ 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.


Scroll to read full report or click below to skip to specific sections:


JULY MARKET & ECONOMIC OUTLOOK WEBINAR

Be sure to register or attend our Monthly Market & Economic Outlook Webinar scheduled for Wednesday, July 17th at 1:30 pm ET. In the webinar, Jay Hatfield, Infrastructure Capital Advisors CEO and Portfolio Manager, will walk you through updated market commentary, economic outlook, and promising markets high-yield performance for July and coming months.

 
Economic Market Outlook Jay Hatfield InfraCap Infrastructure ETF

Summary of July Commentary and Economic Outlook Report:


  1. The weak jobs report, combined with a clear recent slowing in the economy sets the stage for the Fed to cut rates. We expect the Fed to remain on hold at the July meeting but acknowledge the slowing economy and labor market, setting the stage for a September cut.  

  2. Raising S&P year end price target to 6,000 on broadening AI boom (AAPL, AVGO, ADBE) and increased conviction on global rate cuts due to declining inflation and slowing economic growth. (See Stock Market Outlook, and Fed / Central Bank Outlook below for details).  

  3. The US economy is slowing as the hyper cyclical housing sector is rolling over and the foreign sector detracts from growth. The US will enter a recession in 2025 if the Fed does not cut rates. (See Economic & Bond Market Outlook below for details).  

  4. We favor the US over the rest of the world due to superior direct and indirect upside from AI/super computers. Despite Euro Zone rate cuts, we expect the US AI based economy to outperform Europe’s cappuccino driven growth. (See Stock Market Outlook, and Fed / Central Bank Outlook below for details).  

  5. We project that global currency moves will drive further global interest rate cuts. Currency appreciation is disinflationary and a large drag on GDP for countries holding rates steady. (See Fed / Central Bank Outlook below for details).  

  6. Oil prices are the most critical short-term indication of inflation.  (See Fed / Central Bank Outlook below for details).  

  7. The Fed’s policy framework is overly rigid and needs to be reformed or the Fed should lose its independence. (See Fed / Central Bank Outlook below for details).  

  8. Cutting corporate taxes is the most critical economic growth driver.  Corporate taxes are 60% correlated with GDP growth. (See Economic & Bond Market Outlook below for details).  

  9. Pollution taxes are by far the most economic method to efficiently reduce carbon and improve the environment.  Limiting natural gas production is highly destructive to the global environment and has led to regime change in Europe. (See Commodity Outlook below for details).

 
Market & Economic Outlook Report

Stock Market Outlook:



Raising S&P target from $5,750 to $6,000 based on AI Boom, resulting increase in S&P EPS estimates and long-term growth rate, and Increased Conviction on Global Summer Rate Cuts:

 

  • For example, recent earnings reports and updates from NVDA, AAPL, ADBE, and AVGO validated that the AI boom is sustainable.  During technology booms, it is optimal for companies with promising technology to become overvalued to attract capital and reduce the time to market.

 

  • We are increasingly confident that the Fed will cut rates in September and November of this year as the US economy slows and inflation stabilizes in the 2.6% range.


 

Economic Market Outlook Jay Hatfield InfraCap Infrastructure ETF

Fed / Central Bank Outlook




  • The BOC and ECB rate cuts have started the global wave of rate cuts and will put pressure on other central banks to cut as currency moves reduce the growth of countries slow to cut.

  • We recommend that investors should actually “Not Fight the ECB” instead of following the cliche “Don’t Fight the Fed” in this cycle.  ECB cuts are likely to force the hand of other central banks due to currency moves.

    • Europe represents 30% of the global money supply vs. the US at 23% and China at 20%.

  • We project that there will be a $2 Trillion Injection of Liquidity into the Global Money Supply during 2024:

    • Most investors do not appreciate that central banks cannot mandate rate cuts and must inject liquidity into the banking system, which normally causes powerful rallies in both stocks and bonds.  When the global monetary base (see www.infracapfunds.com) is expanding it is almost always bullish for stock and bond markets.

  • We forecast that the Fed will cut rates in September or as early as July, if the June employment report is weak, and will cut at least twice this year.

    • We forecast that reported Core PCE Y/Y inflation will roll down from the current 2.8% level to 2.6% by May, setting the stage for a potential July cut, if the labor market also continues to soften. 

    • Even this Fed will eventually realize obvious signs of slowing US growth.

      • Inflation does not magically re-ignite or become ‘sticky’.  Inflation is caused by excessive monetary stimulus and supply shocks.  Current inflation is 1.5% if one utilizes market prices readily attainable from internet rental services.

    • The recent uptick in inflation was caused by mis-measurement of shelter, an increase in energy prices and ongoing supply shock in the vehicle repair and insurance sector.

      • Fed rate cuts will be aided by a likely surge in the dollar as the ECB cuts but the Fed does not. A strong dollar is very deflationary as commodities are priced in dollars.  Currency moves will precipitate other countries to cut such as the UK.

    • The UK pound is about to reach 10-year highs vs, the Euro and the dollar has started to rally significantly against the Euro, and the dollar is near a 20 year high against the Canadian dollar.

    • UK exports to Europe are 42% of total exports.  European exports are 55% of GDP, the UK 33% and only 10% of US GDP.  The US represents 20% of EU export, and Canada is the number one importer of US goods at over 17% of the total.

    • Recent declines in oil prices are bullish for inflation prints in May and June as energy prices bleed into core at approximately a 5% rate.

  • The Fed’s policy framework needs to be reformed.

    • The Fed’s 2% target has been shown to be too low by academic research and the Core PCE index is highly flawed as the Shelter component lags by 18-24 months by design (6 month lag) and due to inclusion of lease renewals vs. new leases. The Fed should also adopt a nominal wage growth target and an employment target.

 
Market & Economic Outlook Report

Economic & Bond Outlook:


The US Economy is Starting to Slow:

  •   The hyper cyclical housing market is weakening with the latest new homes sales report plunging 11.3% and inventory rose 481k and is now approaching the great financial crisis peak of 580k.  There is 9 months of supply vs. an average of 6 months and a GFC peak of 12 months.  The most recent housing start data was weak at 1.36MM units down from recent averages above 1.5MM.  

    • 11 out of the last 12 recessions were precipitated by a collapse in the hyper-cyclical housing sector.  We have been forecasting for the last three years that the US economy would not go into a recession due to the shortage of housing in the US, but as noted above the housing sector is cooling and the US could enter a mild recession if the Fed does not cut rates this year.

  • Cutting corporate taxes is the most critical economic growth driver.  Corporate taxes are 60% correlated with GDP growth.  

    • Greece cut corporate taxes from 28% to 22% and economic growth surged.  

    • Ireland has one of the lowest corporate tax rates in the EU and the highest economic growth rate.  

    • The US has outperformed other OECD economies since cutting corporate tax rates to competitive levels in 2017.  

    • Attempts to implement a global minimum corporate tax validates the importance of corporate tax rates to global competitiveness.  

  • A decline in personal consumption has never caused a US recession.  Consumer spending is 95% driven by employment and wages.  Consumer spending only declines when the decline in investment spending on housing and other durables leads to mass layoffs, which causes consumers to reduce spending.  

    • The average post WWII recession had over a 10% decline in investment but personal consumption was on average flat.  

    • The Chips Act and other infrastructure spending from the government is very counter cyclical as it supports investment.  

    • The Chips Act is an urgent national security priority as over 90% of advanced chips are produced in Japan.  

    • If the Fed does not cut this year we likely to have a recession as both the housing sector and autos have started to show some softening.

 
Market & Economic Outlook Report

Commodity Market Outlook:


  • Pollution taxes are by far the most economic method to efficiently reduce carbon and improve the environment.  Taxes on mercury, SoX, NoX and coal ash would cause most global coal fired power plants to close and dramatically reduce carbon and toxic emissions.   

  • Recent Oil Price Weakness Driven By hang over from Warm Winter and Negative OPEC Sentiment:  

    • We maintain our $75-95 range estimate for oil in 2024 as continued production constraint from OPEC+ and steady demand growth support the price.  

    • Middle East war providing only modest support to the oil market.  

    • We attribute the recent weakness to seasonal/weather factors partially.  

    • December of 2023 was the warmest in 150 years.  

  • China’s Industrial Economy is Way More Resilient Than Perceived which Benefits Commodities:  

    • China is the only major global economy that is loosening monetary policy.  China increased its monetary base over $140 billion in September representing a 2.9% increase vs. a $300 billion drop in the Global Monetary Base.  

    • China is projected to grow by 5% this year.  

    • China saves 45% of GDP vs. less than 20% in the US, which results in much higher long-term growth as the critical driver of economic growth is savings and investment.  

    • The property crisis is a concern, but if it starts to generate contagion, the central government is likely to intervene.  The crisis impacts luxury goods companies vs. the industrial sector.  

  • The utopian vision of an all-electric economy has now completely imploded as average consumers have limited interest in all electric autos, and renewables development falters due to nimby opposition to offshore wind and massive cost over runs.  Europe’s failed energy transition is likely to exacerbate a recession and lead to regime change in many countries.  

    • The failed attempt to push an all-electric vision has hurt the environment as there was less focus on hybrid electric cars and using natural gas to supplant coal.


 

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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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