New York - June 1, 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 join our Monthly Market & Economic Outlook Webinar scheduled for Wednesday, June 7th at 2:30 pm ET where Jay Hatfield, CEO/CIO and portfolio manager will provide even more recent updates and insights to this report and the changing market and economy. Not registered for the webinar already? Click here to register. Also, by registering, we will send you a webinar playback video link if you are unable to join live.
Economic Outlook:
We do not expect to see a rate cut until March of 2024 as this Fed is almost always a year behind in making the appropriate policy actions. We expect the US economy to have a soft landing with economic growth to be 0-1% as credit tightens due to Fed policy and the ongoing bank crisis offset by post Pandemic tailwinds and the enormous decline in energy prices.
The Fed should have cut rates after the banking crisis started in March of this year, noting this, they will take a full year to discern that they should cut.
The lack of corporate earnings, the debt ceiling talks, and continued regional banking issues will all be an overhang during June and will keep the market capped.
The housing sector, which usually is the leading cause of recessions, continues to be resilient with an ongoing shortage of total homes for sale.
There are currently 7.9 million construction workers employed, which is an all-time high and has been steadily rising during the Fed tightening. During the housing crisis of 2008, 2.3MM construction workers were laid off.
We project that the impact of the infrastructure bill and Inflation Reduction Act (“IRA”) will add approximately $150 billion per year to construction spending, which should offset the slowing in construction of office buildings and other commercial real estate.
Stock Market Outlook:
We remain bullish on the stock market in the second half of the year and are maintaining our 4,500 target on the S&P based on a 19x 2024 EPS estimate of 240. The overvaluation of companies in promising industries (i.e., AI) is a very efficient characteristic of the US capital market as it attracts capital to those industries and speeds the development of break-through technologies. We believe this will help support the market in 2023.
Earnings estimates for 2023 and 2024 have only declined 3% and 2%, respectively, this year.
Bond Market 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.
Fears about treasury issuance post-debt ceiling agreement could be unfounded as the Fed is likely to reduce reverse repo to offset the increase in Treasury cash.
While the latest month shows CPI tracking in line with CPI-R, we expect continued moderation in housing inflation. We expect May CPI and PPI, which will be reported in June, will support this view.
Commodity Market 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. A key global energy and climate opportunity is to rapidly develop US natural gas transmission and export capacity of the US.
The European energy crisis is likely to offset weak global demand for oil. OPEC+ continues to support oil prices through production cuts.
Oil prices rose 1200% during the 1970s ($3 to $39 per barrel) compared to 70% during the Ukraine war and the increase was by far the key driver of inflation during the decade.
Oil prices are down 35% relative to last year and natural gas prices are down more than 70% from a year ago. Jet Fuel is down 65%, Diesel Fuel is down 40%, and Retail gasoline prices are down 25% from a year ago.
Quick Tip:
We expect that there will be a continuing boom in the technology sector later this year, after the Fed pauses interest rate hikes, due to appropriate enthusiasm about the potential of generative AI. Although the boom is likely to result in the overvaluation of many stocks in the technology sector, we continue to focus on arbitraging gaps that emerge in fixed-to-floating preferred securities as the USD LIBOR transitions to a replacement benchmark rate after June 30, 2023.
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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