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MARCH 2022 Market Commentary and Economic Outlook

Updated: Apr 4


March 2022 Expert Market Commentary and Economic Outlook InfraCap

The expert team at Infrastructure Capital Advisors provides key insights and advice on current market conditions and economic outlook for March 2022 and the coming months.


Economic Market Outlook Jay Hatfield InfraCap Infrastructure ETF

Economic Market Outlook:

Tighter Fed policy has exacerbated eight of the eleven recessions since WWII.

  • We believe the Fed is still predominately focusing on achieving its goal of maximum employment and has relaxed its arbitrary 2% inflation cap. We expect that the March Fed meeting will be a positive catalyst and inflection point for the market.

  • Monetary policy tends to act with a lag. However, there has already been a tightening of financial conditions, noticed by the 30-year mortgage rate rising from 2.80% to over 4%.

 

Stock Market Outlook:

We believe that the stock market will be range-bound largely due to uncertainty and tension from the war in Ukraine and current Fed policy. We reiterate our belief that defensive dividend stocks will outperform in 2022.

  • The recent volatility of commodity prices also raises risk levels as there are related collateral and financing implications and the Fed has limited ability to address this tension.

  • Fed reduction in liquidity will raise the equity risk premium which will impact stocks that are considered riskier (dream stocks with little or no earnings). We see this dynamic become exacerbated at times when investors rotate out of risky investments and into defensive investments like utilities and telecommunications services.

 

Bond Outlook:

We continue to believe that 10-year interest rates will head higher as the Fed starts to taper and inflation remains high (but we do believe there is a ceiling).

  • We are still forecasting that 10-year rates will be in the 2% range in 2022. We believe in this environment, allocations to higher-yielding securities may outperform lower-yielding securities.

  • The Fed may be more dovish in 2022 as 5 of the 7 Fed FOMC members are now Biden appointees and likely to be dovish. Nonetheless, we expect inflation in the US to moderate in the second half of 2022, as the housing sector likely cools down. In addition, Federal government spending will dramatically drop in 2022, year-over-year from 2021.

 

Commodity Outlook:

We continue to be bullish on oil prices in 2022 but maintain a forecast of a range of $80 to $100, absent the disruptions in Russian exports from the war in Ukraine.

  • Due to financial sanctions, there has been a significant reduction in Russian oil exports, and firms trading oil are also unable to finance their cargos. If disruptions continue, we could see a super spike in oil to $150/barrel, or more; noting that oil has at times reached over $130/barrel in March.

  • European Natural Gas hit a high of $68/mcf, which is 13x higher than US prices and is the energy equivalent of oil trading at over $400/bbl. Natural gas prices can directly impact the price of electricity, as natural gas fuel is used to meet electricity demand. If these astronomically high price levels remain for an extended time period, corporations and individuals are likely to experience financial distress or bankruptcy in the absence of government intervention. We also note that these high energy costs will impact European manufacturing, and favor US manufacturers of chemicals and fertilizers.

 

Quick Tip:

Many investors in 2022 are still searching for the next momentum stock without looking at valuations and price targets. While we continue to urge any investor to research and educate themselves before making a decision; under this market environment, we believe techniques such as diversification and dollar-cost-averaging will be useful as volatility increases and correlations diverge.

 

Follow us on Twitter for your need-to-know market commentary and economic outlook at: https://twitter.com/InfraCap

 

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 prospectus for 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, 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.


Virtus ETF Advisers, LLC serves as the investment advisor and Infrastructure Capital Advisors, LLC serves as the subadviser to PFFA, PFFR and AMZA. These three funds are distributed by VP Distributors, LLC, member FINRA and 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.

© 2022 Infrastructure Capital Advisors, LLC