The team at Infrastructure Capital Advisors provides key insights and advice on current market conditions and economic outlook for this month and the coming months. See this months report below but be sure to register to join our November Market & Economic Outlook Webinar where Jay Hatfield, CEO/CIO, provides updates and insight to this report for this and coming months.
Economic Outlook:
We continue to believe that the Fed is ignoring key leading indicators of deflation, including the money supply drop of 17%, the strength of the dollar, and the rise of mortgage rates to over 7%. We expect the Fed’s lack of ability to forecast inflation, as demonstrated by its prior “transitory” theory of inflation, will cause the Fed to make yet another policy error and needlessly cause a mild recession next year.
We expect the stock market to rally (late in the 4th quarter) as inflation continues to decline, long term interest rates stabilize, and the US election results are known. We also believe corporate earnings are likely to continue to be resilient, further supporting the market.
We expect the stock market to rally (late in the 4th quarter) as inflation continues to decline, long term interest rates stabilize, and the US election results are known. We also believe corporate earnings are likely to continue to be resilient, further supporting the market.
Stock Market Outlook:
The recent rise in interest rates has caused our fair value estimate for the S&P to drop 1,000 points to 3,600, based on the current 10-year interest rate of 4.1%. But we expect the 10-year yields to top out at around 4% over time after UK fiscal capitulation and Europe enters a recession.
The average recession produces a 24% decline in the stock market and a 13% decline in earnings estimates, implying we are close to a market bottom. However, many strategists/investors are more bearish than we are and are projecting the S&P goes to 3,000 as they believe inflation will be persistent and the Fed will be forced to move rates higher and higher, leading the US into a deep recession.
The US consumer is strong with over 65% of US households owning their own home. These consumers are therefore insulated from rent inflation and have benefited from price appreciation. Lower income consumers have benefited from the recent 30% decline in gasoline prices.
Bond Outlook:
We expect that 10-year treasury bonds will find a bottom in the 4% yield area, which should help to stabilize the stock market. Global growth and demand for credit is likely to be sluggish in (1) Europe due to its energy crisis, (2) China, due to its regulatory crackdown, and (3) the US from hawkish Fed policy and a large reduction in the government budget deficit.
The Bank of England’s intervention in its bond market demonstrates that the Fed is too hawkish and is crushing the global economy. The rest of the world is suffering from the ultra-strong dollar, which makes their prices rise substantially and forces other central banks to follow the Fed and adopt an ultra-hawkish monetary policy. We expect that many of the world’s weaker economies are unlikely to be able to weather this impact.
The monetary base shrank by almost $1 trillion or 16% so far during 2022 and the Fed’s short-term lending of treasuries and mortgages increased to $2.5 trillion over the last year (reverse repo). This is the most rapid decline in the monetary base since the great depression, drove the dollar up more than 15% and pressured the prices of bonds and stocks.
Commodity Outlook:
We expect oil to trade in the $85-105 range while the Ukrainian war continues with European natural gas prices at the energy equivalent of oil being at $300/barrel. We recently reduced our target by $5 to reflect a very strong dollar as 80% of oil is produced and consumed overseas.
Margins for refining fuel oil hit a record of $86/barrel. Global oil prices are supported by the energy crisis in Europe, where natural gas is trading at the energy equivalent of oil being at $200/barrel. These unprecedented prices are pulling in all types of other energy as companies try to limit natural gas consumption.
US/Europe policy of limiting all hydrocarbons vs. focusing on coal is creating an unacceptable increase in total energy prices which could end the focus on climate change.
Quick Tip:
When inflation rises, the dollar often rises as the market anticipates more Fed tightening. Consider adding defensive dividend investments that have lower volatility and benefit from rising inflation to your portfolio.
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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 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 sub-adviser 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.
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