September 2022 Market & Economic Outlook Report
- InfraCap Management
- Sep 2, 2022
- 7 min read
Updated: Sep 29, 2022
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 September Market & Economic Outlook Webinar where Jay Hatfield, CEO/CIO, provides updates and insight to this report for this and coming months.
Economic Outlook:
Fed Chair Powell gave a hawkish speech at Jackson Hole that reiterated the need for rate hikes, including the possibility of 75bp hike at the next meeting.
We expected this hawkish statement as the Fed continues to focus on the expectations theory of inflation vs. focusing on the role of changes in the money supply driving inflation. Powell stated that rates are likely to stay elevated for an extended period of time.
We project that the Fed’s shrinkage of the money supply will cause inflation to decline steadily over the rest of the year as the increase in the US dollar exchange rate has caused commodity prices to drop by over 25% during the last two months. That will be reflected in both headline and core CPI over the course of the year.
Stock Market Outlook:
We expect a 2022 recession in Europe and the UK, but not the US.
We continue to believe that 2022 will be a volatile year for stocks with our current estimate of fair value of the S&P at 4,300, representing little upside from today’s level. We are heading into the seasonally volatile Fall period, and see substantial support for the market in the 3,600-3,800 level as inflation declines and the US economy continues to grow slowly.
We do not expect a recession in the US in 2022 due to a very resilient housing sector with an ongoing shortage of housing and tailwinds from the enormous 80% US energy cost advantage relative to the rest of the world. We expect 2022 economic growth to slow dramatically into the 0-2% range due to erratic and very hawkish monetary policy.
Bond Outlook:
We expect that 10-year treasury bonds will find a bottom in the 3% yield area which should help to stabilize the stock market.
Global growth and demand for credit is likely to be sluggish in Europe due to the energy crisis, in China due to regulatory crackdown and in the US due to hawkish Fed policy and a large reduction in the government budget deficit. The US 10-year is 1.5% higher than German 10-year. Japanese bonds are near zero.
There are $52 trillion of global pension assets which will rebalance and reallocate into treasuries if yields are significantly above 3%, capping the potential rise in rates.
Commodity Outlook:
The Failed European Energy Transition is a crisis that will benefit the US.
The European price explosion gives tremendous advantage to US manufactures particularly in the energy, petrochemicals, fertilizer and metals industries where many European producers are curbing or eliminating production due to stratospheric energy prices. This could positively impact US GDP growth by .50%-1%.
The European energy crisis is likely to add over 1% to global demand for oil as companies switch from natural gas (trading at an oil equivalent price of over $360 per barrel) to oil. We do not expect SPR release or possible US export demand to materially impact global supply/demand balance.
Quick Tip:
Covered call writing strategies are useful when markets are trending sideways or growth expectations are uncertain. We continue to believe that overvalued technology stocks without near term earnings prospects will underperform. We remain conservative in our allocations, reducing position concentrations when advantageous and diversifying when sectors are relatively discounted.
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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 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
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