Past performance is no guarantee of future results. Trend signals are proprietary research of Fortunatus Investments, LLC, a Registered Investment Advisor with the Securities and Exchange Commission (SEC). Reference to registration does not imply any particular level of qualification or skill. Prior to June 2014, Fortunatus Investments was a wholly owned subsidiary of Executive Wealth Management, LLC and they continue to share common ownership and control. Data source for returns is FactSet Research Systems Inc. This chart is not intended to provide investment advice and should not be considered as a recommendation. One cannot invest directly in an index. Executive Wealth Management does not guarantee the accuracy of this data.
Quote of the Week
Software, not batteries, will be the real battleground for car makers in the years ahead, predicts [UBS analyst Patrick] Hummel. There, Tesla reigns for now, and the others have yet to inspire confidence. There is more at stake than sleek dashboards. Software will be key to autonomy and over-the-air downloads of new, lucrative features. By 2030, software could double the lifetime revenue of cars, lifting operating margins for winning car makers from single to double digits.
An excerpt from Jack Hough’s article in Barron’s last week on the future of the automobile industry and carmaker stocks.
What is going on with the bond market?
Yields are rising and prices are falling. The rise in yields has been partly blamed for the recent sputtering in the equity market, though the correlation seems to be spurious to us. The choppiness in stock prices was more likely due to so much speculation going on. From the SPAC (Special Purpose Acquisition Company) boom to the “technology of the future” boom, we are seeing bubbles form on the edges of the stock market.
But what about the core of the economy? We continue to see positive economic data coming out supporting the view that future growth will be good. Falling bond prices are normal in such a reflationary/accelerating recovery. We often look to yield curves to see how fixed income traders are viewing the economy. What we are seeing now is that there is a huge curve steepening typically associated with an early stage economic recovery.
Curve steepening is what happens when the longer portion of the curve (10 years or greater) moves up faster than the short end of the curve (2 years or less). You can see in the chart above that the 10-year yield (the green line) is accelerating to the upside during 2021 while the 2-year yield (the pink line) is staying essentially flat. That flat short-end is influenced by the easy monetary policy of the Federal Reserve, where the central bank is holding rates low for the foreseeable future. When you couple easy monetary policy with very easy fiscal policy, specifically the $1.9 trillion stimulus bill making its way through Congress, then the movement of yield curves means that the fixed income market is expecting future economic growth along with some modest inflation.
Another way to view the fixed income picture is by looking at the difference between the 10- and the 2-year yields as shown in the chart directly below. When the difference approaches zero, the yield curve is flattening and that means that future economic growth could be slowing. Fixed income investors want to get paid more in yield for holding longer term bonds. So when they are paying roughly the same for a 2-year bond as a 10-year bond they are not expressing a positive outlook into the future. Since flirting with zero during February and March of 2020, the chart shows an increasingly positive outlook from the fixed income sector.
Overall, the bond market is reacting in a entirely normal and orderly manner to the prevailing economic conditions. Nevertheless, it may seem a little disorderly when an aggregate bond index falls -3% in two and a half months. 2020 was a good year for fixed income, and there was bound to be a pullback. The good news is that this being fixed income there is rarely a drawdown from previous highs that exceeds -5% as you can see from the chart below. The two times that the US Aggregate Bond Index did fall more than -5% during the last thirty years, it rebounded very quickly to new highs.
On Monday, March 1st, the Fortunatus ETF Opportunity models underwent their monthly relative strength rotations. The Global model reduced its exposure to emerging markets equities so that it could add a fund focused on natural resource-related companies in North America.
There were no other trades in the Fortunatus models during the week ending on March 6th, 2021. The major equity market sectors remain in a long-term favorable trend, and the Fortunatus Asset Allocation models are near their maximum allowable equity exposure with domestic stocks favored over international shares.
Executive Wealth Management invites you to attend its VIRTUAL 2021 Economic Forum entitled “Data-Driven Decisions” on Monday, March 15, 2021, from 4:00 PM to 5:30 PM EST. The online event will feature nationally recognized speaker and economist Alex Chausovsky. The forum will explore all the changes that have occurred in the economy and what they mean to your future with the ability to ask questions in real-time.
Alex Chausovsky is an accomplished speaker and serves as Senior Business Advisor at ITR Economics™.
A highly experienced market researcher and analyst, he has more than a decade of expertise in subjects that include macroeconomics, industrial manufacturing, automation, and advanced technology trends. Alex has advised companies throughout the US, Europe, Brazil, China, and Japan for 15 years. He has also been featured on NPR, the BBC, and in The Wall Street Journal.
Executive Wealth Management (EWM) is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Investment Advisor Representatives of Executive Wealth Management, LLC offer Investment Advice and Financial Planning Services to customers located within the United States. Brokerage products and services offered through Private Client Services Member FINRA/SIPC. Private Client Services and Executive Wealth Management are unaffiliated entities. EWM does not offer tax or legal advice. Please do not transmit orders or instructions regarding your accounts by email. For your protection, EWM does not accept nor act on such instructions. Please speak directly with your representative if you need to give instructions related to your account. If there have been any changes to your personal or financial situation, please contact your Private Wealth Advisor.
Returns are calculated as indicated below with reinvested dividends not considered except for the Barclays U.S. Aggregate Bond Index. Data source for returns is FactSet Research Systems Inc. The London Gold PM Fix Price is used to calculate returns for gold
1 Week = closing price on February 26, 2021 to closing price on March 5, 2021
1 Month = closing price on February 5, 2021 to closing price on March 5, 2021
3 Month = closing price on December 4, 2020 to closing price on March 5, 2021
YTD = closing price on December 31, 2020 to closing price on March 5, 2021
All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its accuracy or completeness. All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change without notice. Material provided is for information purposes only and should not be used or construed as an offer to sell, or solicitation of an offer to buy nor recommend any security. Any commentaries, articles of other opinions herein are intended to be general in nature and for current interest. Some of the material may be supplied by companies not affiliated with EWM and is not guaranteed for accuracy, timeliness, completeness or usefulness and EWM is not liable or responsible for any content advertising products or services.