“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
Central banks took center stage last week, but corporate earnings stole the show. Nearly 30% of the S&P 500 Index reported last week and the results were favorable across various sectors and industries. “Even the mega-caps have largely managed to deliver results and guidance strong enough to keep their shares moving higher,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management.
Orton noted that market breadth has been able to expand and show gains not just across sectors but also down the market capitalization spectrum. Small caps have been a key beneficiary of this trend, with the Russell 2000® Index up 5.0% in July, compared to a 3.8% gain for the Nasdaq Composite Index and a 3.1% increase in the S&P 500 Index. “This outperformance can certainly continue as earnings season for small caps picks up in coming weeks,” Orton said.
The broader market can continue to push higher as the returns in previously forgotten sectors and industries catch up with the year-to-date winners alongside this positive fundamental market backdrop. Furthermore, the technical backdrop also favors a continued increase in share prices; however, investors need to be mindful of overly extended sentiment and momentum.
Small cap companies have been outperforming
Source: Bloomberg, as of 7/28/23
“We haven’t had a 5% drawdown since early March, and the S&P 500 is 11% above its 200-day moving average, the highest level since July 2021,” Orton said. “There just aren’t as many pitches to swing at in terms of deploying fresh capital.”
Orton said he believes that some consolidation activity could reset the market and build a base on which equities could continue to push higher. “Even though results have been encouraging in the mega-caps, I still advocate for prudent risk management,” he said. Orton recommends paying attention to the position sizing of big winners and opportunistically rotating into higher-quality areas of the market where valuations remain attractive.
“If the market does provide some much-needed consolidation, I would expect profitable, high free-cash-flow companies with stable earnings growth to outperform,” Orton said. He further noted that these companies can outperform as the market of stocks catches up to the stock market, fueled by enthusiasm around earnings results.
At the start of 2023, investor sentiment reflected fears of a “hard landing” after one of the worst years on record for diversified portfolios of stocks and bonds. “It’s impressive how quickly the market has changed,” Orton said. “Only five months later, capitulation started and remains in full force as the bulls are charging in and scattering the bears.”
Orton explained that the market continues to be supported by a relatively benign economic backdrop and that strong earnings reports, which have surprised bearish investors, quarter after quarter, over the past year. At the end of July, the S&P 500 had gained more than 28% since its lows of October 2022.
“With the U.S. Federal Reserve (Fed) providing yet another reminder that higher for longer means just that, I can’t help but think that we’re flying a bit too close to the sun,” Orton said. He pointed out that equity volatility has collapsed since March’s Silicon Valley Bankrelated market turmoil, and equity volatility remains disconnected from fixed income volatility. “The decline in equity volatility has fueled an increase in the weight to equities within risk-parity models, which increases risk when we do eventually experience some consolidation,” Orton explained. He retains his optimism around equities, but he is also wary of putting more money to work in the current environment.
Orton advises investors to proceed carefully. “The year-to-date rally should remind investors of the importance of remaining invested over the long term – even after a historically awful year for stocks and bonds, like 2022,” he said. In his view, the risk/reward tradeoff is unappealing after such a torrid rally, and he would avoid chasing the market higher.
However, Orton also believes that the massive gap between the stock market and the market of stocks means that there are still some opportunities. “Small caps remain the most compelling opportunity, with relative valuations still close to their lowest level in the past 20 years, even after rallying more than 13% since the end of May,” he said.
Higher quality small-cap companies have started to outperform, and Orton noted that mergers and acquisitions activity has accelerated and broadened beyond the information technology and healthcare sectors. “In addition to small caps, industrials remain strong while energy started to show some signs of improvement last week, outperforming the broader market,” he said. Although healthcare and consumer staples companies have reported positive earnings data, Orton believes that they remain oversold on a relative basis. “They can provide a cushion for investor portfolios when the equity market does correct,” he said.
Outside of the United States, Orton sees emerging markets as appealing with signs that they could outperform relative to domestic markets.
“China bounced last week on speculation of more economic stimulus, but Taiwan and South Korea, my preferred Asia ex-China countries, have remained strong,” Orton said. He noted that earnings in India have been positive, and market consolidation is setting up a more attractive entry point for investors who are underweight or have no exposure. “Overall, we have an opportunity to build more diversified portfolios that should have better risk/return profiles now that the easy money in this rally has been made,” he said.
Despite the headline earnings per share (EPS) growth rate, earnings season has been quite strong. Orton noted that among the companies that have reported, their earnings growth rate is 3.6% year over year. “That might not seem too impressive, but the expectations were for a 7% contraction,” Orton said. He added that there are still more reports to come, but he doesn’t expect to see a meaningful change, due in part to the surprisingly strong second-quarter gross domestic product (GDP) report.
More than half of companies included in the S&P 500 have reported their earnings results, and 80% of them exceeded EPS estimates. Consumer discretionary, information technology, and communication services companies have exceeded estimates by the largest margins, which Orton cited as a possible reason why those sectors have maintained their momentum.
The S&P 500 blended net profit margin has decreased from last year, but it remains strong at 11.3%. “It’s well above where many analysts were expecting, and it reflects corporate America’s ability to preserve margins as the operating environment changes,” Orton said. He isn’t seeing analysts cut their estimates for 2024, and that could provide an important tailwind for the market.
Earnings may have stolen the spotlight, but updates from the Fed, European Central Bank (ECB), and Bank of Japan (BoJ) cannot be ignored. “The Federal Reserve came in as expected, hiking rates by 25 basis points and re-emphasizing that its future decisions will be data-dependent,” Orton said. The ECB also hiked by 25 basis points, which was expected by the markets, although the shift from an explicit tightening bias to a more dovish path for future policy rates means that September’s meeting will be a close call.
The BoJ provided the biggest surprise, but the immediate market reaction was blunted by a Nikkei story that was published in advance. Japan’s central bank changed the 0.5% ceiling on its yield curve control (YCC) from a rigid limit to a reference point while raising the offer rate of its fixed-rate 10-year Japanese government bond (JGB) buying operations from 0.5% to 1%. Orton said, “This isn’t too dissimilar from widening the YCC band, although it is slightly less hawkish at the margin if the BoJ indeed steps up the pace of purchases between 0.5% and 1% in 10-year Japanese government bonds.”
These central bank decisions have been followed by global yield curve steepening. Orton pointed out that short-dated bond yields could see some additional downward pressure if inflation continues to show signs of easing and central banks pause their tightening cycles.
“The BoJ’s actions have removed an anchor for global 10-year yields, and they have exposed markets to potential fluctuations in longterm yields,” Orton said. “I think the ultimate move in JGB yields is somewhat limited, given the appetite from domestic investors at higher yields.” In his opinion, the global steepening of the yield curve has some room to continue, especially if Friday’s non-farm payroll numbers are relatively in line with expectations.
Earnings will remain a major focus, with almost a third of S&P 500 companies set to release numbers this week. That includes the remaining two mega-caps and some key healthcare and consumer firms. Some major economic reports will be released this week, including construction spending, the U.S. manufacturing purchasing managers’ index, and factory orders, as well as the jobs report on Friday. Orton believes that employment data is likely to highlight a moderation from recent trends, but he expects that it will continue to show a tight labor market. The Fed has emphasized that future rate decisions will depend on economic data, and concerns around wage inflation have been a key consideration.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Definitions:
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Quality investing is a strategy that seeks to invest in companies with low debt, stable earnings, consistent asset growth, and strong corporate governance, as reflected in financial metrics such as ratios of return to equity and debt to equity, as well as to earnings variability.
Factor investing is an approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.
Mega-cap stocks are companies with market capitalizations that are in the trillions or hundreds of billions of U.S. dollars, levels that far exceed many of the other stocks in the S&P 500 Index.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock. The market capitalization spectrum refers to the full range of companies from firms with a small- or mid-sized market capitalization through the largest mega-cap companies.
A moving average is a calculation that takes the arithmetic mean of a given set of data points over the specific intervals of time.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
Rotating describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
A “hard landing” scenario is one where a central bank tightens monetary conditions to the point where it triggers a widespread recession.
“Higher for longer” describes a monetary policy approach where a central bank keeps interest rates at higher levels for longer periods of time.
Risk-parity models use risk to determine asset allocations while diversifying an investment portfolio to optimize returns.
Oversold is a term used to describe a security or group of securities believed to be trading at a level below its or their intrinsic or fair value.
A blended net profit margin combines actual net profit margins from companies that have reported earnings and estimated margins for companies that have yet to report.
Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Yield curve control occurs when a central bank targets a longer-term interest rate and then buys or sells as many bonds as necessary to hit that targeted rate.
A yield curve control band is a defined range of maturities of government bonds targeted by central banks engaged in yield curve control efforts..
A yield curve is a line that plots yields (interest rates) of bonds that have equal credit quality but differing maturity dates. The slope of the yield curve is said to be steeper when there are larger differences between the yields of different maturities.
Indices:
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.
The Dow Jones Industrial Average is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and the Nasdaq.
The S&P 500® Equal Weight Index (EWI) includes the same constituents as the capitalization-weighted S&P 500 Index, but each company in the S&P 500 EWI is allocated a fixed weight.
The Purchasing Managers’ Index (PMI) measures the prevailing direction of economic trends in the manufacturing sector. It is created by the Institute for Supply Management (ISM), and consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-411929 Exp. Exp. 11/30/23
The U.S. Federal Reserve (Fed) and other central banks are scheduled to make some key decisions, but this is a week to watch earnings closely.
“While central banks matter, earnings, at least for equity markets, will be the primary drivers in the near term,” said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. “We might get a little consolidation induced by hawkishness from the Fed, but the earnings backdrop will take shape as 150 S&P 500 companies report and offer guidance this week.”
The market of stocks is trying to make a comeback as breadth slowly continues to increase. Positive earnings results across many of laggards so far this year have helped to increase market breadth – and there is still a long way to go with the dispersion between the top and bottom sectors in the S&P 500 at 48% year to date: information technology is up 43.79% while energy is down -4.07% for 2023 as of July 21. The Russell 2000® Index once again outperformed its larger counterparts, and the Dow Jones Industrial Average notched its 10th straight winning session: its longest in nearly six years. This week’s earnings reports include two of the S&P 500’s biggest companies. As we saw last week, some of the biggest gainers that are priced for perfection face a high hurdle with respect to both earnings results and guidance. We’ll also hear from the Fed’s Federal Open Market Committee and likely will see the last interest rate hike in U.S. Federal Reserve’s cycle, though Orton said he expects Fed Chair Jerome Powell to re-emphasize that rates will remain elevated for longer than the market anticipates.
“I’m actually surprised that the market is still pricing in rate cuts to start early next year,” he said. “Economic data continues to surprise to the upside and the labor market remains tight while core inflation sits at 4.8%, far from the Fed’s target of 2%. Any hawkish shifts in where the market prices future rates could be an additional headwind for the higher-duration equity complex, and last week highlights the challenges to the overbought momentum winners of the year.”
Consequently, Orton said he continues to believe now is the time to manage the position sizes of big winners and to cycle into higher-quality areas of the market that have been priced for the worst.
“We’re seeing these companies outperform as the market of stocks catches up to the stock market, fueled by enthusiasm around earnings results,” he said. “And if the market starts to consolidate, I would expect profitable, high free-cash-flow companies with stable earnings growth to outperform as they have over the last couple of weeks.”
“There have been some noteworthy developments over the past week in the equity market, all of which give me confidence this isn’t some sort of unprecedented bear market rally,” Orton said. The S&P 500 has now retraced more than 75% of its peak-to-trough losses, which is significant from a technical perspective and tends to signal a long-term upward trend. Orton said the move is quite meaningful since in every bear market since 1929, a retracement to this level foreshadowed a durable uptrend following bear markets with a drop of 20% or more. The average return 90 days after crossing this retracement level was 4.4%, and it was positive in 13 of 16 instances. Most importantly, in the few cases where the index was down, it did not come close to the lows of the previous bear market. Orton noted that we also saw some positive developments on the factor side, with value, profitability, growth, and quality all performing while beta took a bit of a breather.
“I believe this change beneath the surface can continue as breadth increases, which is why I believe quality and growth at a reasonable price (GARP) are due for a comeback,” he said.
Finally, investor bullishness continues to increase, but it’s largely confined to retail investors. The American Association of Individual Investors Sentiment Survey’s weekly reading for bullish sentiment is now 51.4%, the highest level in the last year, and the ratio of bulls to bears stands at 2.4, the second-highest level since the start of the post-COVID rally. Such high readings tend to occur near local market peaks, and Orton said he wouldn’t be surprised to see a bit of market consolidation in the near term, especially if mega-cap earnings aren’t perfect and weigh on the broader indices.
“Frankly, some consolidation would be healthy for the market,” he said. “That said, I expect the market to grind higher after we reset some of the overextended sentiment and momentum.”
S&P 500 sector returns year to date start to broaden
Source: Bloomberg as of 7/21/23
Investor positioning is quite bullish
% of bulls in the American Association of Individual Investors Sentiment
Source: Bloomberg, as of 7/21/23
Central bank week starts with the Fed on Wednesday, followed by the European Central Bank on Thursday and the Bank of Japan on Friday.
“While I believe the data signals that this will likely be the last hike of the cycle, I don’t expect the Fed to signal the all-clear,” Orton said. “At the end of the day, more slack is required in the labor market to slow inflation sustainably toward the Fed’s target and Powell will likely signal this during the news conference.”
This could weigh on risk assets given the perpetual pricing of premature rate cuts, Orton said. Additionally, he said he expects the European Central Bank to hike rates and retain a tightening bias while Japan could widen the band of fixed-income maturities targeted by its yield curve control efforts. This might stymie the move lower of the U.S. dollar, which could also add some pressure to U.S. equities that have benefitted from the downtrend. But outside of the very short term, he said it’s earnings that will drive the market since none of the outcomes of the central bank meetings are likely to be surprising.
On the earnings front, Orton said the generally positive results from both big banks and the regionals was encouraging and serve as a reminder that anything that is priced for the worst and doesn’t see the worst materialize will be rewarded by the market. The KBW Nasdaq Regional Banking Index rose more than 7.5% last week, and it looks like we may be seeing the inflection point for deposit flight. Outside of financials, major airlines have all reported strong results and increased guidance with a very positive outlook on consumer travel going forward. Homebuilders also continue to break new highs and earnings results so far have been positive. These positive results have led to a broadening from materials to insurance to medical devices to oil. As more results pour in, these rotation winners likely continue to be supported. If we get any consolidation in the short term as a result of the macroeconomic cross-currents, Orton said he believes it sets up as a good time to add to these year-to-date laggards, particularly small caps, which have some positive momentum.
Small caps have bullishly made a series of higher lows and higher highs with the Russell 2000 meaningfully outperforming the large-cap indices since lifting off at the end of May. In fact, the Russell 2000 was up 12.3% from June 1 to July 21 while the S&P 500 was up 8.7% and the Nasdaq Composite Index was up 8.3% for the same time. Should we experience any consolidation with dollar firmness in the short term, Orton said he would use this as an opportunity to continue adding exposure. Valuations remain the cheapest relative to large caps since 2002 and if we see the trough in earnings that Orton said he expects, upward estimates into 2024 and a rising percentage of companies reporting earnings or revenue that exceed estimates should provide support.
“Small caps have been massively under-owned, and it doesn’t take too much of a rotation out of the largest names to make a big impact down the market-cap spectrum,” Orton said. Additionally, decent results from the regional banks also should provide additional support for small caps as the worst-case scenarios look to be off the table, he said. Coupled with low volatility, high-yield credit spreads that continue to tighten and a weaker dollar all support small caps.
Small caps: A solid base with room to run
Ratio of Russell 2000 to S&P 500 returns
Source: Bloomberg, as of 7/21/23
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Definitions:
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising
interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Dispersion refers to the range of outcomes in different areas of a financial market or to the potential outcomes of investments based on historical volatility or returns.
Core inflation is measured by the Personal Consumption Expenditures (PCE) excluding Food and Energy, Price Index, also known as the core PCE price index, is a measure of the prices that U.S. consumers pay for goods and services, not including two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, measures inflation trends and is watched closely by the U.S. Federal Reserve as it conducts monetary policy.
Equity duration is the cash-flow weighted average time at which investors can expect to receive the cash flows from their investment in a company’s stock. Long-duration stocks include fast-growing technology companies, including those that may not pay any dividends in their early years, while short-duration stocks tend to be more mature companies with higher ratios to dividend to price.
Overbought is a term used to describe a security or group of securities believed to be trading at a level above its or their intrinsic or fair value.
Retracement is a technical term that describes a minor pullback or change in the direction of a stock, index, or other financial instrument. Retracements are considered to be temporary and do not signal a shift in the larger trend.
Factor investing is an approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Profit factor investing considers the gross profit of an investment divided by the gross loss (including commissions) for the entire trading period. This method is used to assess the amount of profit per unit of risk, with values greater than one indicating a profitable system.
Beta is a measure of the volatility or systemic risk of a security or portfolio compared with the market as a whole.
Growth at a reasonable price (GARP) is a stock investment strategy that seeks to combine tenets of both growth and value investing in the evaluation and selection of individual stocks. GARP investors look for companies with consistent earnings growth above broad market levels but try to avoid companies with very high valuations. By trying to avoid the extremes of either growth or value investing, GARP investors often end up focusing on growth-oriented stocks with relatively low price-to-earnings multiples in normal market conditions
The American Association of Individual Investors Sentiment Survey each week asks its members: What direction do they feel the stock market will take in the next six months? Answers are sorted into bullish, neutral, and bearish categories. The survey’s ratio of bulls to bears is calculated by subtracting bullish responses from bearish responses.
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The curve’s slope gives an idea of future interest rate changes and economic activity.
Yield curve control occurs when a central bank targets a longer-term interest rate and then buys or sells as many bonds as necessary to hit that targeted rate.
A yield curve control band is a defined range of maturities of government bonds targeted by central banks engaged in yield curve control efforts.
Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
Technicals refers to technical indicators of historic market data, including price and volume statistics, studied by analysts looking for larger market patterns.
Deposit flight refers to large withdrawls of bank deposits by customers seeking greater security. Deposit flight often transfers deposits from smaller to larger banks.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
High-yield bonds pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds have credit ratings below BBB- from Standard & Poor’s or below Baa3 from Moody’s.
A credit spread is the difference in yield between a U.S. Treasury bond and another debt security with the same maturity but different credit quality. Credit spreads are measured in basis points, with a 1% difference in yield equaling a spread of 100 basis points. Credit spreads reflect the risk of the debt security being compared with the Treasury bond, which is considered to be risk-free. Higher quality securities have a lower chance of the issuer defaulting. Lower quality securities have a higher chance of the issuer defaulting.
Indices:
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Dow Jones Industrial Average is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and the Nasdaq.
The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.
The KBW Nasdaq Regional Banking Index seeks to reflect the performance of U.S. companies that do business as regional banks or thrifts.
The Nasdaq Composite Index is the market capitalization-weighted index of more than 2,500 common equities listed on the Nasdaq stock exchange.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-409056 Exp. Exp. 11/24/23
Equities notched another solid week as surprisingly moderate U.S. inflation data decreased the probability of further interest rate hikes after July, said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management.
“While the continued easing of inflationary pressures is welcome news, I worry that the market is getting ahead of itself once again,” Orton said. He pointed to last week as a great example: With inflation coming in lower than expected, traders abandoned their expectations for two more rate increases, and the Bloomberg U.S. Aggregate Bond Index posted its best week since November. But now rate cuts are being re-priced sooner with a much faster easing of monetary conditions on the premise that inflation has been defeated. The U.S. Federal Reserve (Fed) has been vocal in expressing its caution around prematurely easing policy, which leaves Orton hesitant to chase the recent inflation-driven steepening moves.
“Higher for longer really means just that,” he said. “And investors must assess whether the long and variable lags of the most rapid rate-hiking cycle in the past 40 years will weigh more heavily on the economy and, more critically, on corporate profits. I remain optimistic and don’t want to fight the positive momentum in the short term, particularly the series of higher highs and higher lows, but we should be aware that the current advance is extended with overly euphoric sentiment and cross-asset volatility that is likely to pick up. So, yes, keep owning this market, but use pullbacks opportunistically rather than chasing the rally higher.”
Earnings season is off to a solid start and guidance from consumer-oriented companies has been strong while commentary from the big banks offered a positive snapshot of the American consumer. Orton said he continues to believe that going forward earnings season will be the key to broadening the market. We’ve seen strong upside reactions to positive results and guidance from companies that have been tossed aside for most of this year. And those that were priced for perfection have had more muted responses or have fallen despite solid results. As a result, Orton said he continues to believe now is the time to manage the position sizes of big winners and to lean into higher-quality companies. He said he expects these companies to benefit the most as the market of stocks catches up to the stock market, hopefully fueled by enthusiasm around earnings results. And if the market starts to consolidate more, Orton said he would expect that profitable, high free-cash-flow companies with stable earnings growth could outperform as they have over the last couple of weeks.
“Overall, I believe the market remains biased toward the upside in the short term given positive earnings momentum and supportive economic data,” he said. “I get the feeling that more investors believe we’re entering a Goldilocks environment where a ‘good enough’ economy coupled with a trough in earnings will support the market throughout the second half of the year.”
That said, Orton added that he doesn’t believe it will be an even path, particularly given the lack of appreciation for what higher for longer means. Rather, he said he expects a bumpier path as the market broadens and rotates somewhat away from mega-cap technology and toward growth at a reasonable price (GARP) and smaller companies. While the mega-caps did well last week, the S&P 500® Equal Weight Index performed in line with the cap-weighted index while small caps outperformed. A healthy rotation will look something like this, he said, with the largest companies holding up well but the broader market outperforming as new money is put to work more selectively. This week brings a glimpse into how investors react as two of the growthiest mega-cap tech winners year to date both report earnings. We’ll also hear from the remaining constituents of the KBW Nasdaq Bank Index. Orton said good performance in the larger banks could help continue the increase in breadth that we need to see in order to push the market higher.
The earnings apocalypse that many analysts predicted never came to fruition, and Orton said he expects corporate earnings to hold up, supported by a strong consumer. Earnings trends have improved this year as the “profit recession” of 2022 fades. We’ve seen certain industries emerging from their rolling recessions (e.g., homebuilders, semiconductors, and money center banks) while others are seeing upgrades like mega-cap tech and industrials. Energy has been and will be a drag on index earnings per share (EPS) growth given difficult comps – comparisons to the sector’s big gains last year – and rangebound crude oil prices. That said, excluding energy, EPS growth for the S&P 500 is showing signs of healing. And while total index earnings expectations for the second quarter stand at -7.1%, Orton said it’s worth noting that seven sectors are still projected to report year-over-year growth in revenues, led by the financials and consumer discretionary sectors. Earnings also will likely come in higher than expectations, he said. Though it’s early in earnings season, 80% of companies reporting so far have beaten expectations. Margins also are expected to come in at 11.4%: well above pre-pandemic levels.
Many anomalies have arisen this year with respect to size as the mega-caps drove nearly all of the market returns in the first half of the year. The largest S&P 500 companies by market capitalization (i.e., the top quintile) currently trade at 3.7x sales versus 1.8x for the smallest quintile of companies. This puts the premium for larger companies at 2.7 standard deviations above the five-year pre-pandemic spread. When the picture is expanded to small caps, the differences become even more stark given the underperformance of the Russell 2000® Index. The top five S&P 500 stocks now trade at 13x sales versus 1.7x for small caps. Valuation differentials between large and small also are at the widest levels since 2002. Earnings for small companies look to be troughing with 2024 expectations well ahead of large caps (even after large markdowns over the past few quarters). The percentage of Russell 2000 stocks reporting earnings that exceed estimates also has been increasing.
Orton said he also believes that earnings season will continue to shift the market away from its almost exclusive focus on the largest growth companies. GARP has been out of favor in 2023 as 2022’s biggest losers were bid up at the start of the year, followed by incredibly concentrated market performance after the regional banking crisis in March. But Orton said he believes it will be difficult to sustain a meaningful decline in longer-dated interest rates right now given the bias of the Fed. Even last week’s University of Michigan Index of Consumer Sentiment survey showed a continuation of elevated inflation expectations with the survey’s five- to 10-year average expectations hitting the highest level since 1996. We’re seeing profitability as a factor start to bottom, and Orton said a focus on valuation likely follows if there is meaningful dispersion in earnings, particularly if higher-quality companies provide upbeat guidance and beat expectations. Healthcare comes to mind, he said, particularly health maintenance organizations that look to be on sale, with one major health insurance company surging after reporting earnings that beat estimates and raising the bottom end of its guidance. This is just one example of an area of the market that has underperformed meaningfully year to date despite solid fundamentals, Orton said.
It’s worth noting that since June 1, the Russell 2000 has beat both the S&P 500 and the Nasdaq Composite Index thanks to recession fears subsiding. We have also seen volatility collapse, high-yield spreads tighten, and the dollar weaken. This is very supportive for small caps as well as for value and the cyclical stocks, Orton said. If the more positive results from large-cap banks translate down the market-cap spectrum to the regional banks, Orton said he would suspect that could provide a much-needed boost to sentiment for small caps, while increasing economic optimism should continue to benefit cyclicals.
Higher for longer
Inflation expectations at the highest level since 1996
Source: Bloomberg, University of Michigan Index of Consumer Sentiment, as of 7/14/23
Small caps have started to outperform
Source: Bloomberg, as of 7/14/23
This week’s focus will mostly be on financial earnings, though we also get some big reports from two of the biggest mega-cap tech companies. Economic reports of note include the latest Empire State Manufacturing Survey, the June retail sales report, sales of existing homes, and another jobless claims update. Federal Reserve members are in a blackout period ahead of the Federal Open Market Committee meeting scheduled for July 25-26.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Definitions:
Growth at a reasonable price (GARP) is a stock investment strategy that seeks to combine tenets of both growth and value investing in the evaluation and selection of individual stocks. GARP investors look for companies with consistent earnings growth above broad market levels but try to avoid companies with very high valuations. By trying to avoid the extremes of either growth or value investing, GARP investors often end up focusing on growth-oriented stocks with relatively low price-to-earnings multiples in normal market conditions.
Rotation describes the movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
Growth investing is a stock-buying strategy that focuses on companies expected to grow at an above-average rate compared to their industry or the market.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
A rolling recession is an economic downturn that does not impact all parts of the economy equally or at the same time. It can be a recession that rolls through various sectors of the economy at different times.
Money center banks are large banks situated in economic hubs that primarily deal with governments, other banks, and big corporations.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Comps, short for comparables, carries different meanings depending on the industry and context, but generally entails a comparison of financial metrics and other factors to quantify performance or determine valuation.
Rangebound is a condition where the value of a security keeps vacillating between the low and high ends of a narrow range. For example, if the 10-year Treasury yield repeatedly vacillated between 3.75% and 4.25%, it would be described as “rangebound.”
A quintile is a statistical value representing 20% of a given set of data. The first, or lowest, quintile represents the lowest fifth of the data (1% to 20%), and the highest quintile represents the top fifth (81% to 100%).
Standard deviation is a measure of the dispersal or uncertainty in a random variable. For example, if a financial variable is highly volatile, it has a high standard deviation. Standard deviation is frequently used as a measure of the volatility of a random financial variable.
The University of Michigan Index of Consumer Sentiment is based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.
Factor investing is an approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.
Profit factor investing considers the gross profit of an investment divided by the gross loss (including commissions) for the entire trading period. This method is used to assess the amount of profit per unit of risk, with values greater than one indicating a profitable system.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
High-yield bonds pay higher interest rates because they have lower credit ratings than investment-grade bonds. High-yield bonds have credit ratings below BBB- from Standard & Poor’s or below Baa3 from Moody’s.
Cyclical stocks have prices influenced by macroeconomic changes in the economy and are known for following the economy as it cycles through expansion, peak, recession, and recovery.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York.
Indices:
The Bloomberg U.S. Aggregate Bond Index is composed of the total U.S. investment-grade bond market. The market-weighted index includes Treasuries, agencies, commercial mortgage-backed securities, asset-backed securities, and investment-grade corporates. It is not possible to invest in an index.
The KBW Nasdaq Bank Index is designed to track the performance of the leading banks and thrifts that are publicly traded in the United States. It includes 24 banking stocks representing the large U.S. national money centers, regional banks and thrift institutions.
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The S&P 500® Equal Weight Index is the equal-weight version of the S&P 500. It includes the same constituents as the capitalization-weighted S&P 500, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight, or 0.2% of the index total at each quarterly rebalance.
The Nasdaq Composite Index is the market capitalization-weighted index of more than 2,500 common equities listed on the Nasdaq stock exchange.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
“Bloomberg®” and the Bloomberg U.S. Aggregate Bond Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Raymond James Investment Management. Bloomberg is not affiliated with Raymond James Investment Management, and Bloomberg does not approve, endorse, review, or recommend Markets in Focus Weekly Insights. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Markets in Focus Weekly Insights.
M-404448 Exp. Exp. 11/17/23
It’s not surprising to see the markets taking a bit of a breather after an impressively strong first half of 2023, said Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management. Now, he said, earnings and “how the market deals with a meaningful surge in interest rates are going to be really important in the near term.”
Equities struggled for direction in a holiday-shortened week as interest rates jumped, particularly at the back end of the curve, following significantly stronger than expected private hiring data in the United States. However, the monthly Employment Situation Summary report from the U.S. Bureau of Labor Statistics showed that nonfarm payrolls (NFP) were weaker than expected while wage growth re-accelerated.
“These conflicting signals around the state of the jobs market still need to be reconciled by investors, but I believe the key takeaway is that both reports provide support for the U.S. Federal Reserve to hike rates in July and to keep the prospect for future hikes alive,” Orton said. “I expect markets to remain choppy in the near term as we continue to work off some of the overextended sentiment and momentum from June and digest this week’s Consumer Price Index (CPI) and Producer Price Index (PPI) data for June.”
Earnings season also kicks off in earnest this week with money center banks starting to report on Friday. Orton said he is watching for earnings to be the catalyst that could accelerate the increase in breadth needed to sustain the market going forward. With the S&P 500 Index trading at 20.2x forward earnings following one of the strongest starts to a year in history, he said many companies are priced for perfection.
“Companies that have run up simply on enthusiasm around artificial intelligence (AI) will have to deliver – or at least be very specific in their guidance – to avoid being put in the penalty box,” Orton said. And he said those that have solid fundamentals in the current environment, yet have been tossed aside year to date, have the potential to break out. As a result, he said he continues to believe now is the time to manage the position sizes of big winners and to lean into higherquality companies. These companies could benefit the most as the market of stocks catches up to the stock market, which he said he hopes will be fueled by enthusiasm around earnings results. And if the market starts to consolidate more, Orton said he would expect profitable, high free-cash-flow companies with stable earnings growth to outperform as they have over the last couple of weeks.
It’s clear that financial markets have been rattled both by more hawkish communications from central banks and some firmer-thanexpected U.S. economic data in recent days.
“I’m still surprised by the market’s resistance to embrace the Fed’s message of higher for longer, but the market has begrudgingly been moving to the Fed,” Orton said. “And I don’t believe the surprise nonfarm payroll print changes anything with respect to a July hike. Rather, it simply reduces the probability of back-to-back hikes that Fed Chair Jerome Powell previously said couldn’t be ruled out. I believe the nonfarm payroll report was a welcome signal in that the jobs market continues to grow, just at a decelerating pace.”
The May Job Openings and Labor Turnover Survey (JOLTS) report also showed resiliency in the labor market with some welcome signs of cooling. One of Powell’s favorite gauges – the ratio of job openings to unemployed workers – slid from 1.8 to 1.6, the lowest since October 2021. In total, the recent data shows that supply and demand are moving closer into balance. Maintaining a strong labor market is critical to keeping the consumer spending, and Orton said recent signs of normalization help provide the Fed with some breathing room to keep the soft landing alive.
Labor supply and demand are moving closer into balance
Ratio of job openings to unemployed workers
Source: Bloomberg, U.S Bureau of Labor Statistics, as of 7/7/23
Payrolls remain solid, but growth is decelerating
Source: Bloomberg, U.S. Bureau of Labor Statistics, as of 6/30/23
From a positioning standpoint, Orton said he believes investors need to be selective as the risk/return setup just isn’t compelling in the short term for the market as a whole heading into earnings season. That said, he added that there are plenty of opportunities beneath the surface. Industrials continue to impress and he said he still favors machinery, construction materials, and trading companies, which are all at or near three-month relative highs. Healthcare has been a drag year to date, but Orton said he believes there is substantial value in health maintenance organizations, which are trading at the cheapest valuations since 2020 and could surprise to the upside when reporting results given that a lot of bad news is already baked in. Small caps remain attractive, he said, and if this rally continues to broaden, small should be one of the biggest beneficiaries. Relative valuations are near multi-decade lows and in a testament to the narrowness of the market, the performance gap between the Russell 2000® Index and Nasdaq Composite Index is the widest ever at over 31%. The top five names in the S&P 500 are 3.5 times the entire market capitalization of the Russell 2000, and enthusiasm around a more benign economic backdrop has yet to benefit small caps. Critically, Orton said, earnings expectations have troughed and started to reverse and full-year 2024 earnings per share (EPS) growth expectations for the Russell 2000 remain solidly ahead of large caps.
Diversification also remains highly important in this market, Orton said. The entire U.S. Treasury curve is yielding over 4% for the first time in more than 15 years. After the jump higher in yields last week, he said this is a very interesting time to look at extending duration. Within domestic equities, there are attractive valuations and high-quality businesses that have been tossed aside in the narrow rally and are starting to get attention as the market broadens. Small and mid caps are two of the most attractive opportunities now, he said, particularly for active managers. International developed markets have been holding up: Europe has surprised to the upside and Japanese equities have surged, though Orton said he would like to see a bit more of a pullback there before adding to positions. Emerging markets are also finding their footing overall, but Orton said he prefers leaning into what has been working (e.g., Asia ex-China, Latin America, and India). Anyone fearful of taking risk and hiding in money markets could be disappointed when they look at their statement for the midpoint of 2023.
“You didn’t need to own the Nasdaq or even the S&P 500 Index to have been successful so far this year,” Orton said. “And going forward, I expect that well-diversified portfolios could continue to provide the solid risk-adjusted returns that investors seek.”
Heading into the second-quarter 2023 earnings season, the estimated earnings decline for the S&P 500 is -7.2%. Given the decline that is already expected, Orton said it will be important for companies to report better than feared results to sustain the market at current valuations. Guidance will also be critical given the economic backdrop.
Looking ahead, analysts still expect earnings growth for the second half of 2023. For the third and fourth quarters, analysts project earnings growth of +0.3% and +7.8%, respectively, which would bring calendar year 2023 to a slightly positive earnings growth level of 0.8%. Critically, the estimated net profit margin for the S&P 500 is expected to remain on an elevated trajectory, which has surprised many of the bears this year. The estimated net profit margin for the S&P 500 for the second quarter of 2023 is 11.4%, just below last quarter’s 11.5%.
“If margins hold up, I believe that will be yet another sign of the resiliency of corporate America,” Orton said.
The latest update on inflation in the U.S. will drop with the June CPI report on Wednesday. We also get PPI on Thursday, though Orton said he doesn’t expect either of these reports to change the likelihood of hike rates at the July meeting. Earnings season also kicks off with major banks reporting on Friday. The readout from the banks with respect to deposit flows and loan growth will likely trickle down to regional banks and influence investor sentiment around the resiliency of the economic narrative.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce return.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer; or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
Definitions:
A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.
The U.S. Bureau of Labor Statistics (BLS) payroll report, known as the Employment Situation Summary, is a monthly report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
The U.S. Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
The Producer Price Index (PPI), published monthly by the U.S. Bureau of Labor Statistics, measures the average change over time in the selling prices received by domestic producers for their output.
Breadth describes the relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean.
Consolidation is a term used in technical analysis to describe when stocks reverse previous gains (or losses) to stay within well-defined trading levels.
Forward earnings per share is an estimate for the next period’s earnings per share for a company’s profit divided by the outstanding shares of its common stock.
Hawkish, dovish, and centrist are terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
The Job Openings and Labor Turnover Survey (JOLTS) program produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics.
Market capitalization, or market cap, refers to the total dollar market value of a company’s outstanding shares of stock.
Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
Duration incorporates a bond’s yield, coupon, final maturity, and call features into one number, expressed in years, that indicates how price-sensitive a bond or portfolio is to changes in interest rates. Bonds with higher durations carry more risk and have higher price volatility than bonds with lower durations.
A net profit margin, often shortened to net margin, measures how much net income or profit a company generates as a percentage of revenue. It can be expressed as a percentage or a decimal.
Indices:
The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
The Nasdaq Composite Index is the market capitalization-weighted index of over 2,500 common equities listed on the Nasdaq stock exchange.
The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 7% of the total market capitalization of the Russell 3000® Index.
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group companies. Russell® is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
M-400999 Exp. Exp. 11/10/23
