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428,000 NEW JOBS: The U.S. economy added 428,000 new jobs in April, the 12th straight month of more than 400,000 jobs. The unemployment rate stayed the same at 3.6%. After 26 months, we are getting close to getting all those jobs back, but not quite there. There are 6.6 million more jobs in the economy than there were a year ago. Wages in April were 5.5% higher than one year ago. Unfortunately, the Labor Force Participation Rate decreased from 62.4% to 62.2% (the second graph below). In a tight labor pool, that is a puzzling statistic.
(Source: bls.gov/news.release/empsit.nr0.htm) |
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| JOB OPENINGS: In the graph below, you can see that there are currently 1.94 jobs available for every unemployed job seeker in the U.S. |
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| HALF A POINT: The U.S. Federal Reserve Bank approved a one half percentage point increase to the Fed Funds Rate. It also released its plan to reduce its portfolio, tightening policy even more to try to slow inflation that is running at 40-year highs. Fed Chair Jerome Powell indicated that the Fed was ready to raise rates 0.5% again in June and July if conditions (high inflation, strong labor market) persist. U.S. stocks immediately rallied (there was fear of a 0.75% increase), but the rally did not hold throughout the week. |
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| TUMULTUOUS WEEK ENDS NEAR WHERE IT STARTED FOR S&P 500: S&P 500 stock prices ended the week close to where they started, but there was a lot of volatility in the process. Tech-focused stocks did not fare as well with the NASDAQ Composite index down another 1.5%, the fifth straight week of 1% or greater losses in that index. Currently, the big fear seems to be that the Fed will be too aggressive in fighting inflation. Markets rallied after the Fed raised rates 0.5% and not 0.75%, and after Jerome Powell strongly indicated that 0.5% increases seem to be as high as the Fed wants to go in any one-time increase. But worry soon returned and markets moved down again. |
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| PERSPECTIVE: We have not had a market this challenging for a while, and it is easy to forget. So, for perspective, below are the annualized three-year and five-year numbers for these same indices. It was inevitable that bonds would run into this wall at some point with interest rates historically low for so long. International stocks have been positive but not spectacular. U.S. stocks have done well. These all take the current year into account. If you had a diversified portfolio with all three components during this time frame, you received respectable returns. |
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| ARK INVESTMENT MANAGEMENT, A CAUTIONARY TALE: Ark Investment Management was founded in 2014 by Cathie Wood. The basic premise behind her exchange traded funds is finding investing in companies involved in disruptive innovation. In 2020, the fund got a lot of attention due to its outsized returns. The Ark Innovation ETF (ARKK) had a 157% return in 2020. From its inception to the end of trading on May 5, 2022, its average annual returns have been 15.25%, a more than respectable return. (The average annual return of the S&P 500 was 10.16% during the same time.) The 2020 returns caught the attention of investors. At the end of 2019, ARKK had a total of $1.85 billion. By the end of 2020, that total was up to $34.4 billion. Funds kept coming in. By the end of February 2021, the fund was up to $51.35 billion.
What happened if you caught on to what was happening, and jumped on the bandwagon (when so many investors did), in late 2021? From November 1, 2021 until the close of trading on May 6, the fund was down 63.55% (compared to the S&P 500 which was down 10.63% during that time frame).
So what lessons can we learn?
- To be a hot performer, a fund must be concentrated. As of the end of 2021, ARKK owned 25 stocks, and the top 10 comprised 55% of the portfolio. A more diversified portfolio is not likely to ever be a hot performer.
- Hot performers can go very cold, and quickly.
- Investors in hot funds often don’t get hot returns. The vast majority of the investors in ARKK did not get that 157% return in 2020. Remember, it started the year at 5% the size it would end the year. Only those holding ARKK at the beginning of the year got that outsized return. Those who “jumped on the bandwagon” got less than that, or significantly worse.
ARKK still gets great press, and gets a lot of respect for their investing acumen, despite the recent drop in value. It may very well be a top performer again, and those who “bought at the top” may very well see another meteoric rise. ARKK investors who bought at an inopportune time may be rewarded if they are patient (but many will not be patient). Cathie Wood says that her fund invests with a five-year perspective. Do the recent investors in ARKK all have a five-year perspective? If you invest in a hot fund, make sure you like it for what it can do for you in the long term, and have a diversified portfolio around it in case hot turns cold. |
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CONTINUING TO WATCH THE DATA: The number of people dying in the U.S. and in the world who are COVID positive continues to decrease. U.S. deaths dropped another 11% after a 22%. World deaths moved down by 20%. (World data on bottom graph below).
(Source: worldometers.info/coronavirus) |
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| HOSPITALIZATIONS: The number of patients in U.S. hospitals who are COVID positive increased from a little below 11,000 to a little below 12,000, so another 10%. The amount of people in ICU beds in the U.S. who are COVID positive remained about the same at 2,112, still close to the record low. Recorded infections have been rising off the most recent low, from roughly 30,000 per day to about 60,000 per day (down from 800,000 per day in January), so that number is rising, so we’ll have to watch that in the coming weeks. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/ AND coronavirus.jhu.edu/data/hospitalization-7-day-trend). |
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| JOAN AND SHIRLEY: I am a very fortunate man to be able to talk to both of my mom’s on Mothers’ Day. Both Joan (my mom) and Shirley (my mother-in-law), grew up as small children during the lean times of World War II, which affected their view on money and spending and the value of every item of property (“you can’t throw that away!”) to this day. My mom is the picture of resilience. She worked the 11pm to 7am shift as the fire department dispatcher for many years while raising five children. She has somehow managed to persistently love her children and maintain her faith in God despite losing a son at 35, a brother at 36, and her husband at 55, amidst a few other major hardships. She is an inspiration, and I take her for granted way too much. From day one, Shirley accepted me into the family. She has the gift of encouragement. No matter where I was in life, she always managed to make me sound like the most successful person on the planet. One time I cleaned and rearranged my garage, and the way she remarked about it I might as well have just received the Nobel Peace Prize. She has also inspired through her work volunteering for legal aid services and supporting her husband’s business while raising two girls. Both moms have also been fantastic grandmothers to our children, something that I will always cherish. Happy Mothers’ Day from someone who has a lot to celebrate. |
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Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
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Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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| “The time to buy is when there’s blood in the streets.” Nathan Rothschild
“When the tide goes out, you find out who is swimming naked.” Warren Buffett
“Know well the condition of your flocks, and give attention to your herds.” Proverbs 27:23 (ESV) |
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SOURCES:
ARK INVESTMENT MANAGEMENT, A CAUTIONARY TALE: https://www.etf.com/sections/weekly-etf-flows/weekly-etf-flows-2020-12-10-2020-12-04?nopaging=1 AND
https://www.etfstream.com/features/five-lessons-from-cathie-wood-s-arkk-etf/ AND YCharts.com
HALF A POINT: https://www.wsj.com/articles/fed-approves-half-point-interest-rate-rise-ratcheting-up-its-inflation-fight-11651687201
TUMULTUOUS WEEK ENDS NEAR WHERE IT STARTED FOR S&P 500: https://www.wsj.com/livecoverage/stock-market-today-jobs-report-05-06-2022/card/stocks-finish-week-down-after-fed-meeting-jobs-data-bD8Mp13866qLw4RJ45s0 |
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| (c) 2022 Stonecrop Wealth Advisors, LLC, All Rights Reserved |
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*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets. |
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