2021 Interactive Broker Awards

So for Interactive Brokers, industry Awards in 2021 are not in any short supply. One of the custodians NAMCOA uses, has achieved yet another award from Barons, for being the Best Online Broker – 5 out of 5 stars#1 for Active Traders, #1 for Information, #1 for International and #1 for Trading.

Interactive Brokers is a global custodian of client assets, and offers a transparent, low commissions and financing rates, support for best price execution, and stock yield enhancement program help minimize costs to maximize client returns.

With Interactive Brokers, our clients can invest globally in stocks, options, futures, currencies, bonds and funds from a single integrated account. Multiple currencies are available and assets can be denominated in multiple currencies.

Through Interactive Brokers, we can access market data 24 hours a day and six days a week in 135 Markets, 33 Countries and 23 currencies.

Other 2021 industry Awards for Interactive Brokers noted below.

Background on SEI Investments Company

SEI Investment Company, is a publicly traded investment and trust services firm headquarters in Oaks, PA. Website: https://seic.com. As a global provider of investment, investment management and investment operations solutions, through its subsidiaries and partnerships in which the company has significant interests, SEI manages, advises or administers $1 trillion in 401k plans, hedge funds, private equity, mutual funds and and pooled or separately managed assets.

NAMCOA has been working with SEI since 2014 and other and other custodians actively since 2004. The Advisory team at NAMCOA has over 300 years experience collectively providing investment services, financial planning and working with other custodians.

NAMCOA works with SEI to assist and provide portfolio management, trust management and to 401k retirement plan services.

SEI provides products and services to NAMCOA and its clients, as well as to other institutions, private banks, investment advisors, investment managers, and private clients around the world. 

SEI is a global provider, with corporate headquarters in Oaks, Pennsylvania and offices in Indianapolis, Toronto, London, Dublin, The Netherlands, Hong Kong, South Africa, and Dubai.

Client Note May 2021

June 8, 2021

After a brief pullback in early May, the S&P500 continued is upward grind, managing to eke out a slight gain, .66%, for the month.  Foreign shares did much better with Europe up more than 4% on the month.  Precious metals were the big winners with gold up 7.6% and silver gaining 7.8%   Precious metals outpaced other commodities, which generally fell during May.  Lumber is almost 25% below its peak in early May.  After an initial rise, bond prices were flat as interest rates stabilized. 

We may be seeing the initial switch back to technology and small-cap stock outperformance after a few months of underperformance.  Technology shares fell sharply early in the month and despite a solid rebound ended down 1.2% on the month.  However, since mid-May, the value-over-growth meme that we have seen the past few months has begun to reverse.  Small stocks and tech have begun outpacing cyclicals/value.   I expect this to continue through the summer.   Stocks remain in an uptrend.  Technology and small companies are seeing prices revived; gold has caught back up to equities and interest rates have been easing.   Sentiment indicators have moved from short term negative to neutral.  For me, this means the market has room to move up as it climbs a ‘wall of worry’ regarding inflation.  Once no one is worried, and everyone has ‘bought in’, THEN we need to be concerned as there will be fewer buyers left to buy.

The main, seemingly only topic, in the news is inflation and the employment situation.  The current narrative is that inflation is being caused not only by supply chain issues, but also by wage pressures.  The idea behind wage pressures is that, if wages continue to climb, prices for goods and services will increase as well, resulting in inflation. 

There is littlereason to think that the pace of wage increases coming out of the recession will continue to climb at the current pace after this summer.   We still have more than 7 million fewer people working than at the end of 2020.   During the recession low wage areas like food service and hospitality bore the brunt of the layoffs.  As people leave unemployment benefits, their new wages will be very similar to the benefits they have been receiving.  Some may earn less.  We are now seeing the peak of wage gains and expectations.  Upward pressure will ease over the summer hiring season ends and bottlenecks dissipate.

The key idea is that wages and prices dropped dramatically and have now rebounded.  This base effect, comparing last year to this year is very substantial.  The error is assuming this pace of gain will continue. The rate of increase in employment, wages, inflation and possibly, earnings will likely level off and slow.  How stock prices react in that environment will be interesting.  Sustained higher stock prices due to low inflation/low interest rates, or will slower growth be seen as a risk to earnings and thus stock prices.

Adam Waszkowski, CFA

Advisory and Consulting Services offered through NAMCOA® (Naples Asset Management Company®, LLC ). NAMCOA is a SEC Registered Investment Adviser. Information presented is for educational purposes only for a broad audience.  The information does not intend to make an offer or solicitation f​or the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. NAMCOA® has reasonable belief that this marketing does not include any false or material misleading statements or omissions of facts regarding services, investment, or client experience. NAMCOA® has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments or client experiences.  Please refer to our Firm Brochure (ADV2) for material risks disclosures. Performance of any specific investment advice should not be relied upon without knowledge of certain circumstances of market events, nature and timing of the investments and relevant constraints of the investment. NAMCOA® has presented information in a fair and balanced manner. The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass.  Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated.  NAMCOA® may discuss and display, charts, graphs, formulas and stock picks which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. Consultation with a licensed financial professional is strongly suggested. Please remember that securities cannot be purchased, sold or traded via e-mail or voice message system.  For more information, please visit www.namcoa.com

Happy Memorial Day

On Memorial Day, we honor those who have sacrificed their lives in service of protecting our great democracy. We also honor the families who love them and the sacrifices they, too, have made. Our country owes them all a debt of gratitude.
This Memorial Day, please join us in giving thanks to those who have sacrificed so much. We wish everyone a peaceful holiday.

Client Note March 2021

April 13, 2021

The first quarter was marked by two distinct phases. The first phase was a continuation of markets climb from the late October early November lows which peaked in mid-February. The second phase was characterized by a distinct outperformance in value or cyclical areas of the market. This is the third instance in the past 16 months where we have seen value outperform growth.  Generally, this does not persist for more than a month or two.

The S&P 500 gained 5.5% during the first quarter while the aggregate bond index fell 3.7%.  Oil gained 26%, aiding the energy sector’s gains of 31% and gold fell by 10%    Corporate bond prices fell by 5.4%. Junk bond prices were unchanged.  This is a slightly odd relationship, but indicative of ‘risk-on’ alongside a rise in interest rates.   The gain in the general stock market and decline in bonds (and gold) left most balanced and multi-asset portfolios flat or in the low single digits.  With energy up, bonds and gold down, and seemingly only the largest companies are carrying the general stock indices higher.

Most recently, gold appears to have formed a “double bottom” in late March and has made slight gains. Stocks continue to grind up, but with the largest names leading.  This contrasts with the period from April 2020 to February where micro- and small-cap stocks dramatically outperformed large stocks.  If we do not see a re-rotation into smaller stocks and those outside the major indices may be the prelude to a larger market pause in the coming months.

Bonds too may have realized a bottom in mid-March as prices have been net sideways.  A bit more improvement in prices (rates lower) should begin a nice rally, giving a reprieve to the general investor who have gained in stock prices, but lost some on bonds, especially for the more conservative.

How could or would interest rates actually decline?  Again, we see in the media how ‘everyone’ knows rates are going higher and inflation is at the door due to either ‘cash on the sidelines’ (doesn’t exist), or bank savings, or ‘pent up demand’.  Once ‘everyone’ knows something its more likely the near-term trend is over or soon will be.  We may already see this in gold and bonds, as interest in these areas is low, while SPACSs and cryptocurrency are all the rage currently.

Inflation concerns are due to the recent and quick rise in rates that have its roots in price increases due to supply-chain problems and the Asian/China resurgence and stimulus.  Supply chains issues will be resolved on their own in short order.  High prices attract businesses to produce more/fix problems which lead to lower prices, the essence of a free market.   Very recent news tells us that China’s credit impulse/stimulus has begun to wane.  The past 10 years we have seen two previous large credit cycles in China.  China is a massive buyer of raw materials and we have seen prices in commodities rise the past year driven by easy money from China.  There is about a 3–6-month lag time until we see the impact of a change   in China’s rate of credit creation.   Given that this China credit data is already 4 months old should mean, as recent price action alludes, a decline in interest rates and commodity prices and thusly, inflation expectations.

While stocks look to have another 5-7% upside momentum, the asset classes that have faired worse recently should see gains alongside stocks.  As mentioned in the past Notes, its post July 4 that concerns me the most when we may see a flattening of economic growth and decline in expectations of rapid growth which can weigh on risk assets.

The reason I am concerned about the second half of the year comes from a few places.  Valuations are exceptionally high right now.  Many metrics are above 1999 levels.  This is commonly discounted due to the low interest rates.  If we are elevated over 1999 levels, how much more elevated should we accept? Another element to today’s market is the ever-present Fed liquidity.  Yes, the Fed could continue as long as there is dollar-denominated debt to liquify.   And finally, there is the current expectations that we are entering a new era of high growth.   Its this last item that is most sensitive to changes in short term economic and Covid data.

The high growth thesis stems from stimulus in the pipeline and the observations that inflation is occurring.   Stimulus, or government infrastructure spending will take years to filter through the economy.  Inflation as measured by the CPI varies greatly, while the PCE is smoother (and what the Fed watches).  One can clearly see the past overshoots of the CPI vs. the PCE, and PCE is trending down.  Once supply chain issues are resolved/lessened and Chinas credit impulse fade, its likely CPI will catch down to PCE.

If inflation expectations come down, while job growth and spending data come in cool, beginning in the next few months, we could see forward expectations and valuations come down, pulling ‘risk assets’ with it.  Add in any kind of Covid 4th wave or failure at herd immunity via vaccinations, we could see the most powerful driver of asset prices, optimism, take a hit; and along with it create a more volatile period for stocks.

Adam Waszkowski, CFA

 This commentary is not intended as investment advice or an investment recommendation. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Information provided is solely the opinion or our investment managers at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Information provided has been prepared from sources deemed to be reliable but is not guaranteed by NAMCO and may not be a complete summary or statement of all available data necessary for making an investment decision. Liquid securities, such as those held within managed portfolios, can fall in value. Naples Asset Management Company, LLC is an SEC Registered Investment Adviser. For more information, please contact us at awaszkowski@namcoa.com.