Eq: Total Market
President Biden renominated Jerome Powell as Fed Chair on Monday this week in perhaps the purest bi-partisan reaction from the President since he entered office. The news was celebrated on wall street as both the bond and equity markets felt the reprieve. Additionally, Republicans on the senate banking committee rejoiced at the pick given Powell’s historical ties to the republican party. Powell was assumed to be in a close contest for the Fed position with Lael Brainard, but ultimately continuity was valued moving into the next phase of the post-covid recession. Still Powell’s road is difficult moving forward given sluggish employment and growth, and rising inflationary pressures.
FINSUM: This was a wise decision by Biden politically, and markets trust Powell to be dovish even as a republican which is the best of both worlds for the economy.
In their latest strategy release Morgan Stanley is pulling no punches about its projections for 2022, warning investors to unload and underweight U.S. Stocks, Bonds and Treasuries. They see tightening monetary policy, high inflation, and higher valuations all scaring them from a more bullish U.S. stance. They see the S&P dropping to almost 6% below its current levels. In order to find the gains they need they suggest investors look to Euro-area and Japanese companies, where they are bullish on equity prices. They also see commodities providing some portfolio relief. However, Morgan Stanley’s economists aren’t predicting a rate rise until 2023, and they see the Fed being more dovish than the broader market expects.
FINSUM: Conflicting messages inside Morgan Stanley. If Monetary Policy doesn’t over tighten then don’t expect a sluggish year in the U.S.
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Another post pandemic super bill is flowing through the economy this time with a Biden name tag, and the president claims the $1.2 trillion dollar stimulus will lower inflation. The idea is the new bill will lubricate the American supply chains and have goods flowing easier and thus lowering costs. It's difficult to say if this bill will un-kink the supply chains or just boost demand and prices even more. Americans are already worried about $4.50 gass and surging food prices. Inflation hit a 31 year record this month, and inflation expectations aren’t slowing according to the Michigan survey of consumer expectations. The median projection is 4.6% over the next year, up nearly 2% from a year ago. Additionally the Biden administration is planning on pushing the $1.75 trillion dollar Build Back Better in the upcoming weeks.
FINSUM: A stimulus bill would have to be hyper targeted at supply chains to have the effect Biden is aiming at, and in combination with the BBB these bills will only further the U.S.’s inflation problem.
Envestnet’s CEO told investors that it oversees $49 billion in direct investing assets and that they see this number going higher in the future. Direct investing is a part of a growth area for the company along with other personalized portfolios, tax overlays, and ESG and impact investing. Direct indexing allows investors to hold the underlying assets and then add or drop stocks for offsetting tax purposes or to hit other financial objectives. Other giants in the financial industry such as Vanguard and Franklin Templeton have acquired direct indexing portfolios and many firms are ramping up competition in this space.
FINSUM: Direct investing makes a lot of sense over traditional hard indexing because of the customization and tailoring to your financial needs, but it does usually come at the cost of higher fees.