Eq: Total Market
Omicron is sweeping the U.S. and once again threatening to cripple the economy, already major airlines are canceling flights and potential Christmas plans. This makes moderate Dems walkout on the Build Back Better even more critical as the country could desperately be in need of stimulus at the moment. This caused Goldman to cut its GDP growth by 1% annualized in Q1 2022 and a half a percent in Q2. CPI rose at a 39-year record in November, which could make the possibility of a big BBB bill even less likely as price pressures deter policy makers. Goldman still sees the possibility that congress will aid a bit with the new omicron surging.
FINSUM: It’s tough to justify another trillion-dollar stimulus package with roaring inflation, and it might be futile with the Fed pumping the breaks; lookout for stagflation!
Some trends were definitely starting to take hold in 2021, but those are going to continue to flourish in 2022. The first of which is an active fund take over, as it appears active fund starts will outpace passive funds and see huge inflows on top of it. The next biggest trend will be more RIA’s rolling up their proprietary model portfolios into ETF launches. These model-based funds are the best way for professionals to package their expertise and deliver it effectively to clients. A number of recent SEC policies make it easier for a variety of ETF launches to happen this year so expect this explosion to continue in 2022.
FINSUM: It makes sense that model portfolios will explode, firms can be more transparent about their areas of expertise by delivering them in fund form explicitly.
A new generation of technology is at our fingertips, and whether that's Netflix or Amazon people want the technology to service them now more than ever. Index tracking funds are really the cable box in the modern world and investors want a more tailored experience that only custom indexing can offer. Partners at Fidelity are saying that a hyper-customized multi asset portfolio is really the future, and given how popular trends like ESG are becoming, advisors are really needing better tools to attract and maintain clientele. Custom indexing can hit a multitude of demands investors want and also drive home a better fee for their workload as compared to traditional ETFs.
FINSUM: The world of a custom index, where stocks can be added and dropped for any reason is here, and it's probably on a mobile platform soon.
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November was full of volatility, and that's more than leaked into December, but Goldman warned investors about buying the dip hoping for a post Christmas rally. The biggest two threats Goldman sees are ongoing, the new omicron Covid 19 variant and the newfound inflation hawkishness by the Fed. The bear wave has hit a variety of asset classes whether its tech or bitcoin, and their risk appetite is low. The street is mixed however as some indications of omicron is it won’t be severe and Fed actions haven’t taken hold just yet. The VIX is still above its short and longer run moving averages which should keep investors cautious.
FINSUM: There is really no reason to move drastically right now, the Fed will be more transparent in the next couple of months.
ETFs have been a fee destroyer since their inception, and advisors/companies have been forced to either play along or bleed AUM. However, direct/custom is putting the power back in in the hands of the advisors. BlackRock, Vanguard, and Morgan Stanley are all buying their way into the direct indexing craze. Direct Indexing is giving investors and advisors the best of both active and passive investing worlds. While stock picking might not have the best record, starting from a base index and then stripping or adding based on preference could give investors. Custom Indexing can be for a preference for/or against a stock but more importantly it gives investors the reins when it comes to their tax burdens.
FINSUM: Direct Indexing is the goldilocks solution to the low fee/advisor specialty conundrum, and will be the dominant trend in investing over the next decade.
Markets were flummoxed early this week with the growing Omicron Covid-19 variant spreading rapidly in pockets globally. Despite these growing concerns and a seemingly endless pandemic, the JPMorgan is calling for a big 2022. With one of the absolute highest predictions on wall street JPMorgan is calling for a 5050 S&P 500 to end 2022. Easing supply chains, earrings growth and a more stable China are the key parts of their prediction for a successful equity market in 2022. Even if investors overweight China in their portfolios, the biggest threat will be domestically. A hawkish turn by the Fed would be detrimental to their prediction and is still the largest sort of risk in JPMorgans eyes.
FINSUM: Powell is talking tapering and rate rises just as Omicron is spreading which could be the perfect storm for a bad Q1 in 2022.