Let's dive straight into the top stories from this past week...
With Summer Approaching, Value Investing Heats Up
As a result of sustained inflation levels, consumers are looking for deals not just when shopping but also when looking to add to their portfolio. Over the past decade, value investing has underperformed growth investing by a large margin. Professionals have routinely used the S&P 500 Pure Value Index to track the investment style's performance. The index tracks companies with low valuations derived from their price to-book value, earnings and revenue. Ultimately, this index shows that investors are betting on value stocks returning to their norm.
“High inflation is good for value...It increases uncertainty about the future and makes it harder for companies to plan. In times like that, boring, steady-as-you-go businesses become more attractive"
Record Low Market Liquidity is Fueling Market Declines
Over the past year, the U.S. market's liquidity has witnessed a severe decline, compounding intraday market volatility. According to hedge fund officers, relatively small deals of just $50M are spurring rallies when typically the trades would exchange hands without causing significant movement. Many experts point to the restrictions placed on major banks in the wake of the 2008 financial crisis, with today's banks holding much lower amounts of stocks and bonds. Vix Index levels confirm this trend, gaining more than five points in a single day 68 times since the crisis, compared to only nine times in the 15 years prior. In more recent trading sessions, weak liquidity has amplified downside moves in Walmart and Target, triggered by warnings of increasing cost pressures, wiping out over $71B in combined market valuation.
Pressure Builds for Companies to Adopt Carbon-Pricing Mechanisms
Companies across the globe are paying more for their green-house gas emissions than ever in history, yet prices have not reached levels high enough to spur a significant transition to a cleaner process, according to The Wall Street Journal. In addition, economic headwinds could handcuff many governments from continuing to raise costs. In a recent report by the World Bank, "economists estimate that prices of $50 to $100 per ton of carbon dioxide would be needed by 2030 to encourage enough low-carbon investments to remain in line with the Paris Climate Accord." In total, there are 36 carbon taxes and 32 trading systems in place, with four having been added this year.
“The past year has seen some very positive signs, such as the significant increase in revenue that can be invested in communities and in supporting the low-carbon transition...But the price in most jurisdictions remains well below the levels required to deliver on the Paris Agreement temperature goals"
According to incoming federal government reports, income tax revenue is expected to hit an all-time high this year. Initial numbers point to a $2.6T individual income collection, about 10.6% of the country's GDP. In particular, one of the most notable increases came from taxes outside paycheck withholding, leading many to believe the source to be capital gains and business income. Individual income levels have bucked the broader trend, as corporate and payroll taxes came in roughly on target. With short-term capital gains taxed at rates up to 40.8%, many investors seemed to have taken advantage of short-term volatility from the prior year.
According to a recent Financial Advisor IQ report, Wealth Enhancement Group has acquired New York and Tennessee-based investment advisor firm, Kings Point Capital Management. The firm was initially founded by former Goldman Sachs executives, Jack Salzman and Jeffrey Bates. Kings Point has five advisors and 11 support staff overseeing $1.7B in assets. As part of the deal, Salzman will serve as director of fundamental research. Wealth Enhancement Group now advises client assets totaling $55B.
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