Sevens Report Alpha – 2023-2022

Sevens Report Alpha: Four Contrarian Ideas for 2024 – 12/27/23 – Four Contrarian Ideas for 2024

This issue is our annual “contrarian” issue, where we present three contrarian strategies that we think can outperform in 2024 despite extremely poor underperformance in 2023.

I’m an investing contrarian at heart, so I always like to start every new year with a list of contrarian ideas that 1) Have the potential to outperform in the coming year and 2) At a minimum provide interesting idea generation for clients or prospects who may be of a contrarian ilk.

Our criterion for these strategies includes sectors or factors that:

1. Badly underperformed in 2023,
2. Are universally “hated” by investors right now, but,
3. Offer either compelling long-term growth opportunities or valuations, so that we view the risk and rewards are balanced, and
4. Have the potential to substantially outperform if consensus expectations are false, and in doing so provide needed Alpha to investors’ portfolios.

• Contrarian Idea 1: Clean Energy. Invesco Solar ETF (TAN). iShares Global Clean Energy ETF (ICLN).
  • TAN houses 48 global solar companies providing exposure to the solar industry. The ETF is down 29% YTD and trades at just a 13 P/E. ICLN is a low-cost and liquid clean energy ETF that can act as a comprehensive way to play the green energy rebound.

• Contrarian Idea 2: Rare Earth Minerals. VanEck Rare Earth/Strategic Metals ETF (REMX).
  • REMX gives exposure to companies involved in producing, refining, and recycling rare earth and strategic metals and minerals. The ETF has fallen 22% YTD and recently hit a new 52-week low. But, rare earth minerals remain vital to the next generation of technology, and the demand is forecasted to increase exponentially over the next several years.

• Contrarian Idea 3: China. KraneShares CSI China Internet ETF (KWEB).
  • Outside of Russia, the single worst performing major stock market in 2023 is China. KWEB targets the growing internet, ecommerce, and communications sectors in China and has declined more than 9% YTD. 

• Contrarian Idea 4: Health Care. First Trust Health Care AlphaDEX Fund (FXH).
  • FXH is down 7% YTD as healthcare has lagged but if economic growth slows or there’s renewed interest in high growth sectors (e.g. biotech) then healthcare can rebound.

Finally, for those clients that are more interested in stocks over ETFs, we provided a list of the twenty worst-performing stocks in the S&P 500 for 2023.  Some of the names might surprise you (we were surprised by some) and could provide an interesting topic of discussion or an attractive contrarian opportunity for the right clients or prospects.

Bottom line, the start of a new year is always about new opportunities, and this Alpha issue will identify some of those contrarian opportunities we think can rebound in 2024.

Sevens Report Alpha Webinar #155 – What the Fed Pivot Means for Markets in 2024 (Outperformers and Laggards) – 12/21/23

Sevens Report Alpha Webinar #155 – Recording

Sevens Report Alpha Webinar #155 – Slide Deck

The focus of this webinar was the potential market impact from the surprise dovish pivot and specifically what that could mean for the major indices, sectors and factors in 2024!

The Fed shocked markets last week by confirming a dovish pivot and signaling that 1) Rate hikes are over and 2) Rate cuts are coming in 2024 (and possibly early 2024).  The result was what we’d expect: Stocks and bonds surged.

This surprise dovish pivot does have consequences for stocks and bonds going forward so the purpose of today’s webinar was clear: We evaluated how markets performed following the past several Fed pivots. 

We reviewed the market’s performance following the Fed pivots in the early 2000s, mid-2000s, and 2019.

Specifically, we examined:

• Broad market performance from the pivot to the first rate cut,
• Sector and factor performance from the pivot to the first rate cut,
• Broad market performance during the year following the pivot, and
• Sector and factor performance during the year following the pivot.

Bottom line, the Fed’s dovish pivot will help determine where the market goes in 2024 and the conventional wisdom, so far, is that the pivot will be bullish for stocks and bonds. But, I’m not a fan of assumptions so I wanted to ensure we review the performance data during the last three pivots so we know:

• What outperformed
• What underperformed
• How we should be positioned to generate alpha because while market history won’t repeat itself, there are important observations to be gleaned from this research including:
  • The one security that posted positive performance for all three pivots. 
  • The key metric to watch that makes pivots positive or negative and

The answers to key questions about market performance following a pivot.

Sevens Report Alpha: Three Strategies that Outperformed in 2023 and Should Outperform in 2024 (If The Consensus is Right) – 12/12/23

This Alpha issue is our annual “Look Back” issue, where we take time to identify the ideas and themes that worked in 2023, identify some that did not, and address whether we think these performance trends will continue in 2024.

I have always believed that it’s important to review every year in the markets as it draws to a close, to learn the “lessons” of each year, identify which strategies worked and which didn’t, and determine if those trends will continue in the new year.

Given expectations of a soft economic landing (or no economic landing) and aggressive Fed rate cuts, we wanted to highlight three strategies that outperformed in 2023 and that are poised to do so again in 2024 if that consensus expectation is correct.

• Investment Review 1: The Internet Growth Story Re-Emerges. ARK Next Generation ETF (ARKW).
  • ARKW was one of our contrarian ideas to start 2023 and that thesis played out as ARKW has risen nearly 70% YTD. Despite this large rally, ARKW remains more than 60% below its all-time high and if growth is stable but unspectacular expect high growth sectors such as next generation tech to outperform in 2024. 

• Investment Review 2: Artificial Intelligence. Global X Artificial Intelligence & Technology ETF (AIQ).
  • AI enthusiasm has been one of the main drivers of the S&P 500 rally in 2023 and if growth is stable (but unspectacular) and inflation declines, investors will continue to embrace the growth potential of this new technology. AIQ has gained more than 30% since our March issue.   

• Investment Review 3: Optimizing Your Fixed Income Exposure. Principal Active High Yield ETF (YLD) & Franklin Senior Loan ETF (FLBL).
  • If we see stable but unspectacular growth, high yield debt with solid credit will remain incredibly attractive for investors’ “dry powder.” YLD yields 8.7% while FLBL yields 8.92%. 

Finally, obviously every strategy didn’t outperform in 2023 and one in particular that lagged was allocating to gold and gold ETFs (although gold has rallied lately). Inside this Alpha issue we discuss what needs to happen in 2024 for gold to continue this late year rally.

Bottom line, the macroeconomic set up as we start 2024 remains favorable as the “Three Pillars” of the rally remain in place.  If expectations for solid growth, Fed rate cuts and a decline in inflation are correct, we expect these same strategies that outperformed in 2023 to do so again in 2024.

Sevens Report Alpha #154 – What Are Investor Assumptions for 2024? – 12/7/23

Sevens Report Alpha #154 – Recording

Sevens Report Alpha #154 – Slide Deck

This Alpha webinar where I spent the session detailing the assumptions that are currently priced into this market and the conclusion of this analysis is clear:

The market has aggressively priced in a lot of positive assumptions to start 2024 and if there’s even mild disappointment, expect the new year to start with volatility. 

The S&P 500 has surged over the past five weeks, rising from a low of 4,117 in late October to a new 2023 high at 4,594 and the reason for the rally is clear:

The Fed is done with rate hikes and the market assumes that rate cuts are coming much sooner than previously expected. 

That assumption, that the Fed will be much more dovish than it is currently forecasting, is the biggest factor underpinning this rally and while that’s been a powerful bullish catalyst, it also carries with it the risk of disappointment in early 2024.

To see proof of that potential risk all we need to do is look at the past two years. In 2022, markets assumed that inflation was transitory, and the Fed wouldn’t hike rates dramatically. That assumption was incorrect, and the S&P 500 suffered steep declines as a result. Conversely, in 2023 markets assumed an imminent recession and economic hard landing. That assumption was also incorrect, and the S&P 500 enjoyed a large rally as a result.

Now, as we approach 2024, the market is again full of assumptions about the Fed, growth, and other factors. So, I spent this Alpha webinar reviewing the assumptions in this market so that we all understand what’s priced into markets as we begin a new year. 

Today, I reviewed the market’s current assumptions for:

1. Fed policy
2. Economic growth
3. Earnings
4. Geopolitics
5. Domestic politics (including the 2024 election)

In addition to identifying these assumptions, I also covered the possible positive and negative surprises for each because if actual facts are better than market assumptions, stocks will rally. If actual facts are disappointing compared to market assumptions, stocks will drop. 

Bottom line, I want to make sure all of us have a clear understanding of what is currently assumed by the markets so we will know if the facts in 2024 are better than currently assumed (like in 2023) or worse (remember 2022?).

Sevens Report Alpha: Finding Value in High Dividend Stocks (Yield of 6% – 9%) – 11/28/23

High Yield Stock Data Table

The 100 highest yielding stocks in the S&P 500 (based on the start of the year) have declined nearly 8% YTD and as a result, yields on many of these well-known stocks are ranging anywhere between 6%-9%.

This type of gap between growth and value styles is an extreme divergence that suggests a reversion to the mean is becoming more probable, especially if there’s a “growth scare” coming in early 2024. Our goal with this issue is to help you seize this value opportunity by providing a “shopping list” of high dividend yield ETFs and individual stocks that are top-notch solutions for income-oriented portfolios.  Additionally, we have included a proprietary and sortable Excel spreadsheet of high dividend stocks.

• Investment Idea 1: S&P 500 High Dividend Yields.  SPDR Portfolio S&P 500 High Dividend ETF (SPYD).
  • SPYD provides equal weight exposure to 80 S&P 500 stocks using a smart-beta methodology.  The fund has $6.2 billion in AUM, an aggregate 12.2X P/E ratio, and a 3-day SEC yield of 5.10%.

• Investment Idea 2: Super Sizing Your Dividends.  Global X Super Dividend U.S. ETF (DIV).
  • DIV takes a maximal dividend approach and allocates to the 50 highest dividend paying stocks in the S&P 500 that meet the fund’s criteria. DIV sports a 0.75 beta to the S&P 500 and a 30-day SEC yield of 7.05%!

• Investment Idea 3: High Yield Dividend Achievers.  Invesco High Yield Equity Dividend Achievers ETF (PEY).
  • PEY prioritizes both high yield and dividend growth in its security selection methodology by allocating to 50 stocks contained in the NASDAQ U.S. Broad Dividend Achievers Index. Stocks in PEY must have increased their dividend every year for the past 10 years! PEY has a 30-day SEC yield of 5.1%

• Investment Idea 4: Build Your Own High Yield Stock Portfolio
  • We have included a proprietary Excel table attached to this report that can help you build your own custom allocation to high dividend stocks.
  • The table attached started with the universe of the Russell 1000 Index and narrowed to all stocks yielding 5% or more. That currently represents a group of 67 companies as of Nov. 17.
  • We included key metrics such as market cap, PE ratio, PS ratio, and free cash flow, as well as one-, three-, five-, and 10-year performance history.
  • The table is delivered in alphabetical order by company name but can easily be re-sorted according to any columns you feel are most relevant to your analytical process.

Bottom line, with the S&P 500 near multi-month highs, there are few sources of quality “value” in the market today.  But, we do think there is quality value in these high dividend names.  Not only do some yields approach double digits, but the possibility of capital appreciation, should there be a growth scare could add to total return.  This Alpha issue helps identify some of the best of breed high dividend ETFs and stocks so you can capitalize on this corner of quality value in this market.

Sevens Report Alpha Issue – Is the Bitcoin Rally Sustainable? (And If So, How To Play It) – 11/14/23

This Alpha issue will serve as “Part Two” of our two-part series on the 2023 rally in Bitcoin.

Part one of the series was last week’s Alpha webinar, where we spoke with Putnam Kling, CEO of Stormborn Partners, a crypto and blockchain focused hedge fund.  We discussed the fundamental catalysts driving the more than 100% YTD gain in Bitcoin and Putnam explained his still bullish outlook.

To replay that webinar, please click this link.

Part two of the series is this Alpha issue (attached).

As mentioned, Bitcoin has rallied more than 100% so far in 2023 and that rally has been powered by anticipation of two potentially bullish events:

1. Spot Bitcoin ETFs and
2. An anticipated “halving.”

These two potential positives make this Bitcoin rally different from previous, more-speculative run ups because these anticipated events will directly impact the structural supply and demand balance for Bitcoin, potentially resulting in a fundamentally sustained bull market.

The goal of this Alpha issue is to provide you with a solid understanding of the evolving trading environment and boost your background knowledge to share with clients and colleagues alike, particularly those that have been waiting for a constructive regulatory breakthrough in this unique alternative asset class. 

• Potential Bullish Catalyst 1: A Spot Bitcoin ETF. There are 12 spot Bitcoin ETF applications in pending registration status with the SEC that include large sponsors such as Grayscale, Ark Invest, BlackRock, Bitwise, VanEck, WisdomTree, Invesco, Fidelity, and Franklin. The SEC could approve all 12 applications simultaneously, opening the gate to substantial investor demand for Bitcoin across the asset management industry. Currently, there is more than $6 billion in capital in foreign spot Bitcoin ETFs and the creation of U.S. products could attract $25-$100 billion in the coming years!
• Potential Bullish Catalyst 2: The Halving. Approximately every four years the amount of Bitcoin rewards received by Bitcoin miners is cut in half. In both previous halvings, the Bitcoin price rallied an average of 80% in the year prior to the halving and 421% in the year following the halving! The next having is anticipated for April 2024.
• Best Ways to Integrate Bitcoin into a Diversified Portfolio: 
  • Strategy One:  Focused Bitcoin Exposure.  Greyscale Bitcoin ETF (GBTC) and ProShares Bitcoin Strategy (BITO).  These two ETFs should continue to benefit from the rally in Bitcoin ahead of ETF approval and the halving.

• • Strategy Two:  Blockchain related ETFs.  Amplify Transformational Data Sharing ETF (BLOK) and ARK Next Generation Internet ETF (ARKW).  These two ETFs don’t provide focused, pure exposure to bitcoin, but they are linked to Bitcoin, blockchain technology, and crypto prices more broadly and should benefit from a bitcoin ETF and halving.

Bottom line, I believe this two-part series will provide you the context and practical research you need to 1) Understand why Bitcoin has rallied so hard YTD, 2) Appreciate the potential positive catalysts looming in the coming months and 3) Identify the best options for advisors to integrate Bitcoin and other cryptos into the appropriate client portfolios.

Sevens Report Alpha Webinar #153: Why Has Bitcoin Rallied So Much and Can It Continue? – 11/9/23

Sevens Report Alpha Webinar #153 – Recording

Sevens Report Alpha Webinar #153 – Slide Deck

Our latest Alpha webinar I was joined by Stormborn Partners CEO Putnam Kling and we discussed the updated outlook for Bitcoin and examined two potentially significant positive catalysts looming in the future.

This webinar and next Alpha issue comprise a two-part series on Bitcoin, as we have seen interest in Bitcoin rise sharply from advisors given the strong performance.  To that point, Bitcoin has risen more than 100% YTD!  

Notably, that rally has been relatively consistent throughout the year (it didn’t just happen all at once) and it’s been driven by multiple factors. But despite this already strong performance, there remain two important catalysts looming in the coming months that could push Bitcoin even higher:

• A possible Bitcoin ETF and
• A potential “halving” in the spring of 2024.

Both of these events have the potential to send Bitcoin prices sharply higher from here.

To discuss the performance of Bitcoin and examine the looming events, I invited Putnam Kling, CEO of Stormborn Partners, a Bitcoin and crypto focused hedge fund to join us on today’s webinar.  I’ve invited Putnam to discuss Bitcoin (and cryptos more broadly) not just because he’s one of the most knowledgeable people I’ve met on the subject.  It’s also because, prior to forming Stormborn Partners, Putnam had extensive experience in the wealth management industry, starting his career with Morgan Stanley and later as Director of Wealth Management at Spearhead Capital, an RIA with over $2 billion in assets under management.

So, not only does Putnam have in-depth knowledge of Bitcoin and cryptos broadly but he also has the context to understand what this means for advisors and their clients, given his work history. 

I can say that Putnam did not disappoint and if you (or your clients) have been wondering what’s happening with Bitcoin (why it’s rallied) or were curious about opportunities in the crypto industry, I encourage you to listen to today’s conversation as Putnam provided specific insight into the industry that I simply haven’t heard anywhere else. 

Sevens Report Alpha Issue – Fixed Income Based ETFs That Can Yield 10% (Or More) – 10/31/23

Sevens Report Research BDC Data Worksheet

Fixed income now offers some of the highest nominal yields we’ve seen in decades, but with inflation still running near 4% per year, getting high real yields without taking too much principal risks remains a challenge.

Private credit helps to solve this problem by offering investors exceptional yields (some above 10%) while still solid economic growth limits the potential for broad defaults, offering a very attractive risk/reward profile for investors. 

Now, direct investment in private credit isn’t widely available for most investors, so we’ve found a suitable alternative:  Business Development Companies (BDCs).  A BDC is a registered investment vehicle that generates an attractive level of income by providing financing primarily to privately held companies and distributing most of the net investment income to investors.

Our goal with this issue is to shine a light on the available investment opportunities in this market so that you are aware of the most advantageous vehicles.

• Investment Idea 1: The 800 lb. Gorilla. VanEck BDC Income ETF (BIZD).
  • BIZD follows the MVIS US Business Development Companies Index and owns a diverse portfolio of 25 publicly traded BDCs with more than $735 million in total assets. BIZD sports a 10.9% 30-day SEC yield and has returned more than 70% over the past three years! 

• Investment Idea 2: An Active Management Solution. Putnam BDC Income ETF (PBDC).
  • PBDC owns approximately 20-25 holdings that are screened by the portfolio manager for factors such as leverage, dividends, fees, underwriting philosophy, valuation, and more. It’s a newer ETF (just over a year old) and has lower assets but it has outperformed BIZD by 4% over the past 13 months. PBDC has a 30-day SEC yield of 9.06%.

• Business Development Company Database.
  • We have included a sortable spreadsheet of publicly traded BDCs. There are 16 columns from which you can sort by factors that include premium/discount to NAV, market yield, leverage %, annual returns, market cap, expenses, and more.

Bottom line, these BDCs provide “regular” investors with access to these high yields and quality credits, and with yields of 300-600 basis points over fixed high yield credit, these can be an attractive solution in today’s environment of high yields and solid economic growth.  

Sevens Report Alpha Webinar #152: Updated Market Outlook – 10/26/23

Sevens Report Alpha Webinar #152 – Recording

Sevens Report Alpha Webinar #152 – Slide Deck

In this Alpha webinar I spent the entire session detailing the current market setup and explaining:  1) What’s pushing stocks lower in the near term, 2) What needs to happen for that to stop, 3) How markets can resume the 2023 rally, and 4) What could cause the S&P 500 to give back all of the 2023 gains.

This Alpha webinar focused on the current market outlook, because it’s fair to say that over the past few weeks, the macro-economic setup for this market has become significantly more uncertain. To that point, there are now important short and long-term headwinds facing this market:

In the short-term, numerous issues are driving increasing volatility:

1. Potential war in the Middle East/Rising oil prices
2. Surging Treasury yields
3. U.S. government dysfunction (No Speaker)

But, beyond those short-term influences, there are still important medium-and-longer term unknowns:

1. Can economic growth hold up (no hard landing?)
2. Does inflation continue to decline?
3. Could the Fed provide a hawkish surprise?

I spent the entire 30 minutes covering the current status of each market influence and identifying what comes next.  Then, I provided a “positive resolution” road map and a “negative resolution” road map so as these events resolve themselves, we can easily see if they are positive or negative for stocks, bonds, commodities, and the dollar.

Bottom line, this market is now more uncertain and more volatile than at any time since the start of the year, and understanding 1) Why that’s happening in the short term and 2) If there’s been any significant deterioration in the longer-term outlook is important because no one wants to see the majority of these YTD gains lost unto the end of the year. 

Sevens Report Alpha Issue – Is the SAFER Banking Act a Major Positive for Cannabis ETFs? – 10/17/23

The inspiration for this Alpha issue came from current events, specifically that the progress of the SAFER Banking Act through the Senate has increased the possibility that cannabis companies may soon get banking access, potentially removing a major impediment to growth.

One of the biggest impediments to the growth of the cannabis industry in the U.S. has been the fact that cannabis companies are largely excluded from the U.S. banking system.  However, the SAFER Bank Act (Secure and Fair Enforcement Regulation Banking Act) might change that and allow cannabis companies to have access to the U.S. banking system. Specifically, the bill seeks to:

1. Ensure proceeds from transactions involving state-sanctioned marijuana businesses would no longer be considered unlawful activity,
2. Prohibit banks from closing accounts of cannabis companies without a valid reason, and
3. Ensure a financial institution would not be held liable by providing a loan, mortgage, or other financial service to a state-sanctioned marijuana business.

That legislative progress combined with positive public opinion trends toward cannabis legalization has created a potential opportunity for investors.

The goal of this issue is to provide you with responsible and actionable cannabis industry ETFs and stocks, so you are armed with the knowledge and ideas to help clients allocate to this potentially high-growth sector:

Investment Idea 1: Pure Cannabis Stocks. AdvisorShares Pure US Cannabis ETF (MSOS).

• MSOS provides pure exposure to U.S. domiciled cannabis companies. MSOS differentiates itself from other cannabis ETFs by not overweighting Canadian cannabis companies, meaning it should benefit more from any U.S. legislative changes.

Investment Idea 2: Marijuana Producers. ETFMG Alternative Harvest ETF (MJ).

• MJ is one of the oldest (introduced in 2017) and most diversified cannabis industry ETFs as it provides exposure to both U.S. and Canadian cannabis producers. MJ is the largest and most widely known cannabis ETF.

Investment Idea 3: Picks and Shovels Play.  Constellation Brands (STZ), Phillips Morris Intl (PM), Scotts Miracle-Gro (SMG).

• Exposure to direct-play cannabis ETFs like MSOS and MJ brings higher return potential but also elevated volatility and a higher risk of loss. An indirect way to gain some cannabis exposure is via blue-chip stocks where cannabis is a focus and can meaningfully contribute to earnings and the bottom line.

Bottom line, if the SAFER Banking Act can pass the Senate and House in the coming months, it could ignite a period of accelerated growth across the cannabis industry and today’s Alpha issue will ensure that you 1) Understand the state of the cannabis industry in case this topic comes up with clients or prospects and 2) Know the best ETFs for responsible cannabis industry exposure.

Sevens Report Alpha Webinar #151: What Does the Flattening Yield Curve Mean for Markets? – 10/12/23

Sevens Report Alpha Webinar #151 – Recording

Sevens Report Alpha Webinar #151 – Slide Deck

In this Alpha webinar I spent the entire session focused on the yield curve and specifically determining what the sudden rise in the 10‘s-2’s yield spread means for markets, because history says it could be a warning of medium and longer term volatility!

Why is the yield curve flattening, and what does it mean for markets?

Over the past three weeks, the 10’s-2’s yield spread has rallied hard, rising from about -70 bps on September 20^th to -29 bps as of Friday, reflecting a substantial “flattening” of the yield curve.

This rise in the 10’s-2’s yield spread reflects a potentially important macroeconomic transition, as the yield curve is no longer deeply inverted and instead is moving quickly towards turning back positive. The reason this has caught my attention is clear: During previous 10’s-2’s inversions, it wasn’t until after the spread started rising and turned back positive that market volatility really erupted! 

Now, things never happen the same way twice in the markets and as such this rise in the 10’s-2’s is different than those two previous experiences, but the bottom line is this big shift in the yield curve is a potentially significant signal that I want to make sure we all understand.

So, in this webinar I:

• Reviewed the market performance of the major indices for the past two instances of the 10’s-2’s yield spread turning positive.  Specifically, we examined performances as the spread rose back to positive territory and then six and twelve months after it turned positive. The results might surprise you!
• Examined what happened to the economy during those same two time periods and the results were the same both times!
• Detailed why this rise in the 10’s-2’s spread is different than those past two instances and provided explanations on what those differences might mean for markets.
• Identified what comes next and the specific metric to watch for the rise in the 10’s-2’s spread to send a louder warning signal to markets.

Bottom line, bond markets remain volatile and the 10’s-2’s yield spread has moved sharply higher recently and I wanted to make sure we all know 1) If this is a positive or negative signal for markets, 2) The implications for specific market sectors, and 3) What strategies have benefitted from this flattening of the yield curve, based on previous history.

Sevens Report Alpha Issue: Can Nuclear Energy Stocks Continue to Outperform? – 10/3/23

This Alpha issue revisits a topic we focused on a year ago:  Nuclear energy stocks.

About a year ago, we profiled nuclear energy stocks because we viewed them as a potential beneficiary of the “new world order” in global energy.  Specifically, with Russia’s invasion of Ukraine imperiling the supply of oil and natural gas to Europe, nuclear energy was set to “fill the gap” in secure power production, and that thesis has played out.  URA and NLR, the two nuclear ETFs profiled in that issue, have risen more than 25% each since then, handily outperforming the S&P 500.

Now, it appears demand for nuclear power is getting an additional tailwind from the shift to renewable energy. Nuclear power is widely being considered a necessary “stop gap” power generation source from current fossil fuel generated electricity to, eventually, renewables powered energy generation. This anticipated demand growth can be viewed via uranium prices, which have hit decade-plus highs. And, with a significant supply/demand deficit for uranium in place, support for uranium prices looks solid for the foreseeable future.

So, in today’s issue, we refreshed our research, included two new nuclear energy/uranium ETFs, and revisited our thesis on an ETF we profiled in last year’s issue:

• Investment Idea 1: Low Carbon Energy Transition Alternative. Sprott Uranium Miners ETF (URNM).
  • URNM provides exposure to uranium producers and spot uranium and has gained more than 220% over the past three years.

• Investment Idea 2: Junior Uranium Miners.  Sprott Junior Uranium Miners ETF (URNJ).
  • URNJ targets small-cap uranium mining stocks and while volatile, if we do see increased nuclear power demand, URNJ could post truly massive returns in the coming years.

• Investment Idea 3: Nuclear Energy Operators.  VanEck Uranium+Nuclear Energy ETF (NLR).
  • NLR provides exposure to utilities using nuclear energy to provide electricity. It’s less volatile than ETFs exposed to uranium prices but has produced solid returns, rallying 37% over the past 12 months.

Bottom line, there will always be resistance to nuclear energy given the isolated incidents of the past, but the reality is that nuclear power provides an effective combination of 1) Security (not relying on other countries for oil or gas) and 2) Environmental appeal (nuclear is “cleaner” than most fossil fuels) and that combination should continue to drive the nuclear sector outperformance. As such, I want to make sure you have the knowledge and ETFs you need to discuss this opportunity with clients and prospects and this Alpha issue accomplishes that goal.

Sevens Report Alpha Webinar #150: Fourth Quarter Preview – 9/28/23

Sevens Report Alpha Webinar #150 – Recording

Sevens Report Alpha Webinar #150 – Slide Deck

In this Alpha webinar I spent the entire 30 minutes providing an in-depth fourth quarter preview of the markets.

Importantly, I didn’t just identify the key economic reports and events that would make stocks and bonds move in the next three months, I also provided the important context to understand why these events could cause a market rebound or further decline. 

The S&P 500 has fallen to a three-month low thanks to surging Treasury yields, which have been fueled by fears of 1) Higher for longer interest rates (so a more hawkish than expected Fed) and 2) Worries about a rebound in inflation.

Whether those fears are realized or not will help decide if the S&P 500 can rally into year-end and cap a strong year of performance or roll over and risk giving back the majority of the YTD rally.

Because of that, I utilized today’s webinar to provide a fourth quarter preview and identify the key events and dates that will determine whether:

1. The Fed truly is more hawkish than feared,
2. Inflation does bounce back and
3. If we get a growth scare.

If those three things occur, then the YTD gains will be in jeopardy.  Conversely, if they do not and we get more Goldilocks economic and inflation data, then a rally back to the highs of the year near 4600 in the S&P 500 isn’t out of the question.

Specifically, today I:

• Identified the key inflation reports between now and year-end and the levels that will make them positive or negative for markets (starting with Friday’s Core PCE Price Index).
• Listed the key growth events between now and year-end and the levels that would make these numbers increase hard landing concerns.
• Reviewed Fed expectations for the remaining two meetings this year (and updated what’s expected for 2024).
• Highlighted any other potential market impacting events (government shutdowns, important corporate announcements, etc.).
• Reviewed the positive and negative macro scenarios and listed Alpha strategies that can outperform in each scenario.
• Finally, we provided a chronological list of the fourth quarter’s key events and broke it down by month, so you can print these slides out and easily see the key events looming on the calendar between now and year-end.

Bottom line, this webinar will 1) Provide the key context for this market as we enter this stretch run into year-end and 2) Serve as a guide you can refer to over the next three months that will tell you what the key reports are and what would make them positive or negative for stocks and bonds. 

Sevens Report Alpha: What Outperforms in the Fourth Quarter? – 9/19/23

We are approaching the seasonally best period of the year for stock returns, so I wanted to dedicate an entire Alpha issue to market seasonality so that it can:

1. Serve as a primer on seasonality to aid in any discussions with clients and 

1. Present you with near-term tactical ideas based on historical market seasonal trends.   

In today’s issue, we go in-depth on market seasonality and cover Q4 and the entire year so that you clearly know which periods of the year are the best and worst for broad market returns. Additionally, we also look at seasonal sector performance, as the variance of sector performance throughout each calendar year is surprisingly big!

• Seasonal Idea 1: Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF (SZNE).
  • SZNE is a one-stop shop for tactical seasonal exposure.  This ETF equal weights allocations to healthcare and consumer staples from May to October, then rotates and equal weights exposure to consumer discretionary, tech, material and industrials from November to April.  This strategy outperformed the S&P 500 over a three-year period until this past May when the “AI” driven tech surge impacted markets.  Over the longer term, it’s reasonable to expect this strategy to outperform. 

• Cyclical Seasonal Idea 2: Global X Millennials Thematic ETF (MILN).
  • Cyclical sectors outperform in Q4, and one part of a cyclical strategy must focus on the consumer. MILN portfolio composition is 42% consumer discretionary stocks, 24% communication services (media stocks), 9% technology, and 8% real estate. MILN has gained 22% YTD. 

• Cyclical Seasonal Idea 3: Global X U.S. Infrastructure Development ETF (PAVE).
  • The other side of the cyclical arena are the industrial and materials stocks. PAVE provides exposure to sectors with exposure to raw materials, heavy equipment, engineering, and construction. Over the past year, PAVE has outperformed the S&P 500 22% to 13%.

Bottom line, seasonality does matter.   So, I wanted to provide an analysis you can use right now to allocate to alpha generating ETFs to capitalize on these seasonal trends.  But, I also wanted to provide a primer you can refer back to in the months, quarters, and years ahead to provide you with important seasonal analysis to assist you in client discussions, portfolio management, and asset allocations.

Sevens Report Alpha Webinar #149 – How Much Excess Savings Are Left? – 09/14/23

Sevens Report Alpha Webinar #149 – Recording

Sevens Report Alpha Webinar #149 – Slide Deck

In our latest Alpha webinar I provided an answer to this important market question:

How much excess savings are left for the U.S. consumer?

I spent this Alpha webinar answering that question for two principal reasons:

• First, the large amount of excess savings that were generated from pandemic stimulus and lockdowns are widely credited for fueling U.S. economic resilience.  When that excess savings runs out, it’s reasonable to expect a slowing of the economy (and that’s not priced into stocks at these levels).

• Second, I have not been able to find a clear, plain English answer to the question about excess savings, and so I wanted to provide one to you, our Alpha subscribers.

So we’re clear, “excess savings” is econo-speak for the extra money people received during the COVID stimulus (the direct checks, PPP, deferred interest payments) combined with the forced savings that occurred as people were unable to spend while much of the country was on various forms of lockdown.

But, since all of that ended (nearly two and a half years ago) inflation and higher rates have been eating away at that excess savings and there are legitimate fears that when that excess savings are exhausted, then high interest rates will have the same effect they always have:  They’ll slow the economy.

You’ve likely heard about the concept of excess savings in the Sevens Report and the financial media, but it’s been very hard to learn just how much excess savings are left for the U.S. consumer, so the focus of today’s webinar was to try and obtain a firm answer to that question, because once we know that, we will have a better idea of the remaining buffer for the economy against high inflation and high interest rates.

And, I’m happy to say we accomplished that goal!  Here are some of the takeaways from this webinar:

1. According to available research, excess savings are likely already depleted or about to be depleted. 
2. There are clear signs the consumer is becoming more stressed.
3. If we are going to get a “growth scare” it’s likely to appear in the next several months and
4. There remain some important positives for the consumer that we identify.  But, if they are removed, the outlook for the economy will quickly worsen. 

Bottom line, the biggest risk to the entire 2023 rally remains that economic hard landing fears suddenly rise.  That event has the potential to reverse the YTD rally in stocks and it’s the one event we want to absolutely see coming, as early as possible, so we can position accordingly.  Learning more about the level of excess savings and the health of the consumer is an important part of guarding against a legitimate economic growth scare, and that’s why focused on this topic today.

Sevens Report Alpha: Is Now the Time for Sustainable Commodity Outperformance? – 09/06/23

Is now the time for commodities to boost your overall portfolio performance?

I ask that because if the economy is entering a period of higher-for-longer rates and elevated inflation, then history clearly shows that a structural allocation to commodities can boost long-term performance.

Empirically, all we must do to validate that point is look at the 1970’s and early 1980’s, a period when commodities provided periods of strong outperformance and diversification. But, to be more specific, a study by PIMCO found the best performing asset allocation during the entire 1970s (a period potentially similar to today) included structural commodity allocations. Meanwhile, a separate study from Schroders found that during periods of elevated inflation, a 10% commodity allocation boosts overall portfolio performance by 0.3%.

Bottom line, in a higher rate/elevated inflation world, commodities are essential to long-term outperformance.

Now, commodities are a large and diverse asset class, and so we’ve broken this Alpha issue down into three strategies:  First, our favorite broad commodity ETF, second, our preferred ETF for tactical allocations to the most popular investment commodities (gold and oil) and, finally, a focus on the “growth” part of the commodities complex via rare Earth minerals.

• Strategy 1: Broad-Based Commodity Exposure.  Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC).
  • PDBC tracks a diverse basket of 14 heavily traded commodity futures, while charging a palatable expense ratio of 0.59%, and avoiding the K-1 tax headache. It’s our preferred “one stop shop” for commodity exposure.

• Strategy 2: A Tactical Path to Commodity Allocation. abrdn Physical Precious Metals Basket Shares ETF (GLTR). ProShares K-1 Free Crude Oil Strategy ETF (OILK).
  • Direct precious metals and energy allocations reflect a popular tactical approach for clients who want to be more targeted in commodity allocations. GLTR and OILK are our preferred ETFs for direct precious metals and oil exposure.

• Strategy 3: Capitalizing on Growth in Rare Earths.  VanEck Rare Earth/Strategic Metals ETF (REMX).
  • REMX provides exposure to companies actively sourcing and producing rare earth minerals, which are needed to power many of the technologies that we enjoy daily (and whose usage we are seeing expand).

Bottom line, we are likely entering a period where we will have to live with 1) Elevated inflation and 2) Higher rates, and if growth remains resilient, that’s an environment where commodities can continue to be a meaningful positive contributor to overall client portfolios.

Sevens Report Alpha Webinar #148 – Update on Inflation and the Economy – 8/31/23

Sevens Report Alpha Webinar #148 – Recording

Sevens Report Alpha Webinar #148 – Slide Deck

Our latest Alpha webinar where I spent the entire time providing fact-based answers to these important questions:

1. Is an economic soft-landing still likely?
2. Will inflation stay higher for longer?

Those two questions are important right now because over the past several weeks some data points have challenged the widely held ideas of a soft economic landing and continued decline in inflation.

And, given these are two of the three pillars of the rally and are responsible for much of the YTD gains in stocks (and the recent decline in bonds).

So, in today’s webinar I:

• Clearly answered both questions.
• Examined important economic growth and inflation metrics and provided an update on what the data is saying about the economy.
• Identified three “Hard Landing” Warning Signs that we can monitor to tell us if a hard landing is becoming more likely and
• Listed three “Inflation Bounce Back” Warning Signs that will tell us if inflation is bouncing back, because if it does that’s a major negative for stocks and bonds.

Since the start of the year, we’ve consistently said that the economic data would be the key to determining if markets rally or decline, and, so far, the data has pointed to 1) A resilient economy and 2) Declining inflation. But just because that’s happened so far this year, it doesn’t automatically mean that it will continue, and in order to avoid a sudden and significant downturn in this market, we need to be consistently reviewing the growth and inflation data, because how the data plays out will create either 1) An upside opportunity or 2) A catalyst to get more defensive.

Bottom line, today’s webinar will help to cut through the noise in the financial media and provide a clear picture of 1) Whether a soft landing is coming into doubt and 2) If inflation is about to bounce back, because the answers to those questions could well decide if stocks rally into year-end or roll over.

Sevens Report Alpha: Value and Opportunity in Emerging Markets (Excluding China) – 8/22/23

This issue will focus on a part of the market where we think there’s medium-and-longer term opportunity: Emerging markets ex-China.

Most large emerging market ETFs have lagged the S&P 500 YTD, but much of that underperformance is the result of exposure to China. But, if the bullish thesis for this market is correct, namely that global central banks are about to end their rate hiking campaign and the global economy will avoid a recession, then that presents an interesting opportunity for select emerging markets as they should outperform as the global economy expands and global rates start to fall.

To that point, away from China, emerging markets have done well and offer continued return potential and international diversification for investors.

Part of the reason for that solid performance is due to the ongoing major change in the global manufacturing process (perhaps the biggest change since China came to dominate global manufacturing), as the world “decouples” from Chinese dominated manufacturing and re-focuses on other EM countries, like India, Taiwan, South Korea, Brazil, and Mexico. Several of those country focused ETFs have outperformed the S&P 500 YTD, and given shifting trends in global manufacturing, stand to continue to outperform, barring a major global recession.

• Investment Idea 1: Emerging Markets Ex-China. Columbia EM Core Ex-China ETF (XCEM).
  • With China facing numerous domestic and foreign growth headwinds, diversifying EM exposure away from China to countries such as Taiwan, South Korea, India, and Brazil has been a profitable strategy.
  • XCEM has outperformed traditional EM ETFs handily, rising more than 15% over the past three years compared to -5% for IEMG.

• Investment Idea 2: India Takes Center Stage. WisdomTree India Earnings ETF (EPI).
  • India is one of the primary beneficiaries from Western companies diversifying exposure away from China while India also boasts some of the most attractive demographics of any large country.
  • EPI has outperformed IEMG and the S&P 500 over the past year (up 9% vs. 0.2% and 5%, respectively).

• Investment Idea 3: Emerging Market Small Caps. iShares MSCI Emerging Markets Small-Cap ETF (EEMS).
  • EEMS allocates to small caps primarily from India, Taiwan, and South Korea, and EEMS has massively outperformed other EM ETFs, rising 33% vs. -1.45% for IEMG over the past three years!

Bottom line, there’s not a lot of “value” in this market right now, but emerging markets do have a value component and structural growth potential, and we wanted to focus next week’s Alpha issue on the emerging markets ex-China, because while the sour Chinese outlook is dominating the emerging market conversation, there are much more attractive opportunities if we look beyond the headlines.

Sevens Report Alpha Webinar #147: Bull Case vs. Bear Case (And Which One I Think Is More Compelling) – 8/17/23

Sevens Report Alpha Webinar #147 – Recording

Sevens Report Alpha Webinar #147 – Slide Deck

Who has the more compelling argument? The bulls or the bears?

I address that question in today’s webinar and detail both the bull’s case and the bear’s case, and identify which argument I think is more compelling.

I wanted to cover the bull and bear arguments because the market has reached a fork in the road (evidenced by this ongoing pullback) and it’s important for advisors and investors to understand what would cause a further rally, or a correction, so they can adjust exposure accordingly.

The 2023 rally in stocks has stalled over the past several weeks as rising Treasury yields, disappointing global economic data and hints of a slowing U.S. economy have created headwinds on stock prices. Meanwhile, two of the most important drivers of the 2023 rally, negative sentiment and compelling valuations, have been largely removed as sentiment now is bullish (a major switch from earlier in the year) while valuations are expensive (another major change from earlier in 2023).

Given this stall in the rally, I utilized today’s Alpha webinar to clearly present the bull and bear arguments for this market into year-end and early 2024.

Specifically, I:

• Explained, in plain English, why market bulls think this is a buying opportunity.
• Explained, in plain English, why market bears think this is a time to reduce exposure and prepare for a larger decline.
• Detailed which argument I think is more compelling in both the near term and longer term.
• Identified six Alpha strategies we can deploy depending on which argument is ultimately correct.

Bottom line, the 2023 rally has been impressive and unexpected, but with the S&P 500 pushing the ceiling of reasonable valuation levels, sentiment no longer a tailwind, and lingering concerns about earnings pressure and a possible economic slowdown, the market has reached a proverbial “fork in the road.”

So, I think now is the perfect time to clearly lay out the bull and bear scenarios in a way I can’t in the regular Sevens Report, so that we all understand what a continuation of the rally will look like (and how to allocate to outperform) or what a reversal of the 2023 rally will entail (and how to allocate to protect YTD gains).

Sevens Report Alpha: Bond Market Roadmap

This Alpha issue will focus on the bond market, and the inspiration for this issue came from an interview I had with a Barron’s reporter about a week ago.

She asked me this question:

“What should investors do with their bond holdings?”

My response was this:

“It depends on what they think is going to happen with the economy.”

We see three possible paths for the economy over the coming months:

• Soft landing: No recession, job growth, consumer strength, credit is sound, inflation recedes.
• Hard landing: Recession, job shrinkage, consumer contraction, credit crunch, inflation resumes.
• Unknown landing: No strong opinion about how the economy will shake out.

If you think there will be a “Soft Landing”, then a specific part of the bond market will handily outperform.

If you think there will be a “Hard Landing”, then a totally different part of the bond market will outperform.

Finally, because we understand that some advisors and investors don’t have strong convictions about future economic growth, we also provide an “I Don’t Know” solution of ETFs that focuses on high yielding, liquid alternatives to earn a solid yield on cash while advisors or investors wait to see what happens in the economy.

In today’s issue, we identify nine ETFs that should outperform in each scenario, so you have a “roadmap” to help you successfully navigate the bond market, regardless of what happens to the economy.

Economic View 1: Soft landing.

• Strategy: Take on more risk for more return. Focus on lower-quality, higher-yielding bond ETFs.
  • USHY: iShares Broad USD High Yield Corporate Bond ETF. Up 6.6% YTD, 6.67% yield.
  • YLD: Principal Active High Yield ETF. Up 6.64% YTD, 6.6% yield.
  • SRLN: SPDR Blackstone Senior Loan ETF. Up 6.5% YTD, 7.4% yield.
  • FLBL: Franklin Senior Loan ETF. Up 9.4% YTD, 7.8% yield.

Economic View 2: Hard landing.

• Strategy: Capture as much low-risk yield as possible, focus on longer duration and higher quality.
  • SPTL: SPDR Portfolio Long Term Treasury ETF. Down -1.7% YTD, 3.15% yield.
  • BLV: Vanguard Long-Term Bond ETF. Up 0.4% YTD, 4.2% yield.

Economic View 3: Unknown landing.

• Strategy: Get paid to wait until either a hard or soft landing becomes more apparent. Maintain liquidity and safety and capture as much yield as possible.
  • SGOV: iShares 0-3 Month Treasury Bond ETF. Up 2.9% YTD, 3.9% yield.
  • BIL: SPDR Bloomberg 1-3 Month T-Bill ETF. Up 2.75% YTD, 3.8% yield.
  • CLTL: Invesco Treasury Collateral ETF. Up 2.7% YTD, 3.5% yield.

Bottom line, the bond market is at a fork in the road, with inflation declining and the Fed almost done with rate hikes. Going forward, how to position in the bond market depends on your opinion of future economic growth and this Alpha issue provides ETFs that should outperform in either scenario (in addition to ones that can also pay you to wait!).

Sevens Report Alpha Webinar #146: Similarities Between Now and 2000/2007 – 8/3/23

Sevens Report Alpha Webinar #146 – Recording

Sevens Report Alpha Webinar #146 – Slide Deck

Is the yield curve inversion different this time, or is it just like the last two times?

That’s the question I examined in this Alpha webinar, as I compared the economic and employment fundamentals of today’s market to the last two 10-s’-2’s yield curve inversions (specifically 2000 and 2005) to try and determine if there were any massive differences.

And, the conclusion is this:

According to most major economic and employment metrics, it is not different this time, at least not so far.

So, while it’s possible that the 10’s-2’s inversion recession signal could be wrong this time, there’s nothing in the data to imply it is wrong!

Recently in the Sevens Report, I’ve stated that this time in the market reminds me of the early 2000’s and 2006/2007, periods where future recession signals were downplayed and largely dismissed, only to ultimately be correct, albeit much later than most expected.

Put differently, there were two periods in the markets where it seemed like it was different this time.

As stated, this period of time reminds me of those days, but feelings are subjective, so in today’s webinar, I looked at the data from those two time periods to determine if the current environment really is similar to those periods – and essentially confirm or refute my feelings!

This matters because if it truly is different this time, if historically accurate recession warning signals like the yield curve and high real rates and leading indicators are wrong, then that’s obviously a demonstrably bullish sign – and we should react accordingly!

Conversely, if the data shows this period is similar to those market timeframes, then that will reinforce my concern that recession risks have not been eliminated, and that while the near-term outlook for markets is still solid, for medium-and-longer term strategies we need to maintain elevated caution.

To accomplish this task, I examined numerous metrics from these three-time frames (early 00’s, mid 00’s, and now) including:

• Real Interest Rates
• GDP
• ISM Manufacturing PMI
• Jobless Claims
• Unemployment
• S&P 500 P/E Ratio

Bottom line, as you know from the Sevens Report, I am skeptical of this sudden surge of optimism that states there will be no material growth slowdown, mainly because that optimism is being driven by the fact that very negative short-term expectations never came to fruition, not substantial fundamental changes.

Put plainly, the market seems to have aggressively adopted the idea that just because something hasn’t happened yet, that means it won’t happen at all. That may well be the case, but I want to continue to examine the data to make sure we have the appropriate expectations for growth and volatility going forward.

Sevens Report Alpha: ETFs for A No Landing Scenario – 7/25/23

If the economy stays resilient for the remainder of 2023, then knowing what to own may mean the difference between seizing opportunity in certain market sectors and missing that opportunity.

And, in a No Landing scenario, the likely biggest opportunity is in under-owned cyclical sectors with strong fundamentals and meaningful upside potential. In the regular Sevens Report, I’ve highlighted sectors SPDRs and some of the well-known value ETFs like VTV that should outperform in a No Landing scenario, but in this Alpha report I want to go deeper and identify specific ETFs that we think can be the best performers should cyclicals continue to outperform.

So, our goal in this issue is simple: Provide you with a shopping list of cyclical ETFs that should outperform if there is No Landing, so you can easily add cyclical sector and factor exposure to client portfolios.

Investment Idea 1: Rotate into Cyclicals. JPMorgan Active Value ETF (JAVA).

• This ETF can act as a core value equity holding with a tilt towards cyclical sectors. JAVA is actively managed, allocates to a basket of 150 stocks, and has top exposure to financials (25%), health care (16%), industrials (12.6%), and energy (7.7%). Those weightings are meaningfully above those of a comparable benchmark such as the Russell 1000 Value Index, providing more cyclical exposure.

Investment Idea 2: Small-Cap Value. Avantis U.S. Small Cap Value ETF (AVUV).

• This 5-Star Morningstar rated fund targets cyclical sectors and stocks in smaller publicly traded companies. Over a three-year time period, AVUV has massively outperformed the S&P 500 and Russell 2000, rising 90% compared to 45% and 39%, respectively.

Investment Idea 3: High Yield Bonds. iShares Broad USD High Yield Corporate Bond ETF (USHY).

• USHY targets companies lower on the credit spectrum compared to the HYG benchmark, resulting in a 30-day SEC yield of 8.50%, duration of 3.6 years, and similar option adjusted spreads of 360-370 basis points.

Bottom line, the medium-and-longer term outlook for this market remains, in my opinion, more uncertain than the consensus on Wall Street thinks. But, in the near term, if economic data continues to point to a No Landing scenario, then investors will want tactical exposure to cyclical sectors, and this Alpha issue provides several strong options to increase that exposure.

Sevens Report Alpha Webinar #145 – Second Half Market Outlook (Can the Rally Continue?) – 7/20/23

Sevens Report Alpha Webinar #145 – Recording

Sevens Report Alpha Webinar #145 – Slide Deck

Our most recent Alpha webinar where I provided an updated market outlook for the second half of 2023.

This webinar is designed to provide you and your clients with the updated context for this market as we begin the second half of 2023, so that you can demonstrate to them you know the key variables facing stocks and bonds, understand the positive and negative paths and have a plan to outperform in either scenario.

I encourage you to share both the recording and the PowerPoint slide deck with any clients or prospects who are interested in an independent, updated market outlook as we begin the second half of 2023.

Markets surprised most analysts and investors (including me) by rallying hard in the first half of 2023 on hopes of a soft economic landing, tech driven AI enthusiasm, and a reversal of extremely negative sentiment. But, the strong first half performance did not happen because economic and earnings fundamentals were good, it happened because they weren’t as bad as feared!

Now, that doesn’t make the gains in stocks any less enjoyable, but it does keep this market exposed to a reversal of some, if not all, of the 1H 2023 gains, if economic fundamentals don’t 1) Actually improve in the 2^nd half or 2) There is a surprise negative, because with the S&P 500 starting the second half of 2023 above 4400, there’s frankly little room for error or disappointment.

So, in today’s webinar, I provided an updated market outlook for the second half of 2023 and clearly identified the path higher for the S&P 500 and the path lower, and list the variables that will determine which outcome occurs.

Specifically, I discussed:

• Status of the labor market
  • As I said in last week’s Sevens Report, this may be the key variable to determine when the Fed stops hiking, and with expected terminal Fed Funds rising near 5.5%, this will matter to markets in the second half of 2023.
• Hard Landing vs. Soft Landing
  • This remains the biggest single question for markets, as not as bad as feared data in the first half led investors to embrace a soft landing (or no landing) scenario. However, that outcome remains far from certain, and we’ll feel more of the brunt of rate hikes in the second half of 2023.
• Sentiment
  • Negative sentiment was a powerful tailwind in the first half of 2023, but it has flipped from very negative to solidly positive. I’ll examine current sentiment indicators as we start the second half of the year.
• Core CPI
  • Disinflation is clearly occurring and that helped stocks rally in the first half of 2023. But it’s stalled recently and Core CPI above 5% is simply not good enough for the Fed. A further decline in Core CPI is expected in 2H ’23, but by how much will help determine if the Fed can stop hiking rates.
• Earnings
  • Earnings were one of the truly “good” news items from the first half (not just better than feared) but 2024 EPS now needs to hold at $240/share, otherwise, earnings will become a headwind on stocks.
• Terminal Fed Funds
  • We started 2023 with a 4.625% expected terminal Fed Funds rate. Now it’s around 5.5%, but stocks have ignored that increase. We’ll examine the current expectation for Fed Funds and what levels might increase headwinds on stocks (and bonds!).
• Treasury Yields
  • The last time the 10-year yield was at 5%, the S&P 500 was below 4,000. Markets have ignored the late quarter surge in yields, but that can only last so long (and it’s impacting markets today).

Sevens Report Alpha: Can the Rally in Homebuilders Continue? (Answer: Yes) – 7/11/23

This issue focuses on one of the most hated, but surprisingly strong performing sectors of the market: Housing.

Real estate in general and the home builders specifically have bucked conventional wisdom that higher rates should result in a weaker housing market. Instead, the rapid rise in rates has dramatically reduced the supply of homes for sale, boosting profits for home builders, which have recently hit 52-week highs.

As we look forward and think about possible macroeconomic environments and which sectors can outperform in them, the bottom line is that if 1) Interest rates remain elevated for an extended period and 2) The economic recession is shallow or non-existent, then it makes sense to consider homebuilders as a key growth center for your client portfolios. These stocks have the potential to ride a long-term wave of pent-up demand and under supply with pricing power to rival comparable industries.

In this Alpha issue, we highlight best-of-breed strategies to own homebuilder and home improvement stocks to capitalize on this secular opportunity.

• Investment Idea 1: Focusing on the Large Builders. The iShares US Home Construction ETF (ITB).
  • ITB has sizeable weightings to the largest homebuilders (as opposed to more exposure to the real estate ecosystem) and has been the best-performing homebuilders ETF on a three- and five-year time frame. ITB is up 62% over the past year.

• Investment Idea 2: Pure Builders. The Invesco Dynamic Building & Construction ETF (PKB).
  • PKB is a pure play on the builders and materials companies. It provides exposure to just 30 U.S. building and construction companies and does not allocate to the broader real estate ecosystem (think home furnishing, paint, home improvement stores, etc.). PKB has rallied 43% over the past year.

• Investment Idea 3: Broad Real Estate Exposure. The Hoya Capital Housing ETF (HOMZ).
  • In contrast to PKB, HOMZ is a one-stop shop for the complete value chain of real estate-related companies: Residential REITs (30%), Homebuilding/Construction (30%), Home Improvement/Furnishing (20%), Home Services/Technology (20%). HOMZ is a more conservative and diversified housing play, but still has returned 23% YTD.

Bottom line, with mortgage rates surging in such a short time and the Fed promising higher for longer rates, many homeowners with mortgage rates in the 2%-4% range are “trapped” in their homes, as moving will only create a significant increase in interest expenses. So, the supply of existing homes has fallen sharply, and prices have stayed buoyant (constant demand, less supply!).

The beneficiary of this dynamic has been the home builders, and if rates stay high and demand for housing remains stable (which it will if there’s a soft landing), then homebuilders will be needed to fill the gap in housing supply, and the tailwind on the builders and housing more generally could last for years to come, proving an attractive cyclical opportunity for investors.

Sevens Report Alpha Webinar #144 – Second Half Market Outlook (Can the Rally Continue?) – 07/06/23

Sevens Report Alpha Webinar #144 – Recording

Sevens Report Alpha Webinar #144 – Slide Deck

In this Alpha webinar where I provided an updated market outlook for the second half of 2023.

Markets surprised most analysts and investors (including me) by rallying hard in the first half of 2023 on hopes of a soft economic landing, tech driven AI enthusiasm, and a reversal of extremely negative sentiment. But, the strong first half performance did not happen because economic and earnings fundamentals were good, it happened because they weren’t as bad as feared!

Now, that doesn’t make the gains in stocks any less enjoyable, but it does keep this market exposed to a reversal of some, if not all, of the 1H 2023 gains, if economic fundamentals don’t 1) Actually improve in the 2^nd half or 2) There is a surprise negative, because with the S&P 500 starting the second half of 2023 above 4400, there’s frankly little room for error or disappointment.

So, in this webinar, I provided an updated market outlook for the second half of 2023 and clearly identified the path higher for the S&P 500 and the path lower, and list the variables that will determine which outcome occurs.

Specifically, I discussed:

• Status of the labor market
  • As I said in last week’s Sevens Report, this may be the key variable to determine when the Fed stops hiking, and with expected terminal Fed Funds rising near 5.5%, this will matter to markets in the second half of 2023.
• Hard Landing vs. Soft Landing
  • This remains the biggest single question for markets, as not as bad as feared data in the first half led investors to embrace a soft landing (or no landing) scenario. However, that outcome remains far from certain, and we’ll feel more of the brunt of rate hikes in the second half of 2023.
• Sentiment
  • Negative sentiment was a powerful tailwind in the first half of 2023, but it has flipped from very negative to solidly positive. I’ll examine current sentiment indicators as we start the second half of the year.
• Core CPI
  • Disinflation is clearly occurring and that helped stocks rally in the first half of 2023. But it’s stalled recently and Core CPI above 5% is simply not good enough for the Fed. A further decline in Core CPI is expected in 2H ’23, but by how much will help determine if the Fed can stop hiking rates.
• Earnings
  • Earnings were one of the truly “good” news items from the first half (not just better than feared) but 2024 EPS now needs to hold at $240/share, otherwise, earnings will become a headwind on stocks.
• Terminal Fed Funds
  • We started 2023 with a 4.625% expected terminal Fed Funds rate. Now it’s around 5.5%, but stocks have ignored that increase. We’ll examine the current expectation for Fed Funds and what levels might increase headwinds on stocks (and bonds!).
• Treasury Yields
  • The last time the 10-year yield was at 5%, the S&P 500 was below 4,000. Markets have ignored the late quarter surge in yields, but that can only last so long (and it’s impacting markets today).

This webinar is designed to provide you and your clients with the updated context for this market as we begin the second half of 2023, so that you can demonstrate to them you know the key variables facing stocks and bonds, understand the positive and negative paths and have a plan to outperform in either scenario.

I encourage you to share both the recording and the PowerPoint slide deck with any clients or prospects who are interested in an independent, updated market outlook as we begin the second half of 2023.

Sevens Report Alpha: AI Tools for Advisors (And How They Can Help Manage Your Business) – 6/27/23

This Alpha report serves as a “Part Three” of our series on Artificial Intelligence (AI) and focuses on specific AI platforms that you can begin using today that can make your practice more efficient and reduce costs. This is basically the “business alpha” issue that explains how AI can help you better run the business side of your practice!

In this issue we answered the following questions:

1. What tools are currently available or in development for advisors that are truly AI-capable?
2. What are the pros and cons of using this technology in the workplace?
3. How will advisors implement these platforms to achieve a more efficient workflow?
4. What are the challenges or risks surrounding the adoption of AI in your business?

As a refresher, the first part of this Sevens Report Alpha series on AI was sent to you on March 7^th, where we identified three AI ETFs (AIQ, SKYY, and QTUM) that we felt gave advisors solid exposure to AI focused tech names. Those ETFs have returned 19.9%, 14.4%, and 12.01% respectively since March 7^th.

The second part of this series on AI was delivered two weeks ago and provided updated research on AI generally and the three recommended ETFs, introduced two new AI ETFs (LRNZ and WTAI), and provided a searchable list of AI focused individual stocks.

This third part, today’s issue, focuses on how to use AI to make your business more efficient and effective. Specifically, our goal in this issue is to uncover the strengths and weaknesses of AI tools so that you can maximize the use of this technology within your practice.

Specifically, we examine three ways advisors can use AI today to help improve their businesses:

• Chatbots and Virtual Assistants. We examine current AI solutions that can assist in research tasks and routine client interactions.

• Sales and Marketing Tools. We profile three current AI-based software solutions from Salesforce, HubSpot, and Hootsuite that can automate and improve sales and marketing strategy, content creation, and reporting.

• Copywriting and Illustrations. We reveal two AI platforms that can assist in basic copy and visual creation to improve client and prospect communications.

Bottom line, artificial intelligence has dominated financial media headlines this year thanks mostly to the stellar performance of AI exposed tech stocks. But beyond just generating alpha from these tech names, advisors need to start asking themselves how these platforms can help manage their business by successfully automating or elevating mundane administrative tasks and today’s issue focuses on practical and available solutions for advisors to get started.

Sevens Report Alpha: Artificial Intelligence Primer Part Two (Opportunities and Risks) – 6/13/23

AI Individual Stock Data Table – Excel Sheet

This Alpha issue focuses on a very popular topic in the markets right now: Artificial Intelligence (AI). As part of this issue, we have also attached a proprietary spreadsheet of AI stocks (more on that below).

We produced an AI issue in early March and the three ETFs profiled in that issue have all handily outperformed the S&P 500, rising 20%, 17%, and 14% respectively in just over three months!

But, since March, the interest and fervor surrounding AI has increased substantially. And, if you’re like the advisors I talk to, AI is a popular topic amongst clients and prospects thanks to strong returns, the near-constant financial media coverage of everything “AI” and the extreme pronouncements of the potential of the technology!

So, this second AI issue will focus more on what this technology can actually do (and how it can be used) and updates the universe of AI-focused ETFs and stocks.

Specifically, we cut through some of the noise of the biggest AI predictions (it’ll replace entire industries, potentially replace people, etc.) and instead focus on practical applications and how that could impact corporate profitability and the markets, and in doing so arm you with practical insight and knowledge on AI for client and prospect discussions.

In this Alpha issue we:

• Profiled the Industry Sectors Likely to Substantially Benefit from AI:
  • Transportation, Education, Healthcare, Manufacturing, Financial Services & Customer Services are the industries likely to see some of the biggest positive impacts on profitability from the adoption of AI.

• Reviewed and updated the research on our previous AI ETF picks:
  • AIQ, SKYY, QTUM.
    • On March 7 we profiled three AI ETFs: Global X Artificial Intelligence & Technology ETF (AIQ), up 20.06%. First Trust Cloud Computing ETF (SKYY), up 16.8%. Defiance Quantum ETF (QTUM), up 14.2%. We update that analysis inside.
• Introduced two new AI-focused ETFs that are both up more than 30% YTD.
  • LRNZ, WTAI
  • TrueShares Technology, AI, and Deep Learning ETF (LRNZ).
  • WisdomTree Artificial Intelligence and Innovation Fund (WTAI).
    • Both LRNZ and WTAI are relatively new ETFs with low assets, but LRNZ provides an actively managed AI exposure while WTAI gives equal-weight exposure to the AI sector. LRNZ has gained 35% YTD while ATAI has rallied 31% YTD.
• Included a proprietary spreadsheet of 30 AI stocks and categorized them by:
  • Sector, Market Cap, Price/Earnings ratio, Price/Sales ratio, Revenue, YTD through Three Year Returns, and Percent off All Time Highs!

We want this issue to give you the talking points to confidently discuss the opportunities (and risks) with your clients and prospects and ensure you have a “menu” of AI-focused investments so you can turn any AI-related question or discussion into an opportunity to grow your business.

Sevens Report Alpha Webinar #143 – What’s the Outlook for Earnings – 06/08/23

Sevens Report Alpha Webinar #143 – Recording

Sevens Report Alpha Webinar #143 – Slide Deck

In this webinar I focused on the current earnings outlook for the S&P 500, and highlighted 1) Why earnings have helped stocks rally so far this year, 2) What three risks exist for corporate earnings, 3) What an earnings-driven decline in the market would look like and 4) What sectors should be best insulated from any earnings driven market decline.

Market valuation is derived from two primary sources: The “Market Multiple,” which is controlled by macro-economic factors, and expected S&P 500 earnings pre-share for the coming year.

We spend a lot of time focusing on the market multiple because most of the major macro-economic headlines we see every day determine what multiple is appropriate (normally between 15X – 19X) and that has a more consistent influence on the market.

However, earnings matter too!

And, that was demonstrated in both April and May, as earnings largely drove the markets higher during those months! But, while the better than feared Q1 earnings results helped the S&P 500 to move higher over the past two months, there remains a lot of uncertainty about what we can expect from earnings for the rest of the year.

In this webinar, I provided an in-depth look at corporate earnings and discussed:

• Why Q1 earnings were better than feared
• Why disinflation could actually be a negative for corporate earnings in 2H 2023
• What we can expect from earnings if the economy slows
• Review the current 2023 and 2024 S&P 500 expectations and
• Examine the market impact if 1) Earnings expectations remain stable or 2) They fall (this would be an unexpected and clear negative for stocks)
• Identify the three market sectors that have historically weathered earnings declines well.

Bottom line, earnings aren’t covered as much as other macro topics, but they matter a lot to market performance, and it’s not an exaggeration to say that if current earnings expectations hold, that could result in another 5% – 10% rally in stocks, and if they do not, 10% or more downside. And, that’s regardless of whether the Fed pauses, pivots, or cuts!

So, I want to make sure we understand the risks for corporate earnings between now and year-end, because that will be an influence on markets over the last six months of 2023.

Sevens Report Alpha: Effectively Utilizing High Returns on Cash – 05/31/23

“My clients are nervous about money markets, despite the high yields.”

That comment, which was emailed to me by an advisor subscriber a few weeks ago, was the inspiration for today’s Alpha issue.

Here’s the reality: Cash now yields around close to 5% (or more), thanks to the historic Fed rate hikes. But, despite that attractive opportunity, many clients are concerned about the safety of money market funds and other high-yielding cash alternatives due to a variety of factors including: Bad memories of the financial crisis, regional bank failures, debt ceiling drama (although that is thankfully fading) and general macro-economic anxiety.

This Alpha issue will help you address and overcome those client concerns and provide a list of high quality, high yielding cash alternative ETFs, so clients can feel comfortable allocating to money market funds and other cash alternatives to enjoy decades high yields on cash and little to no principle risk!

In this issue we 1) Address the realistic risks and opportunities in the money market fund space, 2) Provide talking points and statistics to help clients feel easier about money market risks (and rewards), 3) Provide some key features to look out for when selecting a money market fund and, 4) Include a list of five money market alternative ETFs that yield between 4.5% and 5.0%!

What’s inside this Alpha issue:

• Myth Busting the Past.
  • We explain what caused the Reserve Primary Fund’s NAV to drop below $1.00 back in September 2008, and explain what changes have been made to duration, diversity, and liquidity to make money market funds much stronger than they were back then!

• Helping Clients Understand the Role of Money Market Funds.
  • Even money market funds yielding 5% aren’t a long term wealth solution, but they can provide solid near-term returns and achieve key portfolio goals: Diversification, liquidity, safety, and income. Clients’ better understanding of how to use money market funds will help in their adoption.

• What Type of Money Market Fund Is Best?
  • Non-transaction fees and money market funds that serve as a core settlement option are both cost effective and easy to integrate.

• Sensible Money Market Fund Alternatives.
  • We profile five short-term debt ETFs yielding between 4.5%-5.0% with liquidity and safety comparable to money market funds.
    • SGOV: iShares 0-3 Month Treasury Bond ETF. 4.85% yield.
    • BIL: SPDR Bloomberg 1-3 Month T-Bill ETF. 4.66% yield.
    • CLTL: Invesco Treasury Collateral ETF. 4.76% yield.
    • BILS: SPDR Bloomberg 3-12 Month T-Bill ETF. 4.72% yield.
    • PULS: PGIM Ultra Short Bond ETF. 4.94% yield.

Bottom line, the most intense rate hiking cycle most (if not all) of us have ever seen is about to end, and yield on cash is now at levels that, just two years ago, would have been considered impossible!

So, we wanted to provide research and facts to help you ease any investor concerns over money market funds and provide a list of high quality, liquid, and high-yielding cash alternatives so that we can take full advantage of these decades’ high yields, especially if the Fed pause lasts for several quarters (as numerous Fed officials are saying it will do).

Sevens Report Alpha Webinar #142 – Summer Catalyst Cheat Sheet – 05/25/23

Sevens Report Alpha Webinar #142 – Recording

Sevens Report Alpha Webinar #142 – Slide Deck

This Alpha webinar I spent the entire 30 minutes identifying the catalysts that could move this market over the summer months and providing a “cheat sheet” that will tell us if these catalysts are positive or negative for markets, so you can spend more time enjoying the summer and less time worrying about what may move markets.

This Alpha webinar was designed to serve as a summer “cheat sheet” to help ensure you’re not blindsided by any market movements while you’re hopefully away from the office and enjoying your summer vacation.

To facilitate that, the last slide of the presentation is a printable “cheat sheet” that lists the dates, events, and outcomes for this summer that could move markets, and I want to encourage you to share any of the materials (recording, PowerPoint, printable cheat sheet) with clients or prospects.

Summer “starts” this Monday with the Memorial Day holiday, and while I fully expect activity on Wall Street to slow between now and Labor Day, the next three months have the potential to largely resolve the key questions for this market:

1. Has the Fed truly paused (and does it pivot?)
2. Does unemployment finally rise?
3. Does inflation drop?

Unlike recent summers, there are no geo-political or existential crises to deal with: No surging trade war with China (like back in ‘18/’19), No pandemic case counts to watch (like in ’20/’21) and no wondering whether the Fed will hike 75 bps over and over and over (like in ’22).

Instead, what will drive markets this summer is good old economic data and actual Fed policy decisions. But, don’t let the “routine” nature of these catalysts fool you:

They have the power to move the S&P 500 another 5% – 10% higher, or another 10% – 20% lower!

It is my sincere hope that after the years of disruption of travel and leisure around the pandemic, that you take some time to enjoy the summer season with friends and family.

And, to aid in that, I created this “cheat sheet” of catalysts that are coming between now and Labor Day, so that while you are away from the office you can easily know the truly impactful market events, and that way ensure you’re not blindsided by a market move, even if you’re on the beach (or somewhere just as good!).

Bottom line, I wanted to provide you, Alpha subscribers, with an exclusive summer “cheat sheet” to the events that could materially move this market, so that you know what to watch for regardless of whether you’re in the office this summer, or not!

Sevens Report Alpha: Uncorrelated Investing Opportunities – 05/16/23

The S&P 500 has been rangebound between 4,000-4,200 for more than two months. The two-year Treasury yield has been rangebound between 3.76% and 4.26% for over a month. The Dollar Index has traded between 101-103 for over a month.

And, this broad rangebound trade makes sense, because the market is waiting for resolution on key issues including whether there will be a recession, if the Fed is truly done with rate hikes, how quickly inflation drops, and whether a debt ceiling deal gets done before the deadline.

However, once some of these events are resolved, we fear that it will create a “risk on” or “risk off” market environment where correlations between assets all move towards “1.”

As such, we wanted to focus this Alpha issue on uncorrelated strategies and ETFs that can provide income and alpha along with true diversification for a market that’s likely to become increasingly volatile in the coming months.

Importantly, we did intensive screening to make sure these uncorrelated asset ETFs are truly practical solutions for advisors, so these aren’t ETFs with minimal assets or limited trading history – we worked hard to make sure these are practical solutions!

• Investment Idea 1: Merger Arbitrage. IQ Merger Arbitrage ETF (MNA).
  • MNA provides exposure to global companies for which there has been a public announcement of a takeover by an acquirer. The M&A strategy demonstrates a low correlation to the S&P 500, has posted just two down years in the last 10, and was down just -1.5% in 2022 vs. the -18% return for the S&P 500.

• Investment Idea 2: Managed Futures. iMGP DBi Managed Futures Strategy ETF (DBMF).
  • Managed futures strategies typically have low correlations to the broader stock market. DBMF is a 4-star rated actively managed futures ETF with $750 million in AUM that has posted a positive return every year since inception in 2019, including a 23% return in 2022.

• Investment Idea 3: Core Alternatives. Core Alternative ETF (CCOR).
  • This hedged ETF owns a select group of mega-cap growth stocks but then hedges that long position via a proprietary options strategy depending on market conditions. CCOR has posted a positive return every year since its inception (2018) including in 2022, and pays a 1.4% dividend.

Bottom line, we continue to worry that markets will get more volatile in the months ahead, and I wanted to make sure we provide a quality list of uncorrelated assets and ETFs that can add true diversification and reduce volatility in client portfolios.

Sevens Report Alpha Webinar #141 – A Bullish and Bearish Script for this Market – 05/11/23

Sevens Report Alpha Webinar #141 – Recording

Sevens Report Alpha Webinar #141 – Slide Deck

In this Alpha webinar where I spent the entire 30 minutes explaining the “story” of this current market, including identifying the key influences that are lurking that will ultimately decide whether the S&P 500 breaks out towards the mid-4000s, or breaks down towards the mid to low 3000s.

Additionally, I included a “Breakout” checklist of events and a “Breakdown” checklist of events so we can know when the market is close to a move, and I encourage subscribers to print those lists and keep them handy because they’ll offer clarity in what will likely become a more volatile environment in the coming weeks.

Finally, I listed four Alpha strategies and twelve ETFs that should outperform in a bullish break out, and four Alpha strategies and eleven ETFs that should outperform if markets breakdown.

The stock market has become “stuck.”

I say that because, for most of the past two months (and especially over the past six weeks) the S&P 500 has traded in a tight range, largely between 4,000 and 4,200.

And that range has been maintained despite the evolution of several important macroeconomic events, including the likely Fed pause, Q1 earnings season, a regional banking crisis, and mixed economic data.

Yet, despite all that’s happened, the S&P 500 remains solidly in this 4,000-4,200 trading range, so I spent today’s webinar:

1. Identifying the catalysts in the market that can break the S&P 500 out of this range and
2. Detailing the events that would happen for a breakout or breakdown to occur, so that we have a guide to macro events as they continue to unfold.

This webinar essentially creates a “Bullish Breakout Script” and a “Bearish Breakdown Script” that details what would cause either event, so we know when a material move in the market happens (because it will).

Specifically, today I covered the current major influences on markets including:

1. Fed policy (What does a bullish Fed policy or bearish Fed policy look like?)
2. Hard Landing vs. Soft Landing (Updating the scoreboard)
3. Sentiment (Is it still a tailwind?)
4. Inflation (How much is enough?)
5. Regional bank crisis
6. Geopolitics and
7. The Debt Ceiling

Bottom line, you already know from the Sevens Report that these are the major influences on markets. But today’s webinar explains how each could be resolved and create a bullish or bearish narrative we can follow. That’s one of the reasons I love these Alpha webinars, as they allow me time to go more in-depth on the market’s outlook than I can in the regular Sevens Report.

Sevens Report Alpha Issue – Contrarian Opportunity – Identifying Quality Commercial Real Estate ETFs – 05/02/23

This Alpha issue speaks to our contrarian leanings, as we are going to look for potential contrarian opportunities in the commercial real estate ETF space.

Long time readers of the Sevens Report know that we are contrarians at heart, and the near universal “hatred” of the commercial real estate market right now has caught our attention.

To be clear, we understand and appreciate the well-reasoned negative views on commercial real estate:

• Rates have skyrocketed, and refinancing will impact the profitability of projects,
• Bank lending will contract following the regional banking stress,
• The economy is losing momentum which is historically negative for commercial real estate and
• There is still uncertainty regarding future office and retail demand given work from home trends and strong online shopping.

Yet, while we acknowledge these negatives, the declines in the commercial space have been extreme as many real estate ETFs and REITs are down around 20% over the past year, compared to a small 1% gain for the S&P 500!

So, while we’re not saying now is the time to buy, I do want to alert you to what we consider strong commercial real estate REITs and ETFs that could be attractive on further declines, because commercial real estate REITs and ETFs have provided solid long term returns in the past, and these could become attractive on further declines.

• SPDR Dow Jones REIT ETF (RWR).
  • RWR has a 20-year history and only allocates to companies that have direct exposure to the underlying real estate. That excludes management and financing industries and that means more office, industrial, and retail commercial real estate exposure than VNQ. RWR is trading at levels last seen in 2019 and currently touts a 3.75% yield.

• Fundamental Income Net Lease Real Estate ETF (NETL).
  • Net leases are a subset of the REIT space whereby tenants pay most of the operating expenses of a property, in addition to rent. Net leases are usually more stable and for a longer duration than typical commercial leases. NETL uses a proprietary screening process and has identified 22 companies that have net lease agreements. NETL has outperformed VNQ on both a one-year (-14% to -23%) and three-year (53% to 27%) time frame.
• A Dedicated List of Office REITs.
  • Of all the REITs, sentiment seems most negative for pure-play office REITs, yet we think there is opportunity there over the longer term because we do not think offices are going away. We’ve compiled a list of office REITs we think offer quality exposure to this REIT segment.

Bottom line, the commercial real estate market likely has more to fall in the near term, but if the stock market’s views of the economy (soft landing) and Fed policy (hike/pause/pivot/cut) are right, a surprise tailwind could be developing in the coming months and quarters for commercial real estate. So, while we don’t think a bottom is “in” the near-universal negativity towards this space has peaked our interest, and we wanted to identify quality CRE ETFs to keep on your radar screen for possible contrarian opportunities.

Sevens Report Alpha Webinar #140 – What Can We Expect from the Debt Ceiling Showdown? – 4/27/23

Sevens Report Alpha Webinar #140 – Recording

Sevens Report Alpha Webinar #140 – Slide Deck

In this Alpha webinar I examined the 2011 debt ceiling drama, because I believe it provides a “road map” of sorts for the looming debt ceiling battle, and I wanted to provide a singular resource you could have that 1) Reviews what happened and 2) Examine how markets reacted, so advisors and clients can have the right expectations as we move closer towards the debt ceiling battle.

More specifically, I want us all to be ahead of the game (and the competition) by making sure we know: 1) The state of the debt ceiling, 2) What we can expect from markets as the drama intensifies, 3) What outperformed and underperformed the last time there was a debt ceiling drama and 4) What we might expect if a breach occurs (something that’s very unlikely, but not impossible).

So, today I discussed:

• The current state of the debt ceiling battle (How bad is it, and how likely is a breach?)
• How did the last debt ceiling crisis occur, how long did it last, and how was it finally resolved?
• What was the impact on markets during the last debt ceiling drama, specifically on:
  • Major stock indices
  • Growth vs. value
  • S&P 500 sector SPDRs
  • Fixed income
  • Commodities
• What’s next in this current drama (I’ll give specific events to watch for next) and
• What happens if there is actually a breach?

Bottom line, the point of today’s webinar is clear: I want to make sure you are armed with knowledge and talking points about the looming debt ceiling battle so that when clients start asking about it, you have the materials and knowledge to turn those conversations into opportunities to impress those clients and prospects.

Sevens Report Alpha Issue – Is Gold in a New Bull Market? (If So, Here’s How to Play It) – 04/18/23

This issue will focus on the best ways to gain exposure to precious metals and miners, because gold has quietly traded to within striking distance of its all-time high, and with global unrest, a falling U.S. dollar, and a potential dovish pivot from the Fed, the outlook for a gold bull market is as good as it’s been in years.

In this issue, I focused on examining what parts of the gold and precious metals space performed best during previous gold bull markets and identified our preferred ETFs to gain exposure to gold, other precious metals, and precious metals miners.

• Investment Idea 1: Gold and Gold Miners. abrdn Physical Gold Shares ETF (SGOL), SPDR Gold MiniShares Trust, (GLDM) VanEck Vectors Gold Miners ETF (GDX).
  • To get comprehensive exposure to a gold bull market, history implies investors need exposure to both gold and gold miners. The average return for gold during the last three gold bull markets was 176%, while the average return for gold miners was even better at 210%!
  • SGOL and GLDM provide physical gold exposure to gold stored in vaults, similar to GLD but with minimal expenses and no K-1. GDX is the largest and most comprehensive large cap gold and silver miner ETF.

• Investment Idea 2: Investment Idea 2: Silver and Silver Miners. abrdn Physical Silver Shares ETF (SIVR), iShares MSCI Global Silver and Metals Miners ETF (SLVP).
  • Silver has outperformed gold in the last three bull markets, with silver posting an average gain of 244% during those bull runs.

• Investment Idea 3: Diversified Precious Metals. abrdn Physical Precious Metals Basket Shares ETF (GLTR).
  • GLTR gives managers exposure across precious metals without managing multiple funds. GLTR manages a basket of gold, silver, platinum, and palladium all stored in vaults (like SGOL and SIVR).

Bottom line, gold has quietly rallied back above $2000/oz. and for the first time in years, gold is starting to hint a new bull run might be starting. I can tell you from personal experience that bull markets can be powerful and rewarding for those who are on the right side of them, as I was a commodities execution trader during the gold bull run from 2000-2008, where gold rallied from about $450/oz. to nearly $1300/oz. So, I wanted to make this Alpha issue to ensure we 1) Know the best ways to gain comprehensive exposure to a potential gold bull market and 2) The ETFs that can best give us that exposure.

Sevens Report Alpha Webinar #139 – Are Rate Cuts Really Good for Markets? – 04/13/23

Sevens Report Alpha Webinar #139 – Recording

Sevens Report Alpha Webinar #139 – Slide Deck

This Alpha webinar, I examined the history of Fed rate cut cycles all the way back to the 1970s, and while each rate cutting cycle was unique, a broad conclusion became immediately clear: Rate cutting cycles produce a decidedly mixed result for stocks.

Getting more specific, there is one rate cutting cycle that, based on metrics like inflation, Fed Fund rates, and others, looks most like our current environment, and if the past is prologue, it implies continued volatility and sub-par returns ahead (more on that below).

Stepping back, though, both stock and bond markets have rallied so far in 2023 as markets have aggressively priced in numerous Fed rate cuts before year-end, as investors are following the familiar script that rate cuts are good for stocks (and bonds).

However, is that really true?

I can tell you from personal experience that the last two rate cut cycles, 2000 and 2007, were not positive for stocks, as the rate cuts actually foreshadowed steep declines in stocks.

However, it’s fair to argue that those two episodes are not like this current environment, given high inflation and (for now) resilient economic growth.

So, to answer the question “Are rate cuts really good for markets?” I examined the performance of markets following major rate cut cycles since the 1970’s and try to determine a clear conclusion that can give us insight into what we might expect from stocks and bonds going forward.

Specifically in today’s webinar I:

• Reviewed major index performance following significant rate cut cycles since the 1970’s.
• Identified the similarities between those periods and this current environment.
• Examined what might make this time “different.”
• Derived a clear conclusion from this historical data on what to expect from a possible future rate cutting cycle.

Bottom line, rate cut optimism is helping to support stocks and boosted bonds, but the recent history of market performance following rate cuts implies caution is warranted. So, we want to make sure we understand the comprehensive outlook for markets following rate cuts, because we don’t want to get caught on the wrong side of this market over the coming quarters.

Sevens Report Alpha – Two Strategies for the Regional Banking Crisis (One Positive, One Negative) – 04/04/23

The eruption of the regional bank crisis has created a potentially binary outcome, whereby either the crisis fades and the extreme declines in banks and financials is an attractive buying opportunity, or the crisis gets worse and drags down the entire market.

This Alpha issue examines each scenario and identifies strategies that will help us navigate either outcome.

The first strategy examines the positive scenario and assumes a quick and relatively painless resolution of the banking crisis. As such, we identify bank and financial ETFs that, on a long-term basis, could be attractive opportunities following the recent volatility in the banking industry. This strategy aims to seize the opportunity created by the recent regional banking stress.

The second strategy examines the negative scenario, whereby the bank crisis metastasizes into a full-blown financial crisis that weighs on all assets, similar to the financial crisis. This strategy identifies an ETF that will protect client portfolios and aim to minimize losses.

Strategy 1: Seizing the Opportunity.

Investment Idea 1: Buy the Dip in High-Quality Bank Stocks. Invesco KBW Bank ETF (KBWB).

• • Large-cap bank stocks are the potential “winners” from this saga as money flows from small and regional banks to the money center banks. KBWB uses a modified market-cap weighting methodology and JPM, C, BAC, WFC, and USB make up nearly 50% of the ETF, which is down more than 30% YTD and now sports a 3.96% dividend yield.

• Investment Idea 2: Broaden Your Exposure to U.S. Financial Services Stocks. iShares U.S. Financial Services ETF (IYG).
  • IYG provides targeted exposure to mega-cap banks, credit card companies, and financial market firms, groups that have been dragged down by regional bank stress but that don’t have the same exposure. IYG fell just 17% during the recent regional bank turmoil.

Strategy 2: Protecting Against Material Downside.

• Investment Idea 3: Make the Trend Your Risk Management Friend. Pacer Trendpilot US Large Cap ETF (PTLC).
  • PTLC is a smart-beta index fund that tracks a specialized trend-following strategy designed to protect capital in a down market. It follows the S&P 500 200 day moving average, and adjusts exposure depending on if, and for how long, the S&P 500 is above or below that moving average. It shields investors from sharp, protracted market declines like we saw in ’07 and ’08 and PTLC was down just -8.6% last year, compared to -18% for the S&P 500.

None of us have a crystal ball that will tell us which scenario will ultimately occur. Given that, the point of this Alpha issue is to provide a playbook for either outcome and, when coupled with last Thursday’s webinar, should provide much of the analysis we need to successfully navigate the regional banking crisis.

Sevens Report Alpha Webinar #138 – Is the Banking Crisis Over? – 03/30/23

Sevens Report Alpha Webinar #138 – Recording

Sevens Report Alpha Webinar #138 – Slide Deck

In this Alpha webinar I spent the entire session examining if the banking crisis is over (it likely isn’t), investigating the similarities and differences between this crisis and the financial crisis, and identifying what parts of the market could signal if the current crisis is getting worse.

For any clients or prospects who are worried this is the start of another financial crisis, I encourage you to share this PowerPoint and recording because I clearly explain that, while there are similarities between the two periods, this is not likely to become a broader crisis.

It’s been three weeks since Silvergate Capital, Silicon Valley Bank and Signature Bank of New York failed, and so far, those events have not caused the significant market declines that were feared immediately following those failures.

However, as the financial crisis taught us, just because it hasn’t happened yet, it doesn’t mean the crisis is solved.

So, in today’s webinar I provided:

1. An update on the state of the banking crisis
2. The key indicators to watch for signs of improvement or deterioration (there’s one specific indicator that’s especially important right now)
3. Similarities and differences to the financial crisis (I’ve found investors love these insights)
4. What could be the next shoe to drop (what could be the next source of financial stress)

Bottom line, problems in the banking sector can often unfold like a slow-motion car wreck, with pauses in between collisions, and while I’m not saying that’s the case with the regional banking crisis, I do want to explore it and make sure we know 1) What could happen next and 2) What signals to look for to tell us if this situation is getting worse.

Sevens Report Alpha – Defined Outcome and Buffered ETFs – 03/21/23

This Alpha issue focuses on Defined Outcome Funds, or “Buffered ETFs,” which are fairly new and certainly unique investment products designed to capture upside in an underlying index (like the S&P 500) while limiting losses through the use of options strategies. Given recent bank failures and rising recession fears, these strategies should see increased demand this year.

These ETFs performed well in 2022 and, amidst this intense market volatility, remain attractive as potential alternatives for clients looking to maintain some upside exposure should the market rally, but also want some protection to reduce losses in the event of another 2022 style decline, so we wanted to dedicate an Alpha issue to explaining:

1. How these ETFs work
2. How they can fit into client portfolios
3. Some specific ETFs we think are “best of the breed.”

Point being, investors can secure upside returns using a “Buffered” ETF while at the same time, receive downside protection in an index during the defined outcome period.

• Investment Idea 1: Innovator S&P 500 Power Buffer ETF – April (PAPR).
  • This fund has a 12-month defined period that will begin April 1, 2023, to March 31, 2024. Its starting buffer is 15% and the starting cap will be determined at the fund reset date on April 1st.

• Investment Idea 2: Innovator Growth-100 Power Buffer ETF – October (NOCT) or FT Cboe Vest Nasdaq-100® Buffer ETF – September (QSPT).
  • These are defined outcome ETFs tracking QQQ with a moderate buffer that could be effective choices for replacing existing tech-heavy equity holdings based on risk tolerance and investment objectives. Both ETFs can be presented to the client with specified buffer and cap percentages explained in detail.

• Investment Idea 3: Innovator U.S. Equity Ultra Buffer ETF – June (UJUN) or FT Cboe Vest U.S. Equity Deep Buffer ETF – June (DJUN).
  • These are defined outcome ETFs tracking SPY with a large buffer and would be a sensible fit for maximum downside protection for clients with lower risk-tolerances and more conservative investment objectives. Both options can be presented to the client with specified buffer and cap percentages explained in detail.

Bottom line, these defined “Buffered ETFs” essentially provide clients with downside protection by using options strategies to “collar” a particular equity index. It goes without saying these investment vehicles will achieve the most favorable results in bear markets and less favorable returns during bull markets, however, given the right risk tolerance and investment objectives of a client, they can be utilized as an all-season core holding to help reduce portfolio volatility.

Sevens Report Alpha #137 – Will the Banking Crisis Make the Fed Turn Dovish? – 03/16/23

Sevens Report Alpha #137 – Recording

Sevens Report Alpha #137 – Slide Deck

In this Alpha webinar where I spent the entire session covering whether or not the Fed should hike 25 basis points at next week’s meeting, what the market expects, the impact across assets (stocks, value/growth, sectors, government bonds, corporate bonds) and what Alpha strategies would outperform in either scenario.

The entire market dynamic has been turned upside down over the past week with the failures of Silvergate Capital, Silicon Valley Bank, and Signature Bank, and that’s led to extreme equity and bond market volatility as investors aggressively price in a dramatic policy shift from the Fed in response to this stress.

Consider that in the past week:

1. The 10’s-2’s yield spread surged from -108 bps to under -50 bps at the highs!
2. The two-year yield declined more than 100 basis points from over 5% to just under 4%!
3. Terminal Fed rate hike expectations collapsed by more than 100 basis points.
4. Tech and growth stocks relatively outperformed, and cyclicals fell as markets priced in a less hawkish Fed.
5. The Dollar Index dropped more than 2%, helping to boost gold.

Given these market moves, I spent today’s webinar:

1. Examining the case for and against the Fed making a dovish pivot
2. Providing a preview of how that might happen (think of it as an advanced FOMC preview)
3. Identifying what assets and sectors would outperform and underperform depending on whether the Fed does, or does not, pivot.

Bottom line, there’s no doubt the stress in the banking system will make the Fed re-examine its rate hike plans, but there are also many reasons for the Fed to keep hiking (even though the market doesn’t want it).

Regardless, the decision has the potential to substantially move markets, and as such I wanted to make sure we all have a playbook for either outcome, so we know what the decision means across assets, and what sectors are poised to outperform and underperform.

Sevens Report Alpha – Artificial Intelligence Primer (And Three ETFs to Get Exposure to It) – 03/07/23

Artificial intelligence (or “AI”) has become the “it” topic in the tech sector and markets this year and AI related news has moved large tech companies and the markets. Case in point, Meta saw a big post earnings rally after revealing deep investment in AI technology that was improving their advertising ROI, while GOOGL saw a sharp selloff after its AI chatbot “BARD” debuted with a thud!

Clearly, the topic of AI is a potential market mover amongst widely held names, but beyond that, stocks with targeted AI exposure have outperformed year to date.

So, with such intense financial media and investor focus on AI, we wanted to dedicate an Alpha issue to explaining:

1. What AI actually is (it’s different from what sci-fi movies said it would be!)
2. How it could impact the economy and markets
3. What are some quality, targeted AI ETFs that could be candidates for allocations if clients want to get AI exposure.

What’s especially important about this issue is that we detail the AI Value Chain. AI encompasses numerous parts of the technology industry, and to get comprehensive exposure to the growth potential of AI, it’s important to understand all the different players and parts that go into this technology!

• Investment Idea 1: Big Tech Optimizes Artificial Intelligence. Global X Artificial Intelligence & Technology ETF (AIQ).
  • This AI-focused ETF was released in 2018 and has exposure focused on large-cap tech companies that are heavily investing in AI. What makes this ETF unique is it gives exposure to the entire AI value chain including chipmakers, cloud stocks, big data processors, and more. The one drawback is the ETF has just $125 in AUM, but AIQ provides targeted exposure to the AI industry via large-cap tech companies.
• Investment Idea 2: AI Exposure via the Cloud Sector. First Trust Cloud Computing ETF (SKYY). Cloud computing is a critical part of AI infrastructure, and as AI grows it’ll increase demand for cloud computing capacity.
  • SKYY is one of the largest and most liquid cloud focused ETFs with large-cap cloud names such as MongoDB (MDB), Oracle (ORCL), Nutanix (NTNX), Microsoft (MSFT), and Arista Networks (ANET) among top holdings.
• Investment Idea 3: AI Exposure via Quantum Computing. Defiance Quantum ETF (QTUM).
  • Quantum computing will be instrumental in the evolution of AI, and QTUM follows a rules-based index that identifies top companies engaged in advanced hardware, software, and data connectivity solutions that are critical to the evolution of AI.

Bottom line, artificial intelligence may be the next engine of growth for technology companies, but to get proper exposure, investors must target the entire AI universe, not just small cap AI focused or branded technology stocks.

Sevens Report Alpha Webinar #136 – How Far Are We Really from the End of Rate Hikes? – 03/02/23

Sevens Report Alpha Webinar #136 – Recording

Sevens Report Alpha Webinar #136 – Slide Deck

This Alpha webinar I spent the entire session trying to answer what is the key question for investors:

When will the Fed stop hiking rates?

Stocks have given back more than half of the 2023 gains over the past three weeks, and the reason why is clear: For the fourth time since this bear market started in early 2022, markets rallied hard on the hope the Fed was close to ending it’s rate hike campaign, only to have hotter than expected data and not dovish Fed speak dash those hopes and cause a pullback in stocks.

This repeating pattern is being driven by the over eagerness of investors to take any singular positive comment on rate hikes or any decline in inflation or growth statistics to mean the Fed is close to ending hiking rates.

In reality, however, it’s more than likely the Fed will require 1) Consistent trends in the data and 2) Overwhelming proof inflation is falling before it’ll signal a pause or pivot.

So, the focus of this webinar was to determine how far we really are from that actual pause or pivot.

To do that, I examined the last three rate hike cycles (late 90’s, the mid-2000s, and late 2010s) to find clues about market conditions that caused the Fed to pause or pivot.

Specifically, I reviewed:

• The size and duration of the previous hiking cycles (including levels of real interest rates).
• Economic growth: What were the levels of key growth metrics when the Fed ended rate hikes?
• Inflation: What were the levels of inflation when the Fed ended rate hikes?
• Employment: The key employment metrics like jobless claims, the unemployment rate, and others when the Fed finally paused?
• Finally, I boiled it all down and gave my opinion on when the Fed will stop hiking rates, and the answer may surprise you!

Of course, I understand that this hiking cycle is different than previous ones (they are all different). But the bottom line is reviewing the history of Fed actions can give us better insight into when we might expect the Fed to actually signal it’s “done.” And, I believe this research will provide useful context for the next time the markets and investors get overly optimistic about an imminent pause or pivot.

Bottom line, I remain concerned that the Fed is not nearly as close to ending rate hikes as the market hopes, and this research will help provide a fact-based reference for when we can reasonably expect the Fed to signal it’s done with rate hikes.

Sevens Report Alpha – Three Strategies to Re-Allocate to Growth (and Tech) – 02/22/23

This issue addresses a question we’ve been asked more frequently since the start of the year:

Is it time to re-allocate to growth?

Throughout 2022, we advocated for value and defensive sectors over growth and tech, and that was based primarily on the idea that rates would rise and pressure over-valued parts of the market. The strategy handily outperformed in 2022.

Now, however, growth has rebounded to start the year, and it’s reasonable that advisors are asking if this is the time to increase allocations. While I’m not ready to definitively say “yes” (the outlook for yields remains uncertain and if yields rise further or economic growth falters, growth factors and tech will underperform), I dedicated today’s Alpha issue to growth ETFs that I think are good candidates for allocations if an advisor does want to add growth exposure.

Specifically, I have detailed three strategies and ETFs that I think can help advisors add broad growth exposure, specific tech sector exposure, and targeted tech industry exposure, so advisors can select the strategy that best fits their client’s needs.

• Investment Idea 1: Growth Factor Funds. iShares Morningstar Mid-Cap Growth ETF (IMCG).
  • IMCG stood out because of its superior relative performance and sector diversification while still focusing on the growth factor. Tech exposure is 24% of the ETF, however, the remaining sector dispersions are more balanced among industrials (20%), health care (12%), financials (10%), and consumer discretionary (10%).

• Investment Idea 2: Sector Opportunities. iShares Expanded Tech Sector ETF (IGM).
  • IGM provides exposure to tech-oriented companies across three sectors: Technology, consumer discretionary, and communications services, making it a “one-stop shop” for highly diversified technology exposure.

• Investment Idea 3: Industry Level Funds. VanEck Vectors Semiconductor ETF (SMH).
  • SMH is a $7.6 billion ETF dedicated to a group of 25 large-cap and globally diverse semiconductor companies with an expense ratio of just 0.35%.

Bottom line, I believe the outlook for growth and tech remains uncertain, but it’s undeniable that many large-cap tech and tech-related companies are trading at values not seen in years. If hopes for an economic soft landing come true, then there is a positive case for growth and tech, and I understand if advisors want to add more balance to client portfolios. We believe these ETFs are a good way to add that balance.

Sevens Report Alpha Webinar #135 – Hard Landing, Soft Landing, or No Landing (In-Depth Look) – 02/16/22

Sevens Report Alpha Webinar #135 – Recording

Sevens Report Alpha Webinar #135 – Slide Deck

In this Alpha webinar I spent the entire session detailing what Hard, Soft, and No Landing economic scenarios would mean for markets, which economic indicators will tell us which outcome is most likely, providing a reasonable timeline for an answer, and identifying ETFs that can outperform in each environment.

Last week we introduced the idea of an economic “No Landing” by which the economy does not slow and, eventually, that means the Fed must keep raising rates to cool growth. I spent today’s webinar going more in-depth on the three possible paths for the economy (and ultimately the markets) going forward:

• Hard landing.
• Soft landing.
• No landing.

We provided a brief analysis of each of these scenarios via the table in last week’s Sevens Report, and based on the demand for that table it was very well received.

However, there are space constraints in the Sevens Report that prevent me from going more in-depth on specific topics, so I used this Alpha webinar to provide you, our Alpha subscribers, with a more comprehensive look at the three possible paths for the market.

Specifically, I discussed:

1. What each scenario looks like from the standpoint of key economic indicators.
   1. I listed specific leading indicators in employment and growth that should tell us, as early as possible, which path the economy is taking.
2. A Reasonable Timeline for each scenario.
   1. Specifically, when can we expect a definitive answer to the question of whether we’re getting a hard, soft, or no landing.
3. What each scenario would look like across assets.
   1. Impact on stocks, bonds, commodities, and currencies.
4. Specific Alpha strategies that we can implement to outperform as soon as we know which way the economy is going (I list eight ETFs that would outperform in each respective scenario and focused on fixed income ETFs, sector ETFs, and factor ETFs).

Bottom line, the economy is going to take one of these three paths (Hard landing, Soft landing, or No landing), and that will dominate the direction of major assets. So, I want to make sure we all have a clear understanding of what each scenario looks like from an indicator standpoint, and how it will impact different assets so we can have a plan to outperform, regardless of which scenario ultimately occurs.

Sevens Report Alpha Issue – Finally, An Opportunity in International Stocks? – 02/07/23

Today’s issue will focus on the global markets, specifically international stock ETFs that we believe would be good core holdings for adding (or increasing) international exposure in client accounts because, for the first time in a long time, the case can be made that international markets can sustainably outperform U.S. markets.

And, one of the reasons we (and others) think that, is because 1) It’s already happening and 2) History implies it could continue.

Consider:

• Over the past three months, foreign developed markets (represented by the ETF EAFE) have outperformed the S&P 500, rising 17% vs. 9%.
• Year to date, these markets are outperforming as well, gaining 7.5% vs. 7% for the S&P 500.
• They also relatively outperformed the U.S. markets in 2022 with EAFE falling -15% vs. the -18% decline for the S&P 500.

Now, all that said, it’s entirely true that international markets have badly lagged their U.S. counterparts for most of the past decade. And, many advisors and investors, either through a reduction in position sizes due to years of underperformance or through purposeful avoidance of international exposure, are very overweight in the U.S. and underweight internationally. However, the diversification benefits of international exposure over the long term are still compelling:

• Over the past 50 years, foreign markets have outperformed the S&P 500 roughly half the time!
• Foreign markets especially outperform U.S. markets when U.S. returns are low. Historically, foreign markets have outperformed the S&P 500 100% of the time when the S&P 500 has returned less than 4% in a year, and 96% of the time when the S&P 500 has returned less than 6% in a year! Point being, if we’re concerned about lackluster future stock returns, foreign markets can offer important diversification.

Given that, today’s issue is a guide to ETFs we think can easily be integrated into client portfolios that will provide quality international exposure, so that clients can benefit if international stocks continue to outperform U.S. markets.

• International Idea 1: Europe. Vanguard Europe ETF (VGK).
  • VGK is an all-cap, highly diversified, and broad regional strategy that charges a minuscule expense ratio. It’s essentially the VTI of Europe. You can own everything in a single basket without having to parse through individual countries or stocks to achieve the same goal. VGK trades at just an 11.6X P/E and 1.7X Price/Book.
  • Other ETFs to consider: iShares Core MSCI Europe ETF (IEUR).

• International Idea 2: Emerging Markets. iShares Core MSCI Emerging Markets ETF (IEMG).
  • IEMG is a comprehensive EM ETF that charges a minuscule 0.09% fee and has a broad portfolio of 2,600 stocks. China comprises 31% of the total portfolio, followed by Taiwan (14%), India (14%), South Korea (12%), and Brazil (5%).
  • Other ETFs to consider: iShares MSCI Emerging Markets Min Vol Factor ETF (EEMV). WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE).

• International Idea 3: Small-Cap International. Schwab Fundamental International Small Company Index ETF (FNDC).
  • The relative valuation of international small caps to U.S. small caps has reached a level where international small caps have outperformed 86% of the time over the next three years.

Bottom line, the long-term diversification benefits of international exposure in client portfolios can’t be denied, and while international has underperformed for the better part of a decade, it’s turned that performance around lately and that can continue into 2023. We think these ETFs are easy and effective ways for advisors to add international exposure and reap those longer-term diversification and performance benefits.

Sevens Report Alpha Webinar #134 – Post Fed Market Analysis and Outlook – 02/02/23

Sevens Report Alpha Webinar #134 – Recording

Sevens Report Alpha Webinar #134 – Slide Deck

In this Alpha webinar I spent the entire 30 minutes detailing what yesterday’s less hawkish Fed decision, this week’s economic and inflation, and the dovish ECB and BOE decisions mean for markets. Specifically, I addressed whether this rally can continue and what new risks we need to monitor going forward.

This webinar turned out to be well time, because as we said in our webinar invite on Tuesday, this week had the potential to be market moving, and it’s lived up to that hype.

To start, the Fed, ECB, and Bank of England have given investors whiplash as all three had less hawkish than expected rate decisions and largely contradicted themselves from December. That’s obviously dominated markets and I spent much of the webinar going in-depth on the implications of these decisions.

But, global central banks weren’t the only big events this week.

Economic data, while being temporarily overshadowed by the central bank decisions, was stagflationary this week. Beyond the short term, it’s the economic data, not central bank rate hikes, that will determine if this YTD rally is truly sustainable. I extensively covered this week’s data in the webinar because it is just as important as the central bank decisions over the medium and longer term.

Topics I covered in this webinar included:

• Fed decision
• ISM Manufacturing PMI
• Inflation data
• Labor market data (ADP, JOLTS, and claims)
• ECB decision
• Bank of England decision

Additionally, I’ve offered previews and “bullish if/bearish if” scenarios for the two important macro-economic events looming tomorrow:

• Jobs report
• ISM Services PMI

Bottom line is, the events of this week have changed the near-term market outlook, so I wanted to take this timely opportunity to make sure we all understand, clearly, what this week’s events and data mean for markets and specifically what needs to happen next for the rally to be sustainable from here and what could cause a pullback.

Sevens Report Alpha Issue – Opportunity in Long Bonds? – 1.24.23

This issue focuses on opportunities in the long end of the yield curve, which suffered historic losses in 2022 but is potentially poised to stage a big rebound in 2023 and beyond.

In late 2021 and throughout the start of 2022, we strongly advocated for abandoning the long end of the yield curve and going into ultra-short term debt ETFs like MINT and others. That call was predicated on the idea of surging inflation and higher rate hikes, and that strategy outperformed as MINT fell just -1% in 2022 compared to a -31.24% decline for longer dated Treasuries (represented by TLT).

However, when the facts change, our strategies must also change and as we look forward to 2023, we see an environment dominated by:

1. Declining inflation and
2. Slowing economic growth and, eventually,
3. Central bank rate cuts

In that environment, the long end of the yield curve should outperform as investors eventually acknowledge coming rate cuts (which will hurt the short end of the curve) and reach for yield as inflation and growth fall.

This Alpha issue breaks down several best-of-breed investment vehicles for embracing duration in your bond portfolios.

• Investment Idea 1: Long-Term Treasuries. SPDR Portfolio Long Term Treasury ETF (SPTL).
  • Approximately one-third of the SPTL portfolio is allocated to Treasuries with maturities of 15-20 years, with the remaining two-thirds targeting 20-30 years. SPTL currently has $6.3 billion in assets, charges a rock-bottom expense ratio of 0.06%, and sports a 30-day SEC yield of 3.78%.

• Investment Idea 2: Long-Term Corporate Bonds. PIMCO Long-Term Credit Bond Fund (PTCIX).
  • PTCIX owns a diverse mix of investment-grade corporate, high-yield, U.S. Treasuries, and emerging market bonds. Approximately two-thirds of the portfolio are investment-grade corporates. PTCIX pays a 5.39% dividend yield and has an expense ratio of 0.57%.

• Investment Idea 3: Municipal Bonds. VanEck Long Muni ETF (MLN).
  • MLN has an effective duration of 10.48 years and sports a 30-day SEC yield of 3.73%. That equates to a taxable equivalent yield of 4.91% at a 24% federal tax rate and 5.92% TEY at the top-tier 37% fed tax rate. The fund also charges a modest 0.24% expense ratio.

Bottom line, being positive on the long end of the yield curve is a contrarian view right now as the Fed is still hawkish and inflation remains high. But, as we look forward to what’s likely to happen over the next 12-18 months, that’s an environment that again should become much more favorable for the long end of the curve, and we think now is the time to begin re-building exposure to longer-term, high-quality bonds.

Sevens Report Alpha Webinar #133 – Is a Soft Landing Really Possible? (And What Would It Look Like?) – 1/19/2029

Sevens Report Alpha Webinar #133 – Recording

Sevens Report Alpha Webinar #133 – Slide Deck

In the first Alpha webinar of 2023 where I examined the history of the Fed achieving “soft” economic landings, and the conclusion was clear: It’s possible but not very likely. If you have any clients or prospects who follow markets, they’re likely hearing about a soft and hard landing, and I encourage you to share this PowerPoint and PDF with them as we always want you to derive maximum value from your subscription.

Stocks and bonds have both rallied to start the new year, and the main driver of that rally has been increased hopes for an economic “soft landing,” where growth slows (but not too much) while inflation quickly falls, allowing the Fed to cut rates and again support assets.

Now, compared to October, there is a legitimate reason for investors to have more hope for a “soft landing” because 1) Inflation pressures are easing, 2) Growth is clearly slowing, and 3) Some Fed members are sounding less aggressive.

But, with the S&P 500 now trading over levels we think are fundamentally justified, I spent today’s Alpha webinar examining just how likely a soft landing really is and what it would mean for markets (and specific sectors and factors) if it actually occurred.

To do that, I focused on:

1. History: I reviewed the past five rate hike cycles where a soft landing was possible and covered whether it was achieved or not.

1. Indicators: I examined what those five rate hike cycles looked like for key inflation indicators and key growth statistics so we could relate it to where we are now.

1. Investment Performance: I cover why the economy is not the market, and the results here were surprising!

1. Soft Landing or Not? I analyzed the chances of the Fed achieving a soft landing this time based on that history and current conditions and gave my opinion on whether the Fed is likely to achieve a soft landing.

Bottom line, while I remain skeptical about a soft landing, this research provided numerous surprises about the Fed’s history with soft landings, and what rate hike cycles mean for stock performance (it’s not as negative as you might think!).

But, my job is to always look at the other side of the trade, so this webinar helps us examine how a soft landing could occur and what it would mean for stocks, so we are prepared to outperform in that environment as well.

Sevens Report Alpha Issue – Three Contrarian Ideas to Start 2023 – 1/10/2023

This issue is our annual “contrarian” issue, where we present three contrarian strategies that we think can outperform in 2023 if consensus expectations for the economy, Fed policy, and inflation are proven false.

I’m an investing contrarian at heart, so I always like to start every new year with a list of contrarian ideas that 1) Have the potential to outperform in the coming year and 2) At a minimum provide interesting idea generation for clients or prospects who may be of a contrarian ilk.

Our criterion for these strategies includes sectors or factors that:

1. Badly underperformed in 2022.
2. Are universally “hated” by investors right now, but,
3. Offer either compelling long-term growth opportunities or valuations, so that we view the risk and rewards are balanced.
4. Have the potential to substantially outperform if consensus expectations are false, and in doing so provide needed Alpha to investors’ portfolios.

Our three contrarian ideas for 2023 are:

• Contrarian Idea 1: The Internet Growth Story Reemerges. ARK Next Generation Internet ETF (ARKW).
  • ARKW plunged 67% in 2022 as surging yields and economic growth concerns pummeled high-growth/low-profit tech companies. But if yields fall and economic growth is more resilient than feared, then future focused tech could see a substantial rebound.
  • Other ETFs With Similar Exposure: WisdomTree Cloud Computing Fund (WCLD), Amplify Online Retail ETF (IBUY), ETFMG Prime Mobile Payments ETF (IPAY).

• Contrarian Idea 2: Communication and Media Stocks. Vanguard Communication Services ETF (VOX).
  • Internet and media companies were pummeled in 2022, but many of the worst performers in the Communication SPDR are large, profitable businesses such as GOOGL, DIS, and VZ that are now trading at multi-year lows. VOX dropped more than 30% in 2022 and now trades at a 14.3 P/E, a multi-year low.
  • Other ETFs with Similar Exposure: Communication Services Select Sector SPDR Fund (XLC).

• Contrarian Idea 3: The U.S. Dollar Falls Out of Favor. iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB).
  • If the Fed doesn’t raise rates as much as expected that will result in dollar weakness which will be an EM tailwind. EMB fell nearly 19% in 2022 and now has a yield of 6.8%.
  • Other ETFs with Similar Exposure: iShares Core International Aggregate Bond ETF (IAGG), Schwab Fundamental International Large Company Index ETF (FNDF).

Finally, for those clients that are more interested in stocks over ETFs, we provided a list of the twenty worst-performing stocks in the S&P 500 for 2022. Some of the names might surprise you (we were surprised by some) and could provide an interesting topic of discussion or an attractive contrarian opportunity for the right clients or prospects.

Bottom line, the start of a new year is always about new opportunities, and this Alpha issue identifies some of those contrarian opportunities we think can rebound in 2023.

Sevens Report Alpha Webinar #132 – The Positive and Negative Path for Markets in 2023 – 1/5/23

Sevens Report Alpha Webinar #132 – Recording

Sevens Report Alpha Webinar #132 – Slide Deck

In the first Alpha webinar of 2023 where I described the positive, negative, and “OK” scenarios for markets as we start 2023, including identifying specific levels to watch for major economic reports and market influences that will help determine which path we take.

I believe this webinar is an excellent way to understand the potential paths the market can take as we move through 2023 and I encourage you to share this PowerPoint and webinar with any clients or prospects you see fit, as we always want you to derive maximum value from these materials.

The start of a new year in the market always contains some level of uncertainty, but with so many economic, corporate, and geopolitical issues in flux, the start of 2023 is filled with as much uncertainty as any year since 2009 (in my opinion). Because of that, I spent today’s webinar clearly identifying the three different paths markets (both stocks and bonds) can take in the coming year.

The goal of this first webinar of 2023 was clear:

I want to make sure all of us are able to easily and clearly explain to clients and prospects what the market faces in 2023 and demonstrate that they know the positive path (which would mean seizing opportunities), the “OK” path, and the negative path (which would mean getting more defensive and minimizing losses).

I’ve always believed there’s a “story” to every year in the market, and this year’s “story” will be defined by the following variables:

• Inflation
• Unemployment
• Corporate earnings
• Bond yields
• Fed policy
• Chinese economic activity
• Geopolitics

Those are a lot of variables, but in today’s webinar I went through each of them and identified:

• The key index or indicator for each variable
• Good, Bad, and “OK” levels for those indices or indicators

Then, I combined the analysis for these indicators and provided a “script” for three scenarios for 2023:

• Good (meaning a possible 15% rally)
• “OK” (meaning a choppy market) and
• “Bad” (meaning a 15% decline from current levels).

Finally, I identified Alpha strategies and specific ETFs that would outperform in each of these scenarios.

Bottom line, today’s webinar was designed to provide you and your clients with the context for this market as we begin a new year so that you can demonstrate to them that you understand the key variables facing stocks and bonds, understand the positive and negative paths, and have a plan to outperform in either scenario.

End of 2023 Reports