Jerry Hendricks
Portfolio Manager
Three Key Data Points You Need Know This Week
02/20/2024
1. CPI Print & The True Impact.
- Strategas’ Chief Economist, Don Rissmiller, notes that the latest Consumer Price Index (CPI) readings came in higher than expectations, while the domestic labor market has been normalizing (eg, fewer quits, better skills matching at businesses). However, it does not appear to have rolled over enough to completely remove concerns about wage inflation (which matters for services inflation).
- Strategas’ Chief Investment Strategist, Jason De Sena Trennert created what he has referred to as, “The Common Man CPI”, which consists of things people must buy like food, energy, shelter, clothing, insurance, and utilities as opposed to things they might like to buy – television sets, gym memberships, etc. He notes that in the last month, prices rose 3.3% year/year in his Common Man CPI, slightly hotter than the reported, headline number of 3.1%. Perhaps more important, his Common Man CPI (named for Aaron Copland’s legendary musical work) has grown far faster than wages over the past five years.
Source: Bloomberg LP and Strategas Securities, as of February 14, 2024
2. Common Man CPI and Reported CPI pushing out rate cut expectations.
- Don Rissmiller believes the pop in U.S. inflation month over month (m/m) in January 2024 will make real growth harder to achieve (e.g., real private average weekly earnings were down slightly y/y). As such, while tracking estimates for U.S. real GDP in 1Q have been above +3% q/q A.R., some near-term downside risk may be developing.
- And with the Common Man CPI showing costs outpacing wage growth, America may be feeling the pinch without the reported data saying as much. This could be one, possible explanation of why the Administration is polling poorly on the economy despite full employment and near record asset prices.
- Bottom line: The polls provide fodder for the Administration to pressure the Fed to cut rates, but with inflation data hotter than expected, it may have pushed rate cuts into Q2. We expect the central bank to remain restrictive (hold) in 1Q given the core CPI backdrop stuck at ~4% and well-documented, historical mistake of “stopping and going”. Rate cuts are likely a 2Q of 2024 story, in our opinion – we lean toward June for the first cut.
With added uncertainty surrounding the timing of rate cuts, along with the latest CPI print showing a hint that we may see some softer patches in the economy near term, we remain of the belief that the Strategas Macro Thematic Opportunities ETF (ticker SAMT) provides a well-diversified portfolio mix given our Cash Flow Aristocrats and Recession Protection Themes.
3. CPI and Inflation Flows.
- Don Rissmiller has noted that, historically, inflation tends to come in waves. However, we believe that the recent readings are not enough to suggest we are entering the second wave and what’s more, it is too early based on historical patterns to suggest the start of the second wave is imminent.
- Strategas Technical Strategist and Head of ETF research, Todd Sohn, adds that flows into inflation-focused ETF products peaked in July of 2022, coinciding with the peak in CPI. He noted to watch these flows should we enter into a secondary wave of inflation.
- Prior to launching our two ETFs, we at Strategas Asset Management wanted to create a product that, while thematic by design, eliminated the need to constantly sell and buy new ETFs when a theme ran its course, and thus, diminishing the tax efficiency that ETFs, in general provide. That is why our two ETFs: the Strategas Global Policy Opportunities ETF (ticker SAGP) and the Strategas Macro Thematic Opportunities ETF (ticker SAMT) are centered around our thematic rotation within the portfolio. SAGP provides a natural rotation as the political parties in power change hands, while SAMT rotates themes within the portfolio as one theme loses its investable muster, and another takes its place within our analysis.
Source: Bloomberg LP and Strategas Securities, as of February 15, 2024
For more information on our specific Exchange Traded Products, please visit our website www.strategasetfs.com. For additional information on Strategas Asset Management, how to access our research or our other investment solutions please visit www.strategasasset.com or contact Patrick Rista, prista@strategasasset.com / (646) 292-7984 / or Jonathan Matta, jmatta@strategasasset.com / (216) 373-4145.
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This communication was prepared by Strategas Asset Management, LLC ("we" or "us" or “our”). This communication represents our views as of 02/15/2023, which are subject to change. The information contained herein has been obtained from sources we believe to be reliable, but no guarantee of accuracy can be made. This communication is provided for informational purposes only and should not be construed as an offer, recommendation, nor solicitation to buy or sell any specific security, strategy, or investment product. This communication does not constitute, nor should it be regarded as, investment research or a research report or securities recommendation and it does not provide information reasonably sufficient upon which to base an investment decision. This is not a complete analysis of every material fact regarding any company, industry, or security. Additional analysis would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any particular client and is not presented as suitable to any other particular client. Past performance does not guarantee future results. All investments carry some level of risk, including loss of principal.
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Shares of any ETF are generally bought and sold at market price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns.
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In addition to the normal risks associated with investing, the Strategas Global Policy Opportunities ETF (SAGP) is subject to lobbying focused investment risk. The adviser's investment process utilizes lobbying intensity as the primary input when selecting investments for the Fund's portfolio and does not consider an investment's traditional financial metrics. The Fund may underperform other funds that select investments utilizing more traditional investment metrics. The Fund may also focus its investments in a particular country or geographic region outside the U.S. and may be more susceptible to economic, political, regulatory or other events or conditions affecting issuers and countries within that country or geographic regions well as risks of increased volatility and lower trading volume.
In addition to the normal risks associated with investing, the Strategas Macro Thematic Opportunities ETF (SAMT) is subject to macro-thematic trend investing strategy risk. Therefore, the value of the Fund may decline if, among other reasons, macro-thematic trends believed to be beneficial to the Fund do not develop as anticipated or maintain over time, or the securities selected for inclusion in the Fund's portfolio do not perform as anticipated.
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Three Key Data Points You Need Know This Week
Feb 27 2024