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STA Weekly Report – Records are Everywhere, What Investors Should Do About It

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INSIDE THIS EDITION:
Records are Everywhere, What Investors Should Do About It

As we approach the end of February, we are at a time for records. In Texas, low temperatures and in markets and the economy, both record highs and record lows. In this week’s commentary, we will review some of the records we are observing in markets and the economy and more importantly, what possible opportunities this may bring about for investors.
Domestic Stocks are at an all-time high


We have seen equities defy the odds and outperform expectations during the COVID-19 era. Of course, this has been aided by central bank support, federal stimulus, and unprecedented liquidity but does not take away the fact that domestic stocks continue to defy gravity, especially in some sectors. As a result, even broad indices like the S&P 500 and the Dow Jones Industrial Average are at a record.

Home Prices at an all-time high

It is no secret that many real estate buyers across the country have flocked to the suburbs over the last year as they flee congested city centers across the country. This trend has been reinforced by two developments with strong pull – COVID-19 and to a further extent, work from home policies.

Mortgage Rates are at an all-time low

With sales prices on homes near a record according to the S&P CoreLogic Case-Shiller Home Prices Index, we can look to the mortgage market for clues that have further boosted home prices. In short, the increased price level on homes has been supported by mortgage rates at an all-time low, thereby adding fuel to the home buying frenzy we are seeing across the country.

Corporate Bond Yields are at an all-time low

We have discussed record low yields for quite some time in this era of financial repression. With the Fed in no rush to raise interest rates and demographic trends helping further suppress corporate bond yields, investors should consider how long yields will remain near these records. The upshot is that with corporate bond yields this low, corporations are able to borrow at attractive rates.

Inflation expectations are also at an 8-year high

This is no surprise to any investors watching the Fed and the metals markets. The Fed last year came out and said they would use a new inflation framework that would allow for inflation to run hot. As a result, commodities, including metals have caught a bid. Whether it is Gold, Silver, or Copper each is at a recent high or close to one. Whether higher inflation materializes remains to be seen, however, investors should be paying attention as higher inflation can erode purchasing power.

Bitcoin is also at an all-time high

It is no secret that Bitcoin has gotten the attention of investors as a new and exciting investment vehicle. However, there remains debate about whether it will become a lasting technology and asset class. Truthfully, we do not know yet as regulation will drive how the story unfolds. However, what we do know is that despite questions about its viability, and persisting regulatory headwinds around the globe, bitcoin prices have managed to rise to a new record, now sitting at just over $56,000 per coin. This speaks to the appetite investors have today for three things – risk, speculation, and technology.

Source: Coindesk

All these record highs and lows have understandably led investors to wonder whether there is an asset bubble in the US. For those investors, the question becomes where they should look to find opportunities. We think the answer may land in the hands of emerging markets. This is especially true if we consider that on the heels of the last crisis, it was the MSCI Emerging Markets Index that outperformed the S&P 500 for several years.

Although the MSCI Emerging Markets Index is heavily exposed to Asian equities and is overbought now, the index could provide opportunities to add on pullbacks that could pay off in the next few years especially if they repeat their performance of 2008-2010 following the last crisis.

Weekly Global Asset Class Performance Table





Disclaimer:

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC), or any non-investment related content, referred to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA Wealth Management, LLC. Please remember to contact STA Wealth Management, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives to review/evaluating/revising our previous recommendations and/or services. STA Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the STA Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees continues to remain available upon request.

Financial Planning and Investment Advice offered through STA Wealth Management (STA), a registered investment advisor. STA does not provide tax or legal advice and the information presented here is not specific to any individual’s circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer to avoid penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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