What to assess for the rest of 2022

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With remarkably high levels of uncertainty surrounding the economy and the spike in inflation, more investors are looking to reallocate their assets in the second half of the year.

“The good news is that a lot of the multiple compression is behind us, I think, due to higher inflation expectations,” Jason Trennert, president and CEO of Strategas Research Partners, told Bob Pisani. from CNBC in an interview Monday on “ETF Edge.”

“The bad news is that I’m not sure we’ve seen the adjustment in income that people are anticipating,” he added.

The estimated second-quarter earnings growth rate for the S&P 500 is 4.1%, revised down from 5.9%, according to FactSet. If the real growth rate of 4.1% continues, it would be the lowest since the fourth quarter of 2020.

For the second quarter of 2022, 71 S&P 500 companies issued negative EPS forecasts, according to FactSet.

“We’re more in the ‘soft landing’ camp, even if history isn’t really on our side,” Trennert said. “It’s very difficult for the Fed to pull off a soft landing once inflation gets away from it.”

Trennert launched the Strategas Macro Thematic Opportunities ETF (SAMT) in January. The actively managed fund seeks to outperform the broader market by providing exposure to multiple macro-thematic market trends.

“We focus on what we think are the main drivers of stock prices at any given time and perform our own quantitative analysis to select stocks that will play on those themes,” he said.

The four themes of the SAMT ETF are longer inflation, quantitative easing, cyclical defensives and deglobalization.

“In typical recessions, reported earnings drop about 30%,” Trennert said. “The good news is you have pretty tight labor markets, you still have an easy Fed, and you still have a lot of excess savings in terms of consumers and businesses.”

Despite a down year for the S&P, ETF inflows remained resilient. According to FactSet data, $3 billion flowed into U.S.-listed ETFs in the week ended July 8, bringing year-to-date inflows to $311.1 billion.

“It will continue, investors have spoken,” Nightshares CEO Bruce Lavine said in the same interview. “Markets will be a bit choppy for a little while, but when they react you’ll likely see record flows into ETFs.”

As for SAMT, its largest holdings include many commodity heavyweights, such as oil and steel. But the US dollar, which hit a two-decade high on Thursday, accounts for nearly 3% of the ETF. Trennert said the currency’s gains along with the Federal Reserve’s moves to fight inflation are giving the United States a leg up against peer central banks.

“Admittedly, the Bank of Japan and the ECB are far behind the United States,” Trennert said. “And they’re taking a big gamble, it seems to me. A weaker currency on their part helps their exports, but it’s a real risk for their consumers.”

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