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September 28, 2022

Historical Tightening Cycles vs. Today

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Tom O'Shea, CFA

Director of Investment Strategy
Innovator Capital Management

Last Wednesday’s Federal Open Market Committee (FOMC) meeting concluded with a third consecutive 0.75% rise to the benchmark policy rate, and Federal Reserve Chairman Powell reinforced the Fed’s willingness to endure economic pain in order to squash inflation. Powell’s comments combined with FOMC member projections of tightening by an additional 1.25%, removed any hope that a Fed pivot is coming anytime soon. In response to expectations of higher rates and slower growth, U.S. equity markets (S&P 500) plummeted.

Amidst all the uncertainty across equity and fixed income markets, two fundamental questions remain; How long will the tightening cycle last? And, how severe will the hit to growth be?

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September 13, 2022

What to Watch - Equity Valuations & Recessions

Despite a resilient labor market, macro headlines and client conversations continue to be dominated by recession fears…and we believe for good reason. Putting the current backdrop in context, never in history has the Fed hiked rates with inflation above 5% and been able to get inflation under control without a recession.

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September 9, 2022

Macro Pulse - Under the Hood of Inflation

An encouraging CPI reading in July has many investors hopeful that inflation may have peaked. The recent drop was most heavily influenced by the decrease in energy, with gas prices falling 7.7%. Core personal consumption expenditures (PCE), the measure the Fed uses to determine policy, increased 0.3% MoM, but also came in better than feared. While we are optimistic that inflation has in fact peaked, when digging into the details, we believe it could be a long road ahead to get back to a reasonable level.

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August 31, 2022

Macro Pulse - A Long Road Ahead

Fed Chair Powell spooked markets last Friday warning there is going to be ‘some pain’ ahead for the economy and the American people. Powell’s comments reinforced our view that a Fed pivot is not coming anytime soon, despite the market’s expectations. While we expect the Fed to hike rates another 0.75% at the September meeting, we are keeping a close eye on three economic releases this week: ISM Manufacturing PMI, Non-Farm Payrolls, and Unemployment. Each will provide clues as to how much work the Fed may have left.

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September 1, 2022

It’s Still About Rates & Inflation

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

Late last year, we outlined why traditional risk management strategies that have worked so well in the prior regime, characterized by low rates, low inflation, and consistent growth, would be less effective moving forward. Our view was rooted on the premise that the risk reward tradeoff for core bonds was extremely poor. Structurally, higher inflation was likely to pressure rates higher, low starting yields would limit upside potential, and diversification benefits were unlikely given the common risks facing both equities and bonds. While a lot has taken place in the first eight months of the year, we still see a similar backdrop for investors. This month, we unpack this view and why we believe investors are better off exploring ways to tie their “lower risk” dollars to the equity market over the bond market.

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August 15, 2022

What to Watch - Soft Landings: Rare but Likely Profitable

Encouraging news on the inflation front this last week as the Consumer Price Index (CPI) came in at +8.5% YoY (+0% MoM) - better than the consensus estimated +8.7% and down from the 9.1% reading the prior month. The equity market rallied on the news in hopes that the Fed will be able to take their foot off the “interest rate accelerator” and potentially even have a shot to pull off a soft landing.

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August 5, 2022

What to Watch - High Stakes and High Expectations

Inflation has remained stubbornly high all year, driven by consistent increases in the costs of shelter, food, and medical care. As for this week’s inflation reading, consensus among economists is calling for the headline Consumer Price Index (CPI) to drop to +8.8%, from last month’s +9.1%. After the July Federal Open Market Committee (FOMC) meeting, the market is surprisingly optimistic that the Fed will begin to slow the pace and severity of rate hikes going forwar

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July 29, 2022

Welcome to the Recession

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

Welcome to the recession. Last week’s Q2 Gross Domestic Product (GDP) print showed the economy shrank at a 0.9% pace…well below the consensus estimated 0.4% and checking off the “technical definition” of a recession. Whether or not the National Bureau of Economic Research (NBER) will officially classify this as a recession remains to be seen, however, there has never been an instance of two consecutive negative quarters of GDP growth without it. We shall see. Regardless, and much more importantly, it is very clear the economy is slowing rapidly. The labor market, which the Fed and the Biden Administration continue to praise, is starting to crack. While jobless claims remain below prior recessionary levels, they continue to push higher and many of the largest corporations have recently announced they will slow hiring.

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July 22, 2022

What to Watch - Inflation Now vs. the 1970’s

Despite aggressive efforts from the Fed, inflation continues to surprise to the upside. Last week’s U.S. Consumer Price Index (CPI) print of +9.1% year over year, marked the 25th consecutive monthly increase for the index and a gain of 0.5% from the previous reading. Arguably, the two biggest questions for the market continue to be, “When will inflation peak?” and, “How long will it take for it to come down to a reasonable level?”. While we acknowledge there are many differences between today’s environment and that of the 1970s (e.g., lower wage growth, single digit interest rates, Fed taper), inflation has been following a very similar path. As such, we believe the historical context is helpful to appropriately assess and manage risk.

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July 15, 2022

What to Watch - Valuations are Down, Now What?

Asset managers love to promote the potential upside for stocks, especially amidst a bear market. It encourages clients to remain invested and focus on the long term. While there is tremendous value in remaining invested, the reality is, drawdowns matter. Clients have goals, needs, and expectations that may not have the same timeline as the market.

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June 29, 2022

Dissecting the Storm Clouds

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

The consumer is the backbone of the economy, with consumer spending accounting for 68.6% of all US GDP. When spending slows, the ramifications are felt across the board. In the face of red-hot inflation and aggressive tightening from the Fed, the US Personal Consumption Expenditures Index — a broad measure of consumer spending — remained strong. In other words, people are still buying goods and services, even at these inflated prices, softening the blow to the broader economy. But can this trend continue? In this month’s commentary, we examine three reasons why we believe a slowdown in spending, and hence a slowdown in growth, is coming, and discuss what this might mean for investors.

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May 25, 2022

The Froth is Coming Off

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

2022 has been a brutal year for risk assets. The Fed’s move towards more restrictive policy has sent speculative parts of the market into an all-out tailspin. Profitless technology stocks are off ~70% from their 2021 highs, SPACs are off 50%, Bitcoin is off 68%, and the retail darling, ARK Innovation ETF is off an additional 40% from Cathie Wood’s “bargain basement” call in February. No doubt a shift in sentiment from the “stocks only go up” mentality of 2020 and 2021.

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May 12, 2022

A Buffer in the Hand

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

Recession fears are rising and after a few soft economic readings, the conversation for many advisors is quickly shifting from “if” to “when”. Defensive equity strategies are raking in the cash on these fears, with low volatility ETFs netting $1.1 billion in April alone. But relying on historical volatility, correlations, or defensive sectors, as many low volatility strategies do, comes with its own unique set of challenges in today’s market. We explore these challenges and discuss why I believe Buffer ETFs may provide what investors are looking for without the guesswork that comes along with low volatility investing.

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April 1, 2022

A Big Move but More to Come

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

Since late last year, we have been arguing that investors need to look beyond traditional fixed income to help manage risk, as bonds are unlikely to provide the returns, diversification, or protection they have in the past. Below, we explore three reasons why, even after a spike in yields, we believe the risk reward tradeoff remains unfavorable for bonds, and why a new cycle may call for new strategies to help manage risk.

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March 23, 2022

A Market Without Direction: Dissecting Volatility

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BURKE ASHENDEN

ETF Products & Capital Markets Manager
Innovator Capital Management

As we observe markets in 2022, it’s no secret that volatility is high and consumer confidence is low. Perhaps what’s more concerning, however, is that the market seems to have lost its sense of direction. Every day we witness dramatic intraday moves as the market tries to process a barrage of geopolitical factors in a rapid, digital age. The war in Ukraine, the corresponding sanctions, inflation, energy shortages (compounding pre-existing inflation), and rising rates have left investors with a frenzy of factors to consider. While the urge to raise cash may seem prudent, history shows us that staying invested is the answer.

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March 1, 2022

The Market Loves Clarity…. Will it Come Anytime Soon?

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

The markets crave clarity and are being punished because they don’t have it. How aggressive will the Fed be in the fight against inflation? How severe will US and EU sanctions of Russia be and what impact will that have on energy prices? All very important, but unlikely to be known anytime soon. The March 16th meeting, when the Fed will likely announce the magnitude of the first hike, may provide some clarity and some relief, but until the Fed truly gets control of inflation, there will be uncertainty.

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January 26, 2022

2022 Key Risks in Context

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Tim Urbanowicz, CFA

Head of Research & Investment Strategy
Innovator Capital Management

After a stellar decade-long run, balanced portfolios seem to be running into trouble in 2022. A 40-year high inflation print, rising yields, and a hawkish Fed may have spooked equity and fixed income investors. And as usual, there is no shortage of theoretical comparisons using historical data sets speculating on how portfolios might behave if yields continue to rise or the Fed hikes aggressively. But this time around, there are several unique factors influencing the market that we believe investors should consider as they evaluate risk and position their portfolios accordingly in 2022.

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