On this episode of KayneCast, Jordan Greenhouse, Managing Director with Kayne Anderson Rudnick, is joined by Chris Armbruster, Portfolio Manager and Senior Research Analyst for the Kayne Anderson Rudnick Mid Cap Growth Portfolio. Armbruster offers market commentary on Q2 2022, including the impact of the Federal Reserve’s response to rising inflation on the market, while reflecting on the stock market outlook for Q3.
Fed’s Move to Reverse Inflation in Q2 2022
Armbruster notes over the last fourteen years, the M2 (a measure of money supply that includes cash, checking deposits, and easily convertible near money) has grown to almost $22 trillion, which artificially inflated several assets. When the Federal Reserve raised interest rates by 150bps in Q2 2022, a portion of its $9 trillion balance sheet was allowed to mature without reinvesting the proceeds. The intention was to curb inflation, which hit a four-decade high of 8.6% in May 2022.
Despite the Fed’s efforts to limit inflation, inflationary pressures continued to impact the market in Q2 2022. The ongoing war between Russia and Ukraine put pressure on energy and food supplies, logistic and supply chain bottlenecks continued due to China’s Zero COVID policy, and overall oil production in the US was down. The result has been a down market and increased concerns of a recession starting in the second half of 2022 or early in 2023.
Q3 2022 Stock Market Outlook for Mid Cap Growth
Looking forward, Armbruster notes many of Kayne Anderson Rudnick’s Mid Cap Growth holdings are part of the new economy of digital infrastructure to sales and earnings targets. While it is likely a number of these companies will lower their 2022 stock market outlooks and interactions, software, and automation. The market has seen many of these holdings connect but has yet to see meaningful downward revisions over Q3 2022. Armbruster does not think a new economy implosion is likely, but “we acknowledge its potential and are therefore laser-focused on the fundamentals of our holdings for signs of longer-term stresses and to identify the truly unique companies that will emerge as leaders on the other side.”
As for the portfolio as a whole, Armbruster reports “many businesses in the Mid-Cap Growth Portfolio are what we like to refer to as “longer duration” in that we believe their ultimate success and business economics will accrue to the company further in the future. In our experience, these long-duration assets are particularly sensitive to interest rates as those future economics are discounted back to a value today using those rates, causing these names to pull back harder than companies whose economic returns are stronger today.”
Listen to the podcast above to learn more about the top contributors and detractors in KAR’s Mid Cap Growth strategy for Q2 2022 and join us in Q3 for another stock market performance review.
Learn more about the Kayne Anderson Rudnick Mid Cap Growth Portfolio today.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein.