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Millionaires want to own a little less of everything bubble next year

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A trader blows bubble gum during the opening bell at the New York Stock Exchange on August 1, 2019, in New York City.

Johannes Eisele | AFP | Getty Images

If the market is in an everything bubble, wealthy Americans are headed into 2022 saying they don’t really want much more — of anything, according to a recent CNBC survey of millionaires.

Wealthy investor sentiment is still tilted to the bullish, if moderating, with millionaires anticipating higher interest rates and tax rates in 2022. More millionaires (41%) say the economy will get stronger next year, versus 35% who say it will weaken, according to the recent CNBC Millionaire Survey. Just over half (52%) of millionaires expect the S&P 500 to finish 2022 with a gain of 5% or more.

But it’s another finding from the CNBC survey which is the most telling, and signals a downshift in enthusiasm from millionaires in the market, and an overall risk appetite that has weakened, even as the market has come through the latest omicron and Fed fears to see the S&P 500 set a new record and the Dow Jones Industrial Average remain near its highest-ever level.

Twice a year the CNBC Millionaire Survey asks investors which major asset classes they plan to increase exposure to over the next year. Investor appetite for every investment type is now lower than it was in the Spring 2021 survey. The percentage of millionaires who say they will be increasing investment declined across every single asset class, including equities, investment real estate, alternative investments, international investments, and precious metals.

For the CNBC Millionaire Survey, Spectrem Group surveyed 750 Americans with investable assets of $1 million in October and November.

Can’t take more risk, can’t get out of the market

“The market is high and people are nervous,” said Lew Altfest, CEO of Alfest Personal Wealth Management. “Our clients are fearful, but none of them are at the point of getting out,” he said. “They haven’t got the guts to pull out,” he said.

“You can’t really get much more risk on as far as fresh dollars,” said Doug Boneparth, president of Bone Fide Wealth. “What are you going to do? Dump all your large-caps and invest in all emerging markets stocks. No one is doing that,” he said. 

Thirteen years into a bull market run, and after a big pickup in volatility last year that was resolved with government stimulus and the Fed printing more money, “there is limited room to move up, so maybe you take your foot off the pedal here,” Boneparth said.

That doesn’t mean any market conditions that would equate to a significant de-risking, but it makes sense if people are taking a step back and reassessing their portfolios. “It’s been one hell of a ride and risk appetites have only increased in the not too distant past,” he added.

Inflation, the Fed and the 2022 economy

Even if the wealthy are less enthusiastic buyers of stocks, they are buyers of goods, and the economy will do well — and corporate profits as part of it — as long as outside of stocks they continue buying everything at higher prices, Altfest said. When people get tired of spending freely, he said, is more important for the economy and market than when the wealthy pull back a little on their risk appetite across asset classes.  

After two extremely positive years for the market in 2020 and 2021, investors are digesting the information around inflation and whether it means they should anticipate slower equity growth in the near term.

“Those two things set the table: how much more risk can you take?” Boneparth said.

“Skittishness is highly evident in all our meetings,” said Michael Sonnenfeldt, founder and chairman of Tiger 21, an investing network for the wealthy.

But for the wealthy, inflation is not an immediate threat. “If you’re worth $10 million and you are living off $200,000 a year, even if there is 6% inflation, the inflation won’t change your lifestyle,” Sonnenfeldt said. For the wealthy, the inflation anxiety is not equal to the legitimate concern the less fortunate in society have about food budgets or buying a new car. But there is no getting away from the fact that inflation can erode the value of their assets, Sonnenfeldt said, and that makes it harder to weigh inflation relative to investments after a period when investors have benefitted from such an extraordinary market.

“Assets went up more than inflation this year, more than it was eroding … but next year could be a double whammy, where if inflation is growing and the market is flat, you’re seeing erosion of value,” he said. “At least this year, there was no reason for panic and wealth preservers grew assets faster than rate of inflation because the Fed flooded the market. I don’t know many people in a wealth preservation phase who did not outperform inflation this year,” he added. 

“People are still digesting Covid and the election, and because of that, kind of in a wait-and-see mode,” said Tom Wynn, director of research at Spectrem Group. “People have to see what happens with inflation and taxes, and none are really taking a stand one way or another that things are much worse or better, that’s my take,” Wynn said.

Big stocks and boomers

Altfest would not advise an investor to time the market, be all-in or all-out, but he has told investors sitting on huge gains in stocks such as Microsoft that it is time to sell some of their holdings. That’s not a conversation he says has always gone well.

“Lots of people are saying the market has been good to me and that is particularly true of people with growth stocks,” Altfest said, adding that a majority of recent gains in the S&P 500 have come from four technology companies including Microsoft.

When investors do turn back to core stock analysis, “what you cant get away from are the price-to-earnings multiples, even with corporate profits growing at rapid pace. It can’t grow forever and the PEs are very high,” Altfest said.

The pressure between holding winners that have done so well but worrying about the future trajectory of the economy and market leaves investors in a position Alftest described as, “barely bullish about stocks.”

Mitch Goldberg, president of investment advisory firm ClientFirst Strategy, said every time someone tells an investor to “take a little off the table in Apple and Microsoft … anyone who told them that has been wrong. But the key is it will be right eventually. But we don’t know the timing.”

Going risk-off the right way

An investor who has made no changes to their portfolio this year is holding more equities now just by holding steady, given the recent bull market conditions for stocks and the bond market’s weak returns, said Goldberg. And many investors are not quick to rebalance after periods of appreciation in particular asset classes, compounding the process of having greater exposure, in this case, to stocks. And Goldberg said for most investors, it’s a stance they are going to stick with.

“There is no alternative,” he said. “From what I see investors are more skittish, but they are not acting on it,” he said. “To me, that is form of complacency, it’s like waiting for a bell to ring and they will be able to get out before the market tanks.” 

Older investors who don’t need market money to meet immediate needs, including baby boomers who have done well in equities and have at least several years remaining in a market time horizon, don’t need to reduce their overall stock exposure, but they should be thinking about a reduction in the composition of stocks owned, Goldberg said. While they have stayed away from the meme stocks and the pandemic stocks, they have also pushed up the value of stocks in other parts of the market, such as consumer staples and dividend stocks, and the core technology leaders.

Taking risk off the table doesn’t have to mean major shifts in an overall portfolio asset allocation plan.

Boneparth said to him, “taking risk off the table” can mean going from a 90% equity-10% fixed income split to 80%-20%.

Downshifting from “uber aggressive to just aggressive” should not make an investor jump out of their seat, he said.

Many investors make the mistake of pulling out of a market entirely and that “smart money” approach is most often a loser, he said. But Boneparth added, “These are returns so far above their historical means it really is forever creating the question, ‘When does this correct?'”

“Let’s not get out of hand. Lets get some context about having less risk, not drastic changes, not even saying decreases, just not adding,” Boneparth said.

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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