[Market Recap] Cup of Joe: May 2024 Market Update

Markets in May

• Headlines have dominated the market the past two months and the week-to-week market direction has been manic.
•  $10,000 invested in the S&P 500 in 1970 grew to over $2.6M at the end of March 2024, ignoring fees and taxes.  During that period of time:
• • From 1965 to 1981 the top marginal tax rate was 70%.  Only after 1987 did it come down under 40% where it has been since.
  • Interest rates were above effectively above 5% from 1972 to 1991.  Almost 20 years, during which the market was up almost 8x!
  • Price Corrections (a 10% decline in the index level) happen, on average, every 22 months.  We usually don’t even make it 2 years without a bumpy drawdown.
  • There have been 8 US recessions since 1970 an average of 1 every 6.6 years.
  • This period of time is littered with headlines both bad and good: terrorist attacks, war, natural disasters,  the birth of the personal computer, the fall of the Berlin Wall, and the invention of the iphone.  But the point is that the market perseveres.

• We find ourselves in a time where things are generally ok… Equity markets are positive, US GDP growth is positive, unemployment rate is still really low.  We are just experiencing a lot of mixed signals which can sometimes be confusing and unsettling for investors.
• Headlines cause short-term movements

• • 2023 was a great year but it wasn’t a straight line to +26%.
  • Also, when stock prices advance a lot, they take a breather.  And that’s what we saw with the market in April.
  • Think of headlines as tea leaves.  Don’t look at any one of them as the thing that’s going to change everything.
  • Staying invested is the most important thing you can do.

PLEASE LIKE AND SUBSCRIBE!

Joe Gallemore, CIMA®, Partner
Director of Investment Management

[Market Recap] Cup of Joe: April 2024 Market Update

Markets in April

• March saw stock markets rise again with the S&P 500, NASDAQ, and DJIA indexes all closing Q1 at or near all-time highs. But there’s a lot going on underneath the surface.
• A lot of economists and strategists have been predicting a slowdown in the US economy, instead it’s almost been the opposite of that. Many data points are coming in showing the US economy continues to be strong and resilient; at the same time the Fed is saying they will not cut interest rates before they are convinced of the inflation data.
• This tug of war is causing persistent volatility week to week. And this past week, the S&P 500 had back to back days of 1% moves in opposite directions.
• Nowadays the stock market is reacting to every little thing. The best thing to do is buckle your seatbelt and be patient. And in today’s stock market turbulence can come from a myriad of places. But as we’re seeing this year, even through pockets of volatility, the market will rise on positive news. And the labor market, US consumer, and economy at large have all remained unexpectedly strong.
• Keep in mind that this stuff is impossible to predict. The market is sensitive right now and we think simply knowing that can help you stick to your investment plan, by not overreacting when the market over reacts.
• Investing is hard, due in equal parts to 1) not knowing what’s going to happen, and 2) having to live with the uncertainty. Too many bad investment moves are made when an investor can’t calmly handle an emotional response to short term volatility and instead remain patient. And all volatility is short term.
• So as the Macro landscape continues to change, if the market remains choppy, which we think it will, remain patient and confident. These environments typically present very good opportunities for active stock strategies and provide us good opportunities for rebalancing.

Joe Gallemore, CIMA®, Partner
Director of Investment Management

[Market Recap] Cup of Joe: March 2024 Market Update

MARKETS IN MARCH

The connection between stocks & interest rates.

• Stocks have an inverse relationship with interest rates. When rates are rising, that is seen as a headwind for stock appreciation.  And the opposite is true, when rates are falling that is typically good for stock prices.
• Further, interest rates almost always move in cycles. They trend one way and then trend the other way, like a pendulum.  They don’t alternate in rapid succession.
• Now that rates have stopped moving the “bad” direction for stocks, and we’re waiting for them to start moving in the “good” direction, in our opinion there’s really only one thing that a long-term investor should be focused on, methodically moving cash or safety assets back into equities.
• Also, when interest rates are cut, not only is that a tailwind for stocks, but what happens to the savings rates on your cash? Those go down, too. So when probability tells you stocks should go up and savings rates should go down, what seems like the smart move?

We saw this relationship play out in the markets in February. Anticipation of the Fed’s first rate cut encouraged money to go back into risk assets.

• US stocks, small, mid and large alike, were up about 5% in the month. And Emerging Markets were also up almost 5% as well.
• The boost in stocks, however, seemed to be at the expense of bonds, which dipped about -1.4% in February. However, with many bonds and bond funds still yielding over 4% and the expectation of multiple interest rate cutes this year, the return outlook for bonds is positive.

 Highlighting a couple of law changes in 2024:

• Gift Exclusion Limit was raised from $17,000 to $18,000. This means you can gift $18,000 of cash or securities to someone without reducing the amount you can pass along tax-free in your Estate.
• The contribution limits on all kinds of Retirement plans also went up this year. The most widely used would be accounts like 401Ks & 403Bs (this includes Thrift Savings Plans).  The contribution limit on these went up to $23,000 for 2024.  Other types of accounts such as Regular & Roth IRAs, SEP IRAs, SIMPLE IRAs all had contribution limits go up this year.  As did the catch-up contribution amount you folks over 50.  So be sure to ask your advisor or tax preparer if you can take advantage of these increases.

Joe Gallemore, CIMA®, Partner
Director of Investment Management

[Market Recap] Cup of Joe: February 2024 Market Update

MARKETS IN JANUARY

Asset classes were mixed in January.  US large cap and Intl stocks were slightly positive, while mid and small cap stocks gave back some gains from Q4.  Bonds held steady close to even with an income yield still above 4%.

Economy seemingly on good footing

Economic output is strong. GDP exceeded expectations for both Q4 and 2023.

Employment is staying strong as well. Jobs Data far exceeding Wall St expectations.  Economy has added over 750,000 jobs in the last two months.

What the Fed is watching is close to the range they want.  Fed’s preferred inflation measure is starting to stabilize near a level they’ve been targeting.

Let’s greet this positive data with cautious optimism. There are still many cross-currents moving beneath the surface of the stock indexes that signal a slowdown is still very much a possibility.

Managers of the strategies we use like to focus on quality companies that manage debt well, have competitive advantages in their business models, and have resilient streams of cash flow.  So in an environment where interest rates are higher and consumer spending may slow down, owning businesses with very strong fundamentals is a great position from which to start.

What do we focus on now?

Putting cash to work

MMKT funds are very short-term vehicles and are among the first things to lower payouts rates when the Fed eventually cuts interest rates.

The Fed doesn’t even need to cut rates for the payout to decrease.  The expectation of rate cuts starts to get baked into the prices in the short term bond market and will start weighing on the yield of your savings accounts.

Rebalancing your investment accounts

We’ve been rebalancing the assets we over see for you.

If you got more conservative in your 401K, 403B, or Thrift Savings account, don’t forget about it and let it sit there.  Make sure to rebalance it back to your long-term target allocation.

Still expect volatility. And along with that, expect some of the unexpected.

Now is the time to be disciplined investors, and be comfortable with some uncertainty, while keeping your eyes on the growth to be had once things really improve.

Joe Gallemore, CIMA®, Partner
Director of Investment Management