Second Quarter 2024 Update and Outlook

As we reach the midpoint of the year, I want to take this opportunity to share insights into the current market dynamics, key economic indicators, and strategic considerations for your investment portfolios.

Strong Start to the Stock Market

The stock market has shown remarkable strength this year, with large-cap growth stocks leading the charge.  Companies within the technology sector, particularly giants like Nvidia, Apple, Microsoft, and Amazon have dominated the gains this year while the average S&P 500 company has had middling returns.  It is hard to forecast these times of concentrated outperformance so having exposure to the whole large cap market, obviously, means exposure to these companies. On the flip side, the market leaders can quickly change, as leaders can be limited by the sheer size of the gains, so portfolios will also benefit if other stocks take the reins. In fact, we are starting to see some signs in the last couple of weeks of the market broadening out, with smaller stocks outperforming these mega cap names.

Current Economic Indicators

Recent economic data indicate the economy continues to expand - with the GDP growing at a 1.4% rate. This rate is down from 3.4% in the fourth quarter 2023[i] and leading economic indicators suggest that growth may continue at this more moderate level as the Atlanta FedNow is projecting GDP for the second quarter to stay around 1.4%[ii].  Other areas of the economy are strong but showing signs of weakness. For example, the recent unemployment rate of 3.6% shows the labor market has been at historically low levels of unemployment but the June reading spiked to 4.1%[iii]   Fortunately, the inflation statistics are still trending lower with the recent statistics moving down to the low 3% range.  Some of the stickier data points are housing related which should mean continued decreases in the coming months. [iv]  While the Federal Reserve has not implemented any rate cuts this year, there is speculation that they may consider them later in the year if economic conditions continue to weaken and inflation continues to ebb.

Positioning in Front of the Election 

With the election approaching it is interesting to note how the market typically reacts in election years.  The historical data is encouraging.  As the chart below shows, during the second half of an election year returns outpace the average year by 4.2%.  Obviously, this far from guarantees strong results for the remainder of the year, but this points to evidence that elections may not be a time to be overly cautious.

 
The first half of presidential election years tend to be sluggish, followed by a big second half

Average return, 1/1/26 – 12/31/23

Source: Morningstar as of 12/31/23. Stock market represented by the S&P 500 Index from 1/1/70 to 12/31/23 and IA SBBI U.S. large cap stocks index from 1/1/26 to 1/1/70. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You cannot invest directly in the index.

Positioning and outlook

Given the current market conditions and economic indicators, we recommend maintaining a balanced and diversified portfolio. While the performance of large-cap growth stocks has been impressive, diversification across different sectors, geographies, and asset classes can help manage risks and enhance long-term returns.  Allocations to longer duration bonds should also do well if the economy weakens.  This could provide a hedge for equities that may struggle in a difficult economy.

[i] https://www.bea.gov/data/gdp/gross-domestic-product#:~:text=Real%20gross%20domestic%20product%20(GDP,real%20GDP%20increased%203.4%20percent.

[ii] https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

[iii] https://www.bls.gov/news.release/pdf/empsit.pdf

[iv] https://www.bls.gov/cpi/latest-numbers.htm

Third Quarter 2023 Update and Outlook

The stock market declined in the third quarter after a strong start to the year.  The S&P 500 dropped 3.3% but, as of the end September, the S&P 500 Index had notched a 13.0% gain for the year. The big worry at the beginning of the year was an impending recession.  Fast forward nine months, and the economy has displayed remarkable resilience, leading some analysts to believe that we may evade a recession and experience a "soft landing."  

One of the main reasons for the recent weakness in stocks has been the increase in long-term interest rates.  While the Fed controls the short end of the curve and has raised rates from zero to 5.50%, buyers and sellers in the market determine the long-term rates.  Since July, the longer dated yields have moved from 3.75% to over 5%. 

Long-term bond rates are instrumental in valuing assets. Two or three years ago, income producing assets were highly sought after, as interest rates were incredibly low.  Today, however, these assets are devalued as they compete with these more attractive bond yields. 

While long-term rates have pushed down stock prices, this weakness may be an opportunity.  If inflation continues to drop, the economy dips into recession, or geopolitical risks increase, long term rates could drop. This reversal could support asset prices in the months to come.  

The Fed has been waging war against inflation since March of 2022 and seems to have the upper hand. The Consumer Price Index has dropped from 9.1% in July of 2022 to 3.7% in September[1]. Drilling down on some of the inflation numbers makes the numbers look even better, as the lagged effect of a dropping housing market has not yet fed into these inflation numbers.

The economy, while resilient, has shown signs of weakening. Home builders’ sentiment has been dropping since the middle of the year and is the lowest level since January. [2] Also, the Leading Economic Index (“LEI”) has been trending lower and points to lower economic activity. In the chart below, there is a strong correlation between a low LEI and economic recession, which are shown in the gray areas.

As for global risks, it is hard to separate the investing from the terrible and horrific events in Israel and mourn the loss of innocent civilians, but it does reinforce a focus on investing in the US and other stable regions.

The opportunity we see in these higher rates has shifted our portfolio allocations. We had been focused on shorter duration bonds for income, thinking this was the better risk/reward option.  Now with higher rates out the yield curve, we have been allocating more into longer duration bonds.

[1] https://ycharts.com/indicators/us_consumer_price_index_yoy

[2] https://www.nahb.org/news-and-economics/press-releases/2023/10/mortgage-rates-well-above-7-percent-continue-to-hammer-builder-confidence

Disclosures: Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The future performance of an investment or strategy cannot be deduced from past performance.

2019 Financial Planning Year-End Checklist

The holiday season is a time for family and reflection.  Hopefully, it will also leave some time to take stock of your finances. As the calendar resets in a month or so, it is wise to remember some important financial end of year to-dos to make sure you have maximized your situation by lowering taxes, bringing portfolios back into balance and your estate planning is up to date.  Happy Holidays and may you have a wonderful 2020!

         Consider funding a Donor Advised Fund with appreciated assets.  One larger contribution that can fund your charitable giving for many years can help push your deductions high enough to itemize, and it avoids capital gains taxes on the appreciation.

•          Harvest capital losses.  After a year like 2019 when practically all asset classes rose, it may be hard to find losses, but there are always those that struggled.

•          For those 70 ½ or older or have an inherited IRA, make sure you take your RMD to avoid paying a 50% penalty.

•          Also, for those 70 ½ or older that have Required Minimum distributions from their IRA, a preferred way to donate to money to a charity is thru a Qualified Charitable Distribution. These payments count toward satisfying your RMD for the year (up to $100,000) and are excluded from income for tax purposes.

•          If there are any changes to your estate plan or beneficiaries, make sure you will (you have one, right?) has your final wishes.

•          You have until April 2020 to make your IRA contributions, but if you already know what kind of contribution you will be making (Roth, tax-deductible traditional), now is a great time to make it. Remember, the contribution limits are up to $6,000 for those under 50, and $7,000 for those 50 and older.

•          Decide when you are making that property tax payment.  With the new lower deduction for state and local taxes of $10,000, it may not be as critical, but some still benefit from choosing which year to make the payment.

•          If you happen to have a lower-income year, take advantage by thinking about a Roth conversion. Filling up your low marginal income-tax-rate buckets with income from moving dollars from traditional to Roth IRA may pay long term benefits.

•          Reallocate your investments.  After such a strong year in the equity markets, you may be tilting a bit stock-heavy in your portfolio.  Consider taking some chips off the table and trim strong performing growth stocks in favor of value and international equities and high-quality bonds.

•          Remember the words of Bob Harris from the film Lost in Translation (2003) “The more you know who you are and what you want, the less you let things upset you.”

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

The Growth Rally Continues: 2nd Half 2019 Outlook

The 2019 stock market rally continued in the second quarter, with the S&P 500 tacking on another 4.3%, giving the S&P a 18.5% return for the year.  With earnings tracking to a modest 2.6%[i] growth rate for 2019, this gain is mostly due to the Price/Earnings multiple expansion.  The market is clearly more expensive today than it was at the beginning of the year.  At the current forward P/E of 16.9, the market is trading slightly ahead of the 10- year average of 14.8.  A major reason for this is the Federal Reserve changing course and pumping liquidity into the market by signaling their openness to lower interest rates.  As the 10-year bond yield has dropped from 2.6% to below 1.9%, the options for investment returns have shrink in the bond market, pushing investors into other areas, including the stock market.

Growth has outperformed Value

All stock sectors though are not benefiting equally.  We have seen tremendous divergence between value and growth stocks with growth trouncing value.  Over the last 5 years, the Russell 1000® Growth Index beat the Russell 1000® Value Index by almost 6% per year (13.4% vs 7.5%). Much of the market history have favored the exact opposite.  For the prior 19.5 years, value outperformed by over 1.5%/year (10.5% vs 8.9%). [ii]

What has caused this notable performance change in Value versus Growth?  In a recent report from Ned Davis Research[iii], they point out how a number of reasons for this. First, the mere fact that value had historically outperformed had market participants overweight in this direction. This may had led to over-valuations in value stocks, in effect, removing the advantage. The second is somewhat counterintuitive.  They have found that value stock outperformance requires a stronger growth economy.  Growth stocks can grow regardless of the underlying economy, while many value stocks need a booming backdrop to succeed. This makes sense for banks, which require a decent spread between short-term rates and long-term rates, typically happening during booms. Another value sector, commodity-based companies earn excess profits when material shortages occur, also typically in a bustling economy. Since the end of the financial crisis, the economy has been slowly and steadily improving, not quite reaching the “escape velocity” that value stocks need.  

When will Value be Back in Favor?

The fact that the market has rewarded growth for an extended time may not indicate it is changing any time soon. This is, in part, due to changes in our economic cycles. As the economy has shifted from manufacturing to consumption, the economic cycles have lengthened due to the more stable consumer spending pattern versus shorter manufacturing cycles.  Even with the long period of growth, the Federal Reserve is still pumping the economy with low rates and expectations are for even lower rates in for the next few years.  In their report, Ned Davis points out 12 Indicators which help them to determine which indicators are pointing to Growth or to Value and only 2 are leaning toward Value versus 6 for Growth (4 are neutral).  Furthermore, they argue that the biggest driver of a switch is the economy reaching escape velocity. Therefore, with the Fed still needing to help the economy, they see this trend continuing. 

Here at APG Capital, I see reasons to be cautious, namely valuations are elevated and significant political risks. We are favoring a modest underweight to equities, but within our equity allocation we are sticking to a growth theme as these companies continue to disrupt industries. 

APG Capital Asset Management recently hit its 2-year anniversary and we are so thankful for the continued trust and confidence of our clients.

[i]https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_070319.pdf

[ii]  https://indexcalculator.ftserussell.com/ICStep4DR.aspx

[iii] Clissold, Ed, “US Featured Report: Will Value ever outperform again”, Ned Davis Research, May 30, 2019.

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

Market has Rallied Back to the Highs. Is it Cause for Euphoria or Fear?

The last six-months have been a wild ride for the market. The big sell-off in the fourth quarter of 2018 is fading from memory and the S&P 500 has pushed back to all-time highs.  For the factors cited for causing the market drop, not much has changed.  Trade talks with China continue, Brexit is still in limbo and growth expectations, as predicted, have moderated.  Yet, here we are, back at “record highs”

I find it humorous when the news hypes the fact that the market is making “record highs.”  Like this is a rare occurrence and a new feat of capitalism.  In fact, taking a long view, the market is usually at “record highs”, as the stock market tends to move in an upward trajectory.  It’s like saying your age is at record highs.  Well, almost.   The market does drop and it can take years to get back to previous levels, but thus far, the long-term trend is for the market to ratchet to higher and higher levels. There are many reasons for this, like: inflation, population growth, and fairly efficient allocation of capital. 

Traders and hedge funds have short time frames in which to show results.  Catching moves (in either directions) is their goal, leading to more aggressive re-positioning of portfolios.  Most individual investors have the huge advantage of a long time frame.  When you have years or decades to mark your success, sharp pullbacks and rallies can be obscured by the long-term trends.

The fact that the market is making new highs should be cause for neither euphoria or fear.  We should put our psychological biases aside and remain committed to our investing plan.  Harder said than done.  Debates over timing the market is great for dinner parties and validating our worth as investors (or financial advisors), but how does it actually translate in our brokerage statements?  It is a worthwhile question to pursue.  One thing is true, considering the 17.6% surge in the S&P 500[1], the risk-reward of investing now is less compelling than at the start of the year. 

Market momentum works both ways.  The market unraveling in December seemed to feed on itself creating an overshoot that was, in hindsight, a great buying opportunity.  Similarly, the rebound action may continue to grind the market higher.  Rebalancing your portfolio is generally a prudent tactic. Buying when the market drops and lightening as it rises to keep your portfolio anchored to an allocation sometimes helps to take advantage of volatile markets--helping both the portfolio and ego.

[1] http://performance.morningstar.com/funds/etf/total-returns.action?t=IVV&region=USA&culture=en_US

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

Happy New Year and Checklist for 2019

Well, we made it!  The calendar clicked over to the New Year which is the traditional time to look back on your accomplishments of the past year and reevaluate areas that need help.  Why do we need such an arbitrary date to make us take stock of things? It seems like we should be doing this all the time, but sometimes it takes a new year to wake us up and see the things that we need to work on.  Maybe all the reasons to procrastinate are over (the holidays ARE such a busy time!) and everyone is talking about goals and resolutions for the new year.

If your finances are on the list of areas that you feel needs attention, you should consult with an Investment Advisory Representative that is associated with a Registered Investment Adviser. Investment Advisers registered with the SEC or a state securities regulator are fiduciaries and are subject to the duty of loyalty and due care with their clients. They must place the client’s best interests above their own and are typically compensated by asset management fees.  While a host of professionals call themselves “financial advisors” including insurance agents/representatives and stock brokers, they do not operate under the fiduciary standards and are generally compensated on a transactional basis. It is important to find a Financial Advisor that has the knowledge and philosophy that matches you and your family’s needs. 

As we start the New Year, here are some ideas that most of us should consider.

New Year’s Checklist

•          Check your 401-k contributions. The annual amounts have increased to $19,000 and, if you are 50 or older, to $24,000. 

•          Are you earning interest on your cash?  Most banks are still paying miniscule amounts of interest on savings accounts. With the Fed having raised interest rates 9 times (cue Ferris Bueller), you have better options like money-market accounts or CDs.

•          Review your IRAs to make sure beneficiaries are listed and accurate.

•          Review your will (you have one, right?) and ensure your beneficiaries and choice of executor are up-to-date.

•          And in the words of Ferris – “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.

Hope you and your families have a healthy and prosperous 2019!

Adam

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

How "Top Gun" Can Help You Position Your Portfolio when the Yield Curve Inverts

Maverick: “We Were Inverted”

During the iconic Tom Cruise scene in Top Gun when he details his interaction with a Russian MIG during a test flight, he explains to a shocked room (not before he removes the cool shades), that the way he was able to see the MIG while flying above it, was that “We were inverted.”  This week, in a shock to the market, the 5-year minus 2-year yield was negative, or “inverted”.  Usually, the longer the duration, the higher the yield; however, short-term interest rates are currently higher.  A more common tracked metric is the 10-year minus 2-year yield which is close to inverting as seen below.

There are several reasons why this is occurring.  The Fed (which controls short term rates) is witnessing strong domestic growth and an upward creep in core inflation.   Since interest rate changes can take time to move through the economy, the Fed preemptively will move to limit anticipated problems, i.e. runaway inflation.   By increasing rates, they can put the brakes on growth limiting inflation.  It also gives the Fed room to move rates lower if the economy slips.  On the other hand, the market (investors and traders) determines the rest of the interest rate curve.  Currently, the market has a strong demand for longer duration bond for the relative safety of government bonds due to a combination of fear of market volatility and an outlook that the Fed may have to lower rates in the coming years.

What are the implications of an inverted curve? All seven recessions since 1970 have been heralded by a yield curve inversion.  However not all inversions imply a recession.  Tom Lee, the co-founder of Fundstrat Global Advisors LLC, calculates that the 3- to 5-year yield inversion has occurred 73 times since 1954 while the economy endured only nine recessions. “5Y-3Y inversion predicted 73 of the last 9 recessions, too many false positives.”[i]

Now the question is: “What are investors to do about this?”  It really all depends on your risk appetite, holding period and allocation. While market weakness is not a guarantee, there are strong indications, like the higher VIX index, the market will be more volatile going forward.  Investors need to know how they are positioned to ensure their allocations are aligned with their capacity for risk.  At my firm, we use Riskalyze’s risk alignment software to make sure we know how much risk our clients are willing to take and to position their portfolios accordingly.  First, we determine your “Risk Number” though a short survey.  Then we analyze your current portfolio of securities to see how risky your portfolio is.  If you are interested in this, or just curious what your risk number is, click here for a short survey and check out more on Riskalyze here. 

[i] https://www.bloomberg.com/news/articles/2018-12-06/history-shows-inverted-yield-curve-is-no-death-knell-for-s-p-500

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

Making the Most Out of Your Bonus

It’s that time of year when many companies are paying out their year-end bonuses.  Hopefully “congratulations” are in order and all that hard work from the last year paid off.  Now the real decisions begin.

In some fields, like energy trading, your bonus can vary widely from year to year and are only maximized when the stars align -- you have a great year, your group meets their goals, and the company hits their profit targets.  Even the most successful may only get a dozen or so of these big paydays in a career, so it is critical to be thoughtful about how you allocate your bonus.   These are the payments that ought to support you and your family’s hopes and dreams for a lifetime. 

What is your plan?  Upgrade the house, pay off an existing mortgage, invest in the market or just sit in cash?  How much should you save versus spend?

·         Working through the hierarchy of how to allocate new capital can be challenging.  A good place to start is making sure to maximize your employer’s matching 401-K plans, Health Savings Accounts and any other tax advantaged account that is underfunded, like an education 529 Plan.

·         While it is tempting to ratchet up your lifestyle with a big payday.  Be careful when adjusting your spending habits that even when there are years when the bonus is sub-par, you can handle your bills.  One way to keep your spending in check is to imagine: what if I had to find a new job?  What kind of salary could I earn in the current job market?

·         Finally, as there are no one-size fits-all decision-making tools, consider working with an independent Register Investment Advisor.  RIAs typically do not market products or have outside pressures as to where these funds go plus as your fiduciary, have an obligation to put the client first and develop solutions that align with your risk appetite and long-term goals.  Even when an advisor’s pay is a function of the amount of assets they manage, your advisor should acknowledge this and determine the best course, regardless of this conflict.

We hear of athletes or actors going from rags to riches and end up having financial problems later in life.  Many other careers can have volatile earnings streams. Careful and thoughtful planning during the heady years can help to minimize the impact of the lean years.

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

Year End 2017 Review, Outlook for 2018 and Planning Tips

For the stock market, the good times kept on rolling.  Fueled by the recently signed tax cuts, world-wide economic growth and optimism for earnings, the S&P Index rallied 6.6% for the 4th Quarter, leaving the index 21.8% higher than the start of the year.  The long-anticipated return of volatility did not arrive in 2017, as volatility during the year was about a third of the long-term average.  Investors lulled into complacency where happy to continue plowing capital into equities.  Leading the gains were technology stocks which rallied over 37%.  The laggard sectors this year were Energy and Real Estate.  What is striking about the Energy sector’s flat performance is that it was not helped by the rally in crude prices in which a barrel of WTI Crude rallied from about $52 to over $60. 

The bond markets overall were also relatively calm.  While the Fed has made good on their promise of raising rates on the short end of the curve, the benchmark 10-year bond yield was rangebound between 2.0% and 2.6%, and ended almost exactly where is started the year at about 2.4%.  There has been some handwringing about the high-yield market which was pressured in the 4th quarter, as this can be a leading indicator for the health of the equity markets, but even this area stabilized in the last few weeks of the year. 

Macro factors are still a concern.  Political wranglings with Iran and North Korea dominate the headlines and questions of how the mid-term elections later this year affect the broader picture will become more acute.

Outlook

Overall, the economic backdrop is positive.  Synchronized growth around the world and fiscal stimulus from some of the new tax cuts should continue to propel corporate earnings.  The trends seen in 2017 of technological innovations disrupting areas like certain parts of the energy and real estate sectors are ones we would expect to continue in the new year.  We should see good earnings from energy companies in the short run, but looking out in time that may change as the automotive landscape evolves and solar power becomes cheaper. 

Overall, valuations remain at the higher range of historical averages, but stocks are still competitive with alternative investment options.  One risk to monitor is inflation.  The fear of which would push up interest rates which could alter that calculus for investors’ willingness to support above average valuations.  International equities, where valuations are cheaper and growth is higher, still earn a place in portfolios even after better recent performance.  With markets at these valuations, maintaining faith in the markets is still a struggle but heeding these concerns had some investors on the sidelines for much of this rally.  We’ve seen some outperformance in actively managed portfolios and investigating some active strategies which may utilize more creative ways of minimizing downside risk, while still invested, may be warranted.

Planning Tip for 2018

1.       Due to higher standard deductions, bunch your charitable gifting into a single year.  Better yet, establish and fund a Donor Advised Fund.

2.       Move large cash balances to a money market account where you can earn rates over 1% versus saving account that are still “yielding” close to 0%.

3.       For small business owners, investigate with a tax professional ways to take advantage of the new 20% deduction on pass-through, qualified income.

4.       Consider rebalancing your equity exposures to target levels.

5.       Re-evaluate your 529 Account funding, as the new tax bill allows annual payments up to $10,000 to private K-12 schooling.

6.       Owning a home just got more expensive for some with the new limits on property tax deductions. Factor this in when evaluating your current residence and any future purchases.

7.       Consider a mindfulness practice.  If it is good enough for Jerry Seinfeld, Tom Hanks and Oprah (as well as investment gurus William Gross and Ray Dalio), it may work for you.

Hope you have a great 2018 filled with health and happiness.

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.

Do Traders Need A Financial Advisor?

Why would a commodity trader, a master of buying and selling some of the most volatile markets need to hire someone to help manage their wealth? Actually, there are some very good reasons an independent advisor can benefit you and your family in the long run:

Focus on What You Know: With a demanding profession, the burden of managing your assets may be a secondary concern. With an independent advisor, you are hiring a fiduciary who is looking out for your best interests.  An effective advisor will construct and manage a portfolio consistent with your objectives, allowing you to focus on the markets that should matter most—the ones you are trading—without worrying that your long term goals are at risk.

Harmful Myopia and Impulse Trading: While you are focused on your particular market, it is easy to extrapolate the fundamentals of your niche to the broader markets, even when that correlation may not exist, thus clouding your judgment. This may lead to rash “dump it all” or “buy everything” moves in your portfolio. Instinctual moves may be appropriate for your trading book, but may do irreparable harm to your longer term goals of paying for your children’s college and funding your retirement.

Make Lemonade from Lemons: With a volatile-earnings profession, there are tactics you can employ to take advantage of your lumpy income. For example, during low earnings years, consider Roth IRA conversions or opportunistically take long term capital gains on appreciated assets. On the flip-side, in high income years consider contributing to a Donor Advised Fund to lower your taxable income.

Separating the goals and risk profile of your job from that of your general overall wealth is critically important. Hiring a professional wealth manager for the bulk of your nest egg makes a lot of sense, for both your peace of mind and your wallet.