I recently had a Jimmy Stewart moment from one of my favorite movies “It’s a Wonderful Life”. In January I thanked everyone who gave me condolences and bereavement gifts and cards on the passing of my father in the January newsletter. The intent was just to thank those that knew and nothing more. Two months later I flew in from Florida to meet clients and do our seminars. When I walked into my office, I could not see my desk or the surrounding areas of my desk because it was overloaded with bereavement gifts and cards. I want to say first, none of that was necessary and secondly it was really heartwarming. All I can say is thank you and it reminded me of how great my friends and clients are. Thank you once again.

Jon Arnold’s Viewpoint

Big Foot, Protestors and Critical Thinking

One of the challenges I have with investors is trying to get them to think like investors versus day traders or amateur investors. My hope is through these newsletters and data that they start to critically think out how they want their portfolios to look year to year versus getting overly happy or angry based on what their daily online account values reflect. When I fail to reach them, it drives me crazy and that is because I care. However, then I think about how we as a society have not used critical thinking in a lot of formats in life, my sanity is repaired. Think about this. Grown men and women spend countless hours and days trying find a 7-foot half man, half ape thing in various parts of the country. Just to be clear, this half man half ape has eluded cameras, video, satellites and various other technical instruments over the past two decades, but meanwhile has not evolved into a regular animal or thing. Could it be that maybe Big Foot doesn’t exist? Yet people go weeks to months trying to find Bigfoot. January 6^th, men and woman stormed one of the most sacred places in our country, the capitol dressed in animal garments with the intent to overthrow the election system. Most recently college kids that worked their tails off to get into an Ivy league school shut down their campus protesting ideologies thus endangering their graduation and futures. How this relates to investing you might ask. Lack of critical thinking. If these folks that I mentioned above had stopped to think of the outcome and or critically think out the long-term end game, they probably would not have participated in the nonsense I just described. This same exact thinking should come to play into evaluating your investment strategies and what you want your future portfolios to look like. The key words here are critical thinking. Before you make hasty judgements and or irrational moves regarding your investment portfolios please do your research, do some critical thinking and then make an informed decision. It could be life changing.

Data

As I have described before the efficient market theory says the market is supposed to average out about a 8-10% return over a span of time, usually over years. The market started a bull run from the end of October 2023 to now with very little decline. From January to March 30^th, the market almost did a 10% return. History and math say a severe decline would need to happen for the market average to equal out. Most recently the Nasdaq went down 6% in 10 trading days. April 11^th, 2024, the Nasdaq was 16442 and April 19^th, 2024 it was 15,282. Let me break this down into real terms for you, if you invested $100,000 in the Nasdaq April 11^th, eight days later your $100,000 would be $94,000. The question I have for you is could anyone of you handle losing 6% in eight days? Judging on past experiences with our clients on normal declines, that answer is a hard no. The good news is that the market came roaring back and is almost to its high in April. This leads me to another eye opener. Most people who don’t watch the market but only their account would think the market over the past month has been doing great. The truth is the market recovered what it lost in April, which is not a gain, but break even. This leads me back to our critical thinking discussion above.

Portfolio Changes

This week we are shifting tactically to utilities, Apple stock, health care and  a pharmaceutical ETF. We will remain in balance mode with 40-50% of your money in the money market averaging 5.17-5.25 annual yield. Other than Apple it’s kind of boring to say the least, however boring is good when it comes to trying to capture growth and also protect the downside from a catastrophic market slide. When the market comes back down to earth and somewhat acts like a normal market we will be going into more advanced and higher potential growth strategies. Our goal is to pick up a couple bucks and take advantage of a severe market downturn. Most recently the bullish percentage of all stocks in the NYSE turned to a bullish stance. What this means in basic terms to you is that there are more stocks in the positive than the negative in the overall stock market and that I believe there is more room for the market to climb.

In closing I will be available by phone anytime that you need to talk or have a concern. Please call the office to make an appointment with me, Joe or Adam and we will discuss your portfolio and take care of business as you see fit. I really enjoy discussing investments with our clientele. Below you will find some market analysis from the team at Rockport Wealth Advisors.

Markets & Economy

April brought a notable shift in the markets as they took their first breather of the year. The S&P 500 declined by 4.08% for the month, yet it remains positive with a 6.04% gain year-to-date. At one point in April, the decline exceeded 5%. It’s important to understand that 5% pullbacks in markets happen several times a year, so this is not an uncommon occurrence.

Moreover, the average decline in a calendar year typically ranges from 13-14%, making this particular dip quite mild in comparison. Considering the markets’ resilience since October 2023, this downturn was not unexpected. Expecting the markets to maintain their pace of the past six months would have been unrealistic.

As for the remainder of our closely watched indicators, there are some subtle changes but nothing major although many trends still continue.

The standout news of the month centered around Gross Domestic Product (GDP). U.S. GDP unexpectedly dropped to 1.6% from 4.9% in the fourth quarter of 2023. This development underscores a slowing economy and warrants close attention.

Historically, a recession is defined as two consecutive quarters of negative GDP growth. While we have been monitoring this closely, it has not been a focal point in our newsletter. However, moving forward, we will provide regular updates on this important indicator. Please note that GDP data is updated quarterly, with the next reading expected in July.

University of Michigan Consumer Confidence has continued to nudge higher. This is good and falls into the recession less likely camp if the trend continues.

The US Leading Economic Index was down .3% from the previous month. This was particularly disappointing after last month’s brief improvement that was the only increase in the past 25 months. However, the 6-month growth rate has improved which is slightly encouraging. We still remain concerned about this trend overall.

Both initial and continuing unemployment claims moved down slightly this past month although skepticism seems to surround these numbers in terms of how they are being calculated. Taken at face value this is good and the employment picture remains strong.

The yield curve has been in an inverted status since July 2022. This is a near record in terms of length of time of the conversion. As stated previously this particular indicator has a very good track record of predicting recessions. According to our findings there has only been 3 other times this has happened for this long. Unfortunately, all 3 did not end well.

Both CPI and Sticky CPI moved higher. As previously mentioned, many times this is not what the Federal Reserve wants to see right now. This is also the reason that the talk of interest rate cuts which was so prevalent early in the year has backed off. At present futures markets indicate the possibility of 1 interest rate cut in 2024 and a remote possibility of 2 cuts. Keep in mind cutting interest rates only adds to the inflation problem over time.

Commodities had a slight dip this past month. This is a good thing if the trend continues as it helps take pressure off of pricing and hence inflation as well. Oil declined slightly in price as well as some of the grains.   The fed would welcome a continued trend like this.

All of the above back up our case for continued skepticism over the markets and economy. A lot to sort through in the coming summer months.

Tax Talk

Think we pay a lot of taxes now? Currently the top bracket is 37% which historically ranks as one of the lower points in history. In the period from 1946-1964 the top bracket was an astounding 91% (not a typo!) What does this mean? Likely tax rates from here are going to move up mostly due to Government deficits which are at all-time highs. This makes tax planning of utmost importance and exploring concepts like ROTH IRA and 401K contributions as well as Roth IRA conversions essential. We have been bringing this topic up to many clients and have run analysis to see if conversions make sense for them. If this is a topic that is on your mind, please reach out. We have resources that can help with these decisions.

As always, if you have any questions on anything we have talked about here or anything else that is on your mind, please feel free to reach out.