JAWM October 2024 Newsletter

Jon Arnold’s Viewpoint

Uncertainty and Volatility

What makes or breaks many businesses is businesses not meeting expectations in terms of uncertainty. Examples of this of this would be dressings, soups or menu’s changing at restaurants, a line of clothing no longer offered at a retailer or your favorite radio station playing a totally different format. In the stock market that equates to volatility. Many clients think that the reason the stock market shot up the day after the election was due to President Trump being re-elected. My belief is that the market having a record setting day after the election was due to the uncertainty being over. Though it is true that I am a Trump voter and supporter, my heart tells me if VP Harris would have won, we would have had the same exact result in the market the next day. To summarize, I believe the uncertainty being over is what caused the next day to run up. Companies of course openly admitted this on TV and the radio because now they know where to emphasize their strengths and where to emphasize overcoming their weaknesses.

What Now

Well make no mistake, my stance has not changed, and I fully believe in my conservative wealth preservation stance on our money management. Let me give you some chess moves. If the FED and Pres Trump do not like each other, and believe me they do not, do you think they are going to fully cooperate? As an investor ask yourself what ingredient has directly impacted the market instantaneously? That ingredient would be interest rates. Global leaders have openly said they feared Donald Trump and considered him erratic. If you were a leader of a country at war, when would you make your most aggressive moves? The answer- Before the erratic guy you fear coming back into power gets there. Then there is of course the obvious, people have run their credit cards up to all-time highs and are running out of money. I could go on and on, but I am sure you get the point. If you are a client that wants me to make irrational and short minded/term decisions because someone got elected, you have the exact wrong person. No short cuts, only strategy.

Tax on Capital Gains

It is our job to make you the most money for the least amount of risk and cost. My job is not to make you the most money for the least amount of risk and cost and give you a secret tax cheat code that removes you from capital gains taxes. Also note that secret tax cheat codes do not exist.

Let me give you an example. If you had a portfolio worth $500,000 and you were lucky enough to make $100,000 in a year capital gains; the assumed capital gains tax, could be as much as 20%. Thus the $100,000 dollars of what you made could be taxed up to $20,000 dollars. The other thing that could occur is that you potentially lose your $100,000 that you just made to a stock market correction as if you didn’t make it at all? Mmmmm…. sounds like pretty simple math to me. $20,000 vs $100,000. What some of our folks want is both; which is not lose the gain and also not pay taxes on the gains if we decide to protect the gain by selling before a major correction. For those of you reading this that are rationale, yes there are many people that want both. To add to this insanity, they get mad at me for costing them capital gains. I kid you not. To conclude this topic, let me make this as clear as possible. We will try to make you as much money as possible and will also try to protect the gains that you made as much as possible. If this causes you frustration I offer two routes. Write to your congress person or senator (that is who can actually change the outcome), or don’t make money in your investments. These are the two options.

As Far as the Market Goes

It’s fair to say the evidence has taken a small step back in recent days except for the day after the election for three reasons—first, because the intermediate-term trend of the major indexes is essentially on the fence for the moment after the selling seen last week; second, because the broad market has also faded somewhat, with more stocks hitting new lows; and third, because we’re finally seeing some earnings-induced dents in strong stocks., and some generally sloppy near-term action. Put it all together and we’re still bearish with a little bullish sentiment and advise holding the line as is.

With all that was said, I wish you the greatest thanksgiving and thank you for your business and trust.

Below please find some market analysis from the team at Rockport Wealth Advisors.

Markets & Economy

In October, the stock market experienced a modest pause, with the S&P 500 slipping by 0.91% for the month. Despite this slight dip, the index remains up an impressive 20.97% year-to-date. As we approach the final stretch of 2024, it’s clear that this has been an outstanding year for stocks. Even if we see little movement or a minor pullback in the coming months, 2024 will be remembered as a historically strong year for investors.

In October, bonds were the weakest-performing asset class, with the aggregate bond index posting a decline of 2.25%. Despite this setback, the index remains in positive territory for the year, up 1.92%. Interestingly, bond yields were significantly lower when the Federal Reserve announced an interest rate cut on September 18th. In the charts below, you can see the rate movements on the 30-year mortgage and the yield on the 10-year Treasury; the downward arrow marks the time of the cut, followed by notable increases in yield. This outcome is counter to the Fed’s objective, which was to lower yields and borrowing costs through the rate cut. Could this be the bond market’s signal that inflation may resurface in the coming months? This is a notable development worth monitoring closely.

As you read this, Election Day will have passed, and hopefully, so has any uncertainty, with results that were clear and uncontested. Many investors understandably worry about the potential impact of elections on their finances. However, as the chart below illustrates, history shows that stock market performance tends to be positive over a president’s term, regardless of the party in office. In fact, only George W. Bush and Richard Nixon saw negative market returns during their terms. Historically, who holds office has had less impact on the market than factors like interest rates, inflation, and, most importantly, the long-term growth of the economy.

As we assess the current landscape, the winner of this election will face an expensive stock market, ongoing global conflicts, and a Federal Reserve still grappling with inflation, potentially exacerbating it with recent rate cuts. Below, you’ll find charts of two widely monitored stock market valuation metrics: the Buffett Indicator and the Shiller Price-to-Earnings ratio. The Buffett Indicator is nearing an all-time high, well above its peak in March 2000, while the Shiller P/E ratio is also approaching levels last seen in 2000. Given these elevated valuations, we wouldn’t be surprised to see more subdued stock market returns in the coming years. Remember, while high valuations don’t directly cause market declines, they can amplify the severity of a downturn when one occurs.

Next month we will go back to updating our relevant data points. With the election being top of mind for most, we felt a little focus on an event that occurs only once every 4 years was warranted.

Rockport News

Be Aware, Be Diligent…..Scams to avoid

We will take a break from Tax talk for a few months and focus on some things that EVERYONE should be aware of. How to be aware of and hopefully avoid the different types of scams out there. We will start with Phishing.

Phishing is a scam in which the scammer poses as a legitimate, trusted source, in order to trick you into providing sensitive data such as your username, password, banking details or social security number. The scammer then uses the information to steal money or commit identity theft. Phishing attacks can also give scammers access to your computer or network to install malware or ransomware.

Phishing scams most commonly start with a fake email that appears to come from the trusted source but can also start with a text message (also called “smishing”) or telephone call (also called “vishing”) or a social media message.

If someone contacts you asking for your personal information — e.g., social security number, credit card number, bank account info — do not give it. And be careful of clicking on suspicious links in email messages.

If you are asked to log in after clicking a link in an email, be careful. You may want to verify that you have reached the real login site by instead logging into the website separately outside of the email.

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.