Q4 2023 Client Letter
January 5, 2024
Dear Valued Client:
Enclosed are your reports and spreadsheets (clients with assets over $500,000) for the period ending December 31, 2023. There are also educational materials enclosed with this package.
Market Recap and Outlook
The equity markets enjoyed a big rally in the fourth quarter in large part because of a dovish position taken by the Federal Reserve. Additionally, there was solid economic activity and declining inflation which pushed the S&P500 to a two-year high.
The quarter started out very sluggish and under pressure. There was also the horrific attack by Hamas on Israel. Earnings in the third quarter were not particularly great. However, markets reversed when Federal Reserve Governor Chris Waller made comments that implied rate hikes were over and rate cuts may be coming in 2024. Other Fed Governors backed those comments. Since the market tends to move in “advance of events,” stocks surged with the hopes of lower rates.
We have been saying for some time that the financial markets were “data dependent”. When the consumer price index (CPI) dropped to 3.14% (the Fed target rate is 2%), this fueled what is known as the “Santa Claus” rally that resulted in double-digit percent returns in the quarter for the major averages.
In summary, 2023 was a year full of surprises as the expectations of a recession never materialized. Inflation fell faster than forecast, corporate earnings were resilient, and the Federal Reserve surprised markets by pivoting to a more dovish future policy. It is quite possible that the Federal Reserve has pulled off the “soft landing” scenario that we all hoped for.
From a performance point of view, this was a big year for the Nasdaq index and technology due to artificial intelligence enthusiasm and expectations for rate cuts. This is the opposite of what took place in 2022 as the S&P500 and Dow Jones Industrial average outperformed the Nasdaq/technology. From a market capitalization point of view, small cap stocks outperformed large cap stocks again due to the expectation of future rate cuts.
The laggards during the year were the “safer stocks” such as utilities and consumer staples. Not surprisingly, these two sectors were the best performers during the prior year. These are more reasons for regular tax-efficient rebalancing of portfolios that we do from an analytic and tactical point of view. There is a mistake in the investing world know as “rear view mirror” investing where people errantly chase performance of what was once hot. As we have stated before, the “George Costanza Opposite Theory” is something most people should concentrate on when it comes to investing.
Regarding fixed income, there was a positive return of mid-single-digits for most classes for the year. We expect this trend to continue if interest rates remain stable and especially so if they come down.
From an outlook point of view, we see limited recession risk. If there is a recession, we expect it to be mild. We believe inflation will continue to subside. We still believe equities can increase with valuations currently “fairly valued”. We believe equities in five to ten years could be much higher than where they are today, but the ride will be bumpy. We believe 2024 will be an excellent year for fixed income and municipal bonds with interest rates possibly heading down. We believe market corrections will be a good opportunity for clients to add to positions.
Wealth Management Issues
We want to highlight the importance of good tax planning. NOW is the time to prepare for 2024. Clients that are still working should plan on making maximum pre-tax contributions to tax qualified retirement plans. You can check with our office on your current 401k asset allocation if you are still working. Clients in retirement can rest assured that our team is on top of your distributions to make sure they are appropriate and tax efficient.
We want to point out that a tax strategy that we have successfully used helps clients avoid/limit capital gains on the sale of a business and/or real estate. Some strategies that can be used are 1031 exchanges into no leveraged/limited leveraged real estate investments, qualified opportunity zones, and/or the use of charitable trusts. Please talk to us way in advance of making any moves because they can be complex and you need to understand the risks/benefits.
There are a host of other tax minimization strategies that we can use to help you. Please contact our office and challenge our team to make sure you are paying the least amount of tax consistent with your objectives. This is another way we can add so much value for you.
Office Updates
As we enter 2024, it is my goal to continue to have Jason Gordon CPA/CFP, MS (Taxation) and Anthony Sandomierski CPA/CFP, MS (Taxation) run most of the business in anticipation of their ownership in 2026. I will continue to be available to speak with clients whenever needed. My deal with Jason and Anthony keeps me affiliated with the business through the year 2040 and I do plan on keeping my professional licenses. I will be in South Florida through the cold weather months if you are in the area like so many of our clients are.
We are very excited over our team as we believe we have an amazingly well-educated and client-focused staff. Our culture is built on service and education.
The year 2023 saw tremendous growth for our business as advisory assets increased by double-digit percentages. Thank you so much for the clients you refer to us to take care of their wealth management/tax needs. We are hitting records for assets under administration.
Again, if you would like a financial check-up, please contact the office. Thank you so much for your business!!!!
Sincerely,
Jack Oujo, CPA/PFS, CFP®, CSA, MS (Taxation)
Oujo Wealth Strategies
1540 Highway 138, Suite 106, Wall, NJ 07719
732-556-4211 – Direct Dial
908-675-5571 – Cell
732-681-4479 – Fax
www.OujoWealthStrategies.com
Disclosures
- Investment Recommendation Disclosure: The client acknowledges that the representative is relying upon the client information (e.g. risk tolerance, time horizon, and investment objective) for the purposes of providing recommendations to the client. The client agrees to give the representative notice of any significant changes in the client information and to provide the representative with any additional information that the advisor may reasonably request.
- Historical Performance Disclosure: Past performance is not indicative of future results. The investment return and principal value will fluctuate with the market. Investor’s shares when redeemed may be more or less than their original cost.
- General Market/Investment Risk Disclosure: Investments are subject to market risks including the potential loss of principal invested. Yields and prices will fluctuate along with the market and other economic conditions. Securities may be worth less than the original cost when redeemed.
- Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but Avantax does not guarantee the accuracy or completeness of any statement.
- A portion of municipal bond’s income may be subject to state or local taxes. A portion of a municipal bond’s income may be subject to the federal alternative minimum tax. Investing in municipal securities can be volatile and include such risks as: adverse tax or court rulings, legislative or political changes, market and economic conditions, issuer, industry-specific (including the credit quality of municipal insurers), and other conditions.
- The Avantax affiliated companies exclusively provide financial products and services, and do not provide or supervise tax or accounting services. Advisors may provide tax, accounting or other services through their independent outside businesses, but these services are separate and apart from Avantax.
- Standard & Poor’s is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.
(*) Performance and Data numbers are per Morningstar and the Sevens Report. Client spreadsheets are normally sent four times per year to clients with over $750,000 of investment assets and twice per year for clients at the $500,000 to $749,999 level.
** Represents brokerage, direct to fund and annuity assets under management as of 12/31/2023.
