October 4, 2022
Dear Valued Client:
Enclosed are your reports for the period ending September 30, 2022. This package will also contain spreadsheets (clients with over $750,000) and various information pieces.
Market Recap – Year to Date and Outlook
We are all aware that markets are down severely this year with most indexes trading about 20% or more below their all-time highs. The final day of the quarter was the actual day the markets reached their lows for the year. This should come as NO surprise given the current economic environment.
As previously mentioned to you in our correspondence, we need four things to happen for the markets to move up and NONE of those conditions exist right now.
These include the following: 1) Geopolitical stability, 2) supportive fiscal policy, 3) solid economic growth, and 4) strong corporate earnings/growth.
The Federal Reserve is trying to reduce employment demand in an environment where there are over one million more jobs than the labor supply. They are also trying to stabilize prices when we have supply chain issues and commodity shortages.
What are the positives out there? 1) A sharp drop in inflation metrics will come and when that does, the negative feedback on stocks will be broken. 2) There will be an associated time when Fed officials will signal an end to the rate hikes. 3) Positive earnings/outlooks will be viewed favorably (see below commentary), and 4) positive geopolitical landscape will be viewed favorably.
It is our view, that supply chain issues have a lot to do with China not solving COVID-19 challenges and the Russia invasion of Ukraine causing commodity issues.
The good news is that all the positives mentioned are attainable. With market sentiment so negative, you only need one or two to help stabilize markets. Additionally, all the aforementioned bad news is “priced into” the market.
Markets tend to move in advance of recoveries. You must remember this fact!
Our office pays a lot of attention to valuations. Earnings estimates for the year 2023 have fallen to about $235 share for the S&P500 index (*). If we look at the valuation of that index at the end of the quarter of 3,586, this gives us a forward earnings yield of 6.56% which is a valuation we find attractive.
This is the reason we advise you to hold equity positions. We also find the current environment attractive for purchase for long-term investors. At these levels, it is ok to add to positions, knowing there could still be more volatility in the short-term. Market bottoms are often accompanied by a massive sell-off on high volume. We are not trying to find exact market bottoms. Smart investors seek good “entry points” into the market.
What about the retired client or “soon to be retired” client? Clients in this situation should own equities with a strong bias towards dividend payers. The dividend payers sustain you during market downturns. We like to say that “You are being paid to wait for a recovery” with the dividend. The challenge with clients still working and managing their own 401k plans is that dividends are probably not shown on your statement. Please call our office if you would like guidance in this area.
Bottom Line? We think the market could still fall further on high volume, but we still think the current levels are attractive for purchase for the long-term investor. Our clients with a written plan have been “stress-tested” for these markets and remain in good shape. The market may be bad, but YOU ARE OK!!
Wealth Management Issues – Office Updates
This is a good time to check that you are in good shape with your income tax plan. Make sure you are making maximum contributions to pre-tax retirement plans where applicable. Double-check beneficiary designations on your spreadsheet.
If you have not been in the office for a check-up, please do not hesitate to contact us. I will be in NJ during Thanksgiving week and for about ten days in mid to late December. Zoom meetings can be done anytime while I am working in Florida.
Please call our office for help with our vault services too.
Congratulations are in order to Alli Panagos who passed the Series 7 exam as well as the NJ Life and Health Insurance exams. A very good start to her career!!!!
We tend to get busy with new clients during bear markets and this time is no different. THANK YOU once again for your business.
Jack D. Oujo, CPA/PFS, CFP, CSA, MS Taxation
Certified Senior Advisor
- 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
- Asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
- Dollar-cost averaging does not assure a profit and does not protect against loss in declining markets. Such a plan involves continuous investment in securities regardless of the fluctuation of price levels of such securities. An investor should consider his or her financial ability to continue his or her purchases through periods of low price levels.
(*) Performance and Data numbers are per Morningstar and Earnings Estimates are per Bob Brinker. 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 6/30/2019