October 5, 2021
Dear Valued Client:
Market Recap and Outlook
The S&P500 reached new highs in the third quarter based on a resilient economic recovery, strong corporate earnings, and historic support from the Federal Reserve. Client portfolios are performing at various low double-digit percentage gains on a year-to-date basis depending on risk tolerance levels.
Headwinds for the financial market include supply chain issues due to the Delta variant, the uncertainty in Washington DC over the stimulus bill and debt ceiling, and profit warnings from some companies.
The primary risk factor for a bear market is a recession. This is because in a recession there are lower earnings, lower dividends, and an increase in bankruptcies. We do NOT see a recession coming soon and there are several reasons for this that include the following:
Fed Policy – the Fed has said that short-term rates will not go up until after their “tapering” process is complete. We estimate this process to take another 6-9 months based on the current pace. The yield curve is also not showing any signs of being inverted.
Inflation – we believe that current price increases are temporary due to supply chain issues.
Fiscal Policy – we believe moderate Democrats in the Senate will help limit an aggressive tax increase. We do expect moderate tax increases and a stimulus bill over one trillion dollars.
Growth Rates – growth rates appear to be reasonable based on the growth of the labor force and productivity.
The most important issue with the stock market at the end of the day is VALUATION. Earnings estimates for the year 2022 are coming in at about $205 per share for the S&P500 index. With the market trading at approximately 4,350, this gives us a forward-earnings yield of 4.7%. The 10-year treasury is currently trading at 1.467%. With interest rates still being low, the market remains fairly valued to very slightly over-valued in our opinion. Corrections of 10% should be used as buying opportunities while we see 5% corrections as “normal” and no over-reaction is needed.
We expect continued volatility based on Washington DC negotiations, data on the pandemic, and inflation concerns. This ride will have some turbulence, but we always want to use that turbulence to our advantage.
Wealth Management Issues
At this time of the year, tax planning is a major topic. Please check with our office if you would like a projection done for the current year. There should be NO SURPRISES when your return in filed early next year. Our office also does a detailed analysis of every portfolio to see if any “tax harvesting” can be done. Please make sure you have made maximum contributions to pre-tax retirement plans when possible.
Most of our clients have paid off their mortgages or have substantially reduced them. You can contact our office if you give significant amounts of money to charity and want to learn about the concept of “bunching your deductions” so you can itemize your deductions. Clients in retirement can also direct Required Minimum Distributions to charity.
We have proactively contacted most clients who will have their families subject to possible lower estate tax thresholds. If your estate will be over $10 million there are possible actions to take BEFORE year-end to help your family situation. Please contact our office with questions.
Clients who have recently gotten married, divorced, or lost a loved one should check beneficiary designations on retirement accounts and life insurance policies to see if any changes should be made.
Please call out office with questions or if you need help setting up your client vault.
Assets Under Management have now gone over $630 million as we continue to reach new milestones year after year thanks to you and our team. We are accepting new clients and appreciate your recommendations if you think the person(s) will be a good fit. Remember that we will always take on the “Adult Child” of a current client regardless of asset size.
We thank you for your business and please call our office if you would like a check-up.
Jack D. Oujo, CPA/PFS, CFP, CSA, MS Taxation
Certified Senior Advisor
Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM. Insurance services offered through an Avantax affiliate insurance agency.
- 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
- 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