6 One Way, Half a Dozen the Other

December 16, 2023

6 One Way, Half a Dozen the Other



Looking back on our previous post about historical 4th quarter performance, after October it looked like we were staring down a 4th quarter with negative returns. Refreshing everyone’s memory, only about 20% of the time does the market produce negative returns during the 4th quarter of the year. Well, things have changed quite a bit since November 1st, assuming the stock market gains hold through the end of the year. As we write this, the Dow hit a new record high, closing over 37,000 for the first time while the S&P 500 and Nasdaq are within shouting distance of new highs.


After having three consecutive months (August thru October) of negative returns for the first time since the onset of Covid, we received numerous questions and inquiries on whether it was time to make some changes. The last two years - 2022 and 2023 - were quite different from each other in terms of what did well, relatively speaking of course, and what did not. 


As 2022 began, the Fed was just beginning to raise interest rates. They would go on to increase the Fed Funds rate by 425 basis points through the year. Dividend stocks significantly outperformed growth stocks in 2022, while 2023 was the exact opposite. As the market moved sideways for the better part of two years, most investors ended up with a similar result whether they were growth focused or dividend focused…regardless of how they were invested.. 


How they got there was radically different though. The S&P dropped almost -20% in 2022 while the growthier Nasdaq closed down more than -33%. In contrast, the Morningstar Dividend Composite fell only -3.88% in 2022. 


The roles reversed in 2023, where the S&P 500 and Nasdaq Composite posted gains of +22.60% and +40.77%, respectively through December 13th while the Morningstar Dividend Composite rose a more modest +9.33% over the same period.


In 2022, dividend investors enjoyed stability within their stock portfolio. Subsequently, one of the reasons for muted returns from dividend paying equities in 2023 was the ability of investors to obtain returns of close to 5% on cash-like investments. We saw a record number of flows into money market funds, cash deposits, etc. Even though those rates remain for now, they will likely be in the rear-view mirror not too far into the future.

Additionally, higher rates tend to negatively impact numerous sectors such as Real Estate, Utilities and Financial which contain many dividend payers. Not coincidentally, stocks in these sectors moved upward significantly in the last month. For most of 2023, a vast majority of the S&P 500’s gains came from the “Magnificent 7” - Amazon, Apple, Alphabet, Meta, Nvidia, Microsoft, and Tesla. Yet, since November 15th the S&P 500 rallied about 7% while the “Magnificent 7” barely budged, inching up about 1% over the same time period. Is the pendulum swinging? This is yet to be seen. 

The past two years tested investors' patience and resolve. Whether it was stomaching a significant downturn with growth stocks in 2022 or seeing dividend payers move sideways for the better part of the last 24 months before their latest surge. Most times, when investors show patience and stick to their plan, they are rewarded. 



As always, if you have questions or concerns about your individual situation, please don’t hesitate to contact us. 

April 17, 2025
Below is a link to a recent BBC article - that we had the honor of being interviewed for - with commentary from us on what the tariffs could mean to Nike and the footwear industry: BBC - Nike and Tariffs
April 11, 2025
What a Week: Let’s Unpack It It’s been a roller coaster in the markets this week - sharp declines, sharp rebounds, and a fair bit of investor whiplash. But amid the headlines and volatility, there are a few key themes worth highlighting. Equity Markets The biggest jolt came midweek when markets staged a strong bounce on Wednesday. What changed? President Trump announced a 90-day pause on proposed tariffs, easing tensions and giving the market a breather. That news helped shift sentiment, and we saw equities snap back after several tough sessions. This week, the S&P 500 surged over 9%. However, since the tariff announcement after market close on April 2nd, the index remains down more than 5%. Bond Market On the fixed income side, the bond market is telling its own story. The 10-year Treasury yield has been rising, signaling renewed expectations around inflation, future Fed moves, or simply a re-pricing of risk. For investors with balanced portfolios, this matters - rising yields affect not just bonds, but also equity valuations and borrowing costs. Volatility Finally, it’s worth remembering that volatility, while uncomfortable, has often paved the way for strong market recoveries. Historically, when the CBOE Volatility Index ’VIX’ (which simply shows how concerned investors are about the stock market going up and down in the near future) spikes above 40, a level it hit earlier this week, the S&P 500 has averaged a 30% gain over the following 12 months, with a 95% likelihood of a positive return. The VIX reached as high as 60 midweek before pulling back to around 44 by early Friday. While past performance doesn’t guarantee future results, it does offer helpful perspective during turbulent times. Keeping Perspective At times like these, it’s important to remember that market volatility is not unusual and it’s part of the investing. As always, we’re keeping a pulse on the market, keeping our long-term view in mind while watching for short-term shifts. If the recent swings have raised questions or you’d just like to talk through your portfolio, we’re here. Don’t hesitate to reach out. Sometimes a quick conversation can go a long way in bringing clarity and confidence. We also know this kind of market movement can feel unsettling - and you're not alone in that. Just know that we’re here for you, and we’re always ready to talk things through whenever you need.
April 4, 2025
Markets Took a Hit Yesterday and They're Still Sliding Today. Here's What to Know. The markets had a tough day yesterday and unfortunately, the selling hasn’t let up much today either. To recap: on Thursday, the Dow fell about 1,500 points (roughly 3.5%), while the S&P 500 and Nasdaq were down 4% and 5%, respectively. The Russell 2000, which tracks smaller companies, dropped nearly 6% and officially dipped into bear market territory. Today, markets are still under pressure as investors digest the impact of what sparked all this: a sweeping new round of tariffs announced by President Trump. What’s Going On? President Trump rolled out a plan to impose “reciprocal tariffs” on imports from over 180 countries. The goal, according to the administration, is to level the playing field claiming that many countries charge the U.S. more to import goods than we charge them. Here’s the short version: A 10% baseline tariff applies broadly, but many countries are facing much higher rates. China is now subject to a 54% total tariff when you include previous rounds. The EU is hit with a 20% tariff, Japan 24%, India 26%, and Vietnam tops the list at 46%. Others, like the U.K., Brazil, Singapore, and Australia, are seeing the baseline 10%. The market wasn’t expecting anything this aggressive, and the sharp reaction reflects concerns about rising costs, slower global trade, and the potential for an economic slowdown. Who’s Getting Hit the Hardest? Some sectors and companies are feeling the pain more than others: Retailers that rely on cheap imports saw massive drops Big international players like Apple fell hard as well, even if their direct exposure to tariffs is limited. Tech in general is having a rough stretch, as it usually does during high-volatility periods. Smaller companies, especially those more exposed to cost swings, were heavily sold off. That said, not everything was red: Real estate investment trusts (REITs) held up better than most. With bond yields falling, some investors shifted into interest rate–sensitive sectors like real estate. International companies with minimal exposure to the U.S. weathered the storm relatively well. Fixed income has held up relatively well considering a drop in the 10-year treasury rate touching 4%. What Happens Next? That’s the big question and part of the reason markets are still sliding today. There’s a lot of uncertainty around how long these tariffs will last, whether other countries will retaliate (China already has with a 34% tariff announced today) and how all of this plays into inflation, interest rates, and the broader economy. Bottom line: we’re in wait-and-see mode, and markets don’t love uncertainty. What Should Investors Do? Here’s our advice: don’t panic. Sharp drops like this can be unsettling, but they’re not unusual and reacting emotionally usually does more harm than good. During times like this, it can be difficult to see through the uncertainty. Something to keep in mind….Since 1975, the 50 best stock market days were preceded by an average market decline of 6.7% over one month and 10.2% over two months. If you’re a long-term investor, days like these are part of the journey. And if you’ve got cash on the sidelines, there may be some solid buying opportunities emerging. And if you’re unsure what your next move should be? That’s okay, too. Sometimes the smartest play is to sit tight, stay diversified, and not let short-term noise throw you off your long-term plan. As always, if you want to talk through what’s going on or explore any opportunities, we’re just a call or message away.
March 12, 2025
Volatility Returns: What’s Driving the Market Swings? After a period of relative calm, stock market volatility has surged to levels not seen since late 2020. Last Friday marked the end of a streak of six consecutive trading days where the S&P 500 moved up or down by more than 1%. What’s causing this stock market whiplash, and what should investors make of it? Tariff & Trade Uncertainty In the run-up to the 2024 Presidential Election, now-President Trump considered import tariffs to be a central part of his economic plan. The implementation of tariffs - targeting both allies (Canada & Mexico) and rivals (China) - has introduced significant uncertainty, fueling market instability. Whether these tariffs serve as a negotiation tactic for fairer trade or a means to pressure bordering nations on immigration and drug control, the lack of clarity is breeding concerns about economic growth and stock market volatility. Each day, and sometimes each hour, brings another curveball. Investors remember Trump’s first term when U.S./China trade tensions in 2018 led to a turbulent market. In Q4 2018, the S&P 500 dropped 13.5%, wiping out healthy year-to-date gains. Stock Market Impact The S&P 500 has already experienced a 10% drawdown from its February 18th peak. Last week, the Nasdaq entered correction territory, and now sits 12% off its recent high as investors sought alternatives such as fixed income, dividend-paying equities, and international markets. The correlation between tariff discussions and market pullbacks is no coincidence. The uncertainty surrounding these policies has led investors to take a more defensive stance, shifting toward value-oriented stocks and away from high growth sectors. Historically, the S&P 500 experiences declines of 5% roughly once per year, while 10% corrections happen about every other year. While the triggers for these declines may change -this time, tariffs and geopolitics - the pattern of market corrections remains a normal part of investing. Shifting Tides - The Case for Diversification Following is something we frequently discuss on CNBC - in fact we did so yesterday on Power Lunch. Watch Matt’s latest appearance here:
February 4, 2025
Deepseek and its Low Cost Claims The final week of January was a whirlwind for the stock market, with tech stocks taking center stage. On Monday, the Nasdaq saw its sharpest decline in over a month following news from China about DeepSeek, a ChatGPT competitor. NVIDIA, a dominant force in AI infrastructure, faced a staggering setback, losing nearly $600 billion in market value - the largest single-day dollar loss in U.S. stock market history. DeepSeek claims to operate at a fraction of the cost of U.S. competitors, requiring less processing memory to train and run. While the long-term implications remain uncertain, this development introduces increased volatility and uncertainty in the near term. Earnings Sensitivity Last week also brought earnings reports from four of the Magnificent Seven, along with other key U.S. companies. So far, 77% of S&P 500 companies that have reported Q4 2024 earnings have exceeded expectations, while 63% have surpassed revenue estimates (FACTSET). Historically, positive earnings surprises have led to modest stock price increases, while negative surprises resulted in declines. However, recent quarters have shown heightened market sensitivity to earnings results. For example, IBM exceeded expectations and issued a strong outlook, leading to a 13% one-day gain. Conversely, Lockheed Martin fell 9% after reporting lower-than-expected revenue and offering cautious guidance. Recently, S&P 500 companies that beat both sales and earnings expectations saw an average stock price gain of 3.6% post-announcement, well above the five-year average of 0.9%. Meanwhile, companies that missed estimates saw an average 5% decline, compared to the historical average of 3.1%. Market Concentration With the S&P 500 trading at above-average earnings multiples, investors are watching earnings reports closely. All 11 sectors of the index are expected to see earnings growth in 2024. Why does this matter? The Magnificent Seven currently make up 30% of the S&P 500’s value and accounted for 50% of the index’s gains in 2024. To sustain market growth, the remaining 493 companies will need to contribute more significantly. While the market has reached new highs over the past two years, those gains have been driven by a small group of companies. For context, the only other time such a limited number of stocks dominated performance over a two-year period was during the late-90s dot-com bubble. This narrow market leadership presents a double-edged sword. On one hand, it raises concerns about whether a handful of companies can continue to outperform. On the other, it creates an opportunity for broader market participation, with the rest of the S&P 500 looking more attractive from a valuation and diversification perspective. Periods of concentrated market leadership often lead to increased volatility as investors weigh sticking with what has worked - the Magnificent Seven - versus diversifying to reduce risk. The S&P 500 is currently top-heavy, with its 10 largest companies accounting for 30% of the index. January managed to post gains, but not without some turbulence. We expect market volatility to rise in 2025, compared to the relative calm of the past two years. Last but not Least - Tariffs Additionally, tariffs have recently moved to the forefront. While new tariffs on Mexico and Canada were announced and then delayed by a month, the U.S. moved forward with tariffs on China. The uncertainty surrounding potential tariff impacts adds another layer of market unpredictability. In summary, markets face increasing uncertainty from new AI competition, earnings sensitivity, narrow leadership, and trade policy developments. While diversification may not have been "in style" in recent years, it remains a valuable tool for managing volatility. As always, investors should maintain a long-term perspective and avoid getting caught up in short-term market swings. If you have questions or concerns about your individual situation, please don’t hesitate to contact us.
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