Plan and Invest for Impact
Market Update
(all values as of 04.30.2024)

Stock Indices:

Dow Jones 37,815
S&P 500 5,035
Nasdaq 15,657

Bond Sector Yields:

2 Yr Treasury 5.04%
10 Yr Treasury 4.69%
10 Yr Municipal 2.80%
High Yield 7.99%

YTD Market Returns:

Dow Jones 0.34%
S&P 500 5.57%
Nasdaq 4.31%
MSCI-EAFE 1.98%
MSCI-Europe 2.05%
MSCI-Pacific 1.82%
MSCI-Emg Mkt 2.17%
 
US Agg Bond 0.50%
US Corp Bond 0.56%
US Gov’t Bond 0.48%

Commodity Prices:

Gold 2,297
Silver 26.58
Oil (WTI) 81.13

Currencies:

Dollar / Euro 1.07
Dollar / Pound 1.25
Yen / Dollar 156.66
Canadian /Dollar 0.79
 

I recently attended the 2020 Catholic Foundation Investment Forum of North Georgia, but no, I am not Catholic.  As your Investment and Wealth Advisor, it is my job to help you define and reach your goals.  Some of my Clients are Catholic and would like to invest in companies that further Catholic Values.  Others are far more concerned about personal liberty or environmental issues, and still others value family first.  Besides basic Life-event Planning, many of KCG’s Clients are concerned about Leaving a Legacy or Furthering a Cause.  Whatever concern you hold near and dear in your heart, it is becoming more possible all the time, to design investment portfolios that put those values into practice while growing at an acceptable rate or generating needed income.
This may not sound like an appropriate topic for KCG’s Market Commentary and Investment Perspective newsletter, but it is something that we are each going to have to consider and plan for as change is happening at a remarkable pace.  For example, Morningstar now scores stocks and funds for Environmental, Social and Governance criteria, seeking profitable companies making positive contributions to society.  MSCI now has a screening tool that allows you to screen stocks to identify and eliminate companies that invest in tobacco or weapons…or that have a big carbon footprint.
Blackrock CEO Larry Fink is among the world’s most powerful investment managers and Blackrock is the world’s largest asset manager.  Who doesn’t own iShares? (…if not in their personal holdings, perhaps in a 401k or other retirement account.) “We believe that sustainability should be our new standard for investing,” Fink wrote to clients in his annual letter this week. He has announced his intention to remove companies that don’t meet his environmental standards from any of Blackrock’s actively managed funds, and he predicts a new, environmentally friendly S&P index by 2021.  BlackRock does not own enough stock to dictate to CEOs. But between BlackRock, Vanguard Group and State Street the three indexing giants hold roughly a fifth of the S&P 500 through their funds and are often the three biggest shareholders.  Changing the way 20% of actively managed money is put to work will most certainly affect index performance which is what we call “passive investing”.  He is talking about going one step further… using existing assets under management to impact not only active, but also passive indices by taking a lot of money away from those (S&P) index companies that don’t fall in line.  The Wall Street Journal Editorial Board has voiced their concerns, saying, “BlackRock is a fiduciary and as such is legally obligated to act in its clients’ best interest. So what happens if Mr. Fink’s political and climate predictions prove wrong? His clients will pay the price.”
My point is not to take a stand one way or the other, but to point out the need to work with KCG, as your Advisor.  KCG is aware of how fund managers and stock company CEO’s and Board Members are using your money to make the impact they believe in.  Ask yourself…
Do I want to hold existing investments that have changed their Investment Policies?  Do I agree with those policies?
Am I willing to make less profit on my investments in order to further my cause(es) financially?  How much less?  How much of an impact can I make?
Do my children and I share those values?  As my beneficiaries, do I want to consider their priorities as I invest today?
It is possible to invest to accomplish the goals (growth, income, philanthropy) of more than one generation; of more than one sibling; of more than one beneficiary  at one time.  The first step is awareness.  The next step is to start a conversation.  I can help.  I am here to listen.

 

 

 

 

 

 
Financial Markets Experienced a Bountiful Decade

Macro Overview

Financial markets experienced a bountiful decade for stocks and bonds, as a low rate environment fostered by the Federal Reserve and technological advances driven by innovation, catapulted values higher. The 2010 decade was the first decade to avoid a domestic economic recession, with accelerated growth in various sectors including technology, healthcare, and industrials.

A calm in the markets was displaced as tensions in the Middle East spurred concern early in the new year. Global equity, bond, and commodity markets reacted to developments in the region that unleashed a wrath of unease.

International markets advanced in 2019, propelled by low interest rates and a gradual global expansion. Robust gains in global equity markets came about against a backdrop of negative rates in parts of the world, traditionally representative of dismal economic dynamics. Historically low rates during the past decade also incentivized governments and companies worldwide to borrow, boosting growth in expansion and capital investments globally. The Federal Reserve plans to keep rates where they are, with no expected increases or decreases unless inflationary pressures become prevalent. Inflation has been surprisingly contained even with the unemployment rate at a 50-year low along with a gradual economic expansion.

The IRS is providing annual inflation adjustments for over 60 tax provisions, including tax rate schedules, exemptions, and standard deductions. Notable increases affecting many tax payers include the standard deduction for married, filing jointly up to $24,800, and 401k contribution limits up to $19,500 for 2020. The tax code allowing for a $3,000 write off for capital losses, such as on stocks and mutual funds, is an unindexed provision that isn’t changing and hasn’t had an increase since 1977.

The Federal Reserve continued to inject liquidity into the financial markets via buying bonds and actively participating in the repo market at the end of 2019. Many analysts believe that the Fed’s actions have dampened volatility ensued by the recent upheaval in the Middle East. (Sources: IRS, Labor Dept., Federal Reserve, CBO.gov., U.S. Treasury, Tax Policy Center)

 
Inflation Remains Tepid as Fed Remains Accomodative

Median Household Income Rose Modestly Over Decade – Consumer Income

The recent rise in wages is a fundamental benefit to the economy and financial markets as viewed by economists, although the monetary stimulus that helped accelerate markets over the past decade, has been considered artificial by some economists.

Historically low rates for loans to purchase homes and automobiles have enabled prices to rise without significant increases in loan payments. Modest gains in wages over the past decade have been buffered by the low rate environment. Wages, as measured by the Bureau of Labor Statistics, rose 29% from 2010 to 2019, which equates to roughly 2.9% wage growth per year. The 50-year average for inflation as measure by the Consumer Price Index (CPI) is 4%.

Since wages over the past decade have barely kept up with inflation, wage gains have not been as meaningful for workers. Median household income rose from $49,276 in 2010 to $63,688 in 2019. Inflation is a challenge for workers as wages need to keep up and offset higher living expenses. Fortunately, inflation remained tepid during the past decade, offering minimal increases for most expenses. The concern has been that if inflation should pick up, then a modest rise in wages might not offset higher expenses.

Sources: BLS, Dept. of Labor, Federal Reserve Bank of Minneapolis, FRED

 

 

 

Rates Expected To Stay Steady – Global Fixed Income Overview

Fixed income markets are expecting that the Federal Reserve will maintain interest rates steady through 2020, with no anticipated increases or decreases. Performance was positive across all bond sectors in 2019, with yields stabilizing towards the end of the year.

Ending the year at 1.92%, the yield on the 10-year Treasury bond is still the highest yield available among the developed government bond market. Government bond yields in developed economies such as Germany and Japan were still negative at the end of the year.

To shore up liquidity at the end of 2019 to avert a market disruption, as occurred in December 2018, the Fed injected billions of dollars into the repurchase-agreement market, also known as the repo market, and also bought roughly $400 billion of bonds since October 2019. The strategy has been very similar to the Fed’s quantitative easing program enacted during the financial crisis, also known as Q.E.

Sources: Federal Reserve, U.S. Treasury

 

 
The required minimum distribution (RMD) age for IRAs has been raised to 72

The Secure Act – Key Provisions Affecting Retirement & College Savings Plans

Retirement plan legislation passed by Congress effective 2020 includes changes affecting millions of American retirees. The Setting Every Community Up For Retirement Enhancement Act, known as the Secure Act, was signed into law by the president on December 20th.

Inherited IRAs / Stretch IRAs   Rules surrounding the distribution of funds from an Inherited IRA have changed by accelerating the distribution and taxation of Inherited IRA funds going to non-spouses. Those most affected by the new rules are retirees with generous IRA balances intending to leave funds to their children and grandchildren. Also referred to as Stretch IRAs, Inherited IRAs have allowed IRA beneficiaries to stretch distributions and taxes over an extended period of time.

A current rule that will remain the same is allowing a spouse to rollover their deceased spouse’s IRA to a spousal IRA and take Required Minimum Distributions (RMDs) based on their life expectancy. Inherited IRA rules will be modified by the newly imposed rules affecting non-spousal beneficiaries such as children and grandchildren, the most common types of inherited IRA beneficiaries, who will be required to distribute the entire balance within 10 years, rather than “stretching” the distributions out. A challenge for inherited IRA beneficiaries is the tax implication of accelerated distributions over a much shorter time period. Some beneficiaries may also run the risk of falling into a higher tax bracket, especially if they are working.

Traditional IRAs  The 70 1/2 age limit for Traditional IRA contributions has been repealed, meaning that as long as you have earned income from working, you may contribute past age 70 1/2. The repeal is applicable to contributions made for tax year 2020 and thereafter, not for tax year 2019.

RMDs  The required minimum distribution (RMD) age for IRAs has been raised to 72 from 70 1/2. The new RMD age applies to those who turn 70 1/2 after December 31, 2019.

401(k) Plans  Small businesses are encouraged to set up plans for their employees by increasing the cap under which employees are automatically enrolled in a plan at 15% of wages. Part-time employees who work either 1,000 hours annually or have three consecutive years with 500 hours of service are eligible for a 401(k) plan. Annuities will now become an option for employees taking retirement distributions from their 401(k) plan, providing consistent income similar to how pension plans used to decades ago.

529 Plans  Qualified student loans may be repaid with 529 plan assets up to a maximum of $10,000 annually. Parents may also use 529 assets for the birth or adoption of a child, up to $5,000 per year. (Sources: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/SECUREACT)