November Market Update
November Market Update:
We just finished our midterm election, which always has an impact on the market.
Let’s just kind of do like a overall big picture market update.
The third quarter earnings report showed that overall earnings are still holding up, although still blustered by certain sectors. This is why it’s important to not just sector diversification, but the agility to move between sectors.
For example, tech stocks are probably taking the biggest hit this year and we see that with earnings as they’re pulling back. However, most growth portfolios hold a lot of tech stocks.
Our growth strategies, however, have agility which means our portfolio managers can adjust and now have more industrial and energy exposure in their growth portfolios, not just the tech stocks.
If you have a portfolio made up of all pooled strategies, mutual funds, and ETFs, they can’t really be that agile like that. If you have a growth ETF, its prospectus determines what they must hold, no matter how good the manager is, he can’t deviate from that.
That shows me that there’s not a lot of agility, no one is watching what’s happening.
It’s really important to have diversity among the sectors, but it is also important to have agility to be able to move to the strength and away from the weakness.
In the last month, we had another rate hike and there is another one scheduled to come in December.
The markets have already priced these rate hikes as they have been announced earlier this year which means we haven’t saw as much of an impact when they happen, however, if December is a lot higher, or a lot lower than the 75 basis points they said, then you could see more movement in the market.
So, this is not a political talk, but the midterms do play an effect on the market.
Historic data shows a Republican led house has been one of the best performing times for the market.
Interestingly enough, after most midterm elections, there is a positive next 12-month period in the market.
For example, you see articles that there is no red wave, however, Trump endorsed 219 candidates, and 93% of them have won. So, there is some switch of power to the Republican Party that we’re seeing which historically is good for the stock market, regardless of what side of the fence you are on politically.
Silver Linings – Valuations and Tax Planning
This market has created some opportunities where the valuations are coming in and we are seeing companies that were selling at a premium before are now selling at a discount.
This means opportunity for portfolio managers because they’re able to buy companies at a discount. Again, an opportunity for portfolio managers who can be agile, not so much for those in pooled strategies such as mutual funds.
This is an even greater opportunity when you have money in a nonqualified account, not an IRA or ROTH, because you can do a lot of tax planning right now in the form of tax swaps or tax harvesting. This is when you sell some things that are down that at a loss that you can offset, gains or future gains from other positions while buying strong companies that are now selling at a discount.
So if you have any questions and want to review how your portfolio is structured, then let’s talk!
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