The latest stock market volatility, combined with the Florida school shootings, the daily soap opera in the White House and the crappy weather in the East and Midwest could give even the sunniest of us the late winter blues.
Fortunately there’s hope. The U.S. overachieved its way to Winter Olympic medals in our non-core sports such as curling, bobsledding, luge and cross-country skiing. We dodged another interest rate hike and the equity markets showed resilience once again in what many pundits assured us was the start of the Long, Long, Long Overdue Correction.
Our client, Matt Topley, chief investment officer of Valley Forge, Pennsylvania-based Fortis Wealth and author of the popular View from the Top blog, said there are a number of simple reasons why the recent market volatility is not a bear market in the making:
1. If we were moving into a truly defensive market, Topley said we would be seeing rotation out of aggressive sectors like technology and consumer discretionary and into defensive sectors like utilities and consumer staples. As you can see below, during the recent 10-percent market pullback, the (risk-on) tech and consumer discretionary sectors went down the least.
2. “Yes, we’re in the later innings of a long bull market,” said Topley, “but the stock market is driven by earnings growth and 80-percent of S&P companies are beating their revenue estimates—even without the tax cut.”
3. Wage growth peaked at 4 percent leading up to the last three recessions—it’s barely growing at 3 percent today, observed Topley.
4. Another fear driver during this selloff has been a flattening yield curve—a situation in which long-term debt is not yielding much more than short-term debt of the same credit quality. But, Topley said equities tend to do well leading up to a flattening or inverted yield curve. “An inverted yield curve—when short-term debt is yielding more than long-term debt–is one of our firm’s five key recession indicators, but we are not in the danger zone yet,” said Topley.
5. There was absolutely no retail investor panic during the latest correction. In fact, the average American was buying stock during the recent market pullback. The “buy the dip” mentality is still intact, said Topley. “For a true bear market to ensue, retail investors have to throw in towel and sell in volume.”
Last week’s stock market volatility has caused many to wonder if the real estate market has also hit its near-term peak. Randy Hubschmidt, who manages Fortis’s Real Estate Fund, said many investors have asked him if it’s time to take some chips off the table and diversify into other sectors of the real estate market.
“Multifamily housing should remain strong as new tax laws make single family ownership less attractive and as downsizing Boomers migrate to urban markets vacated by Millennials who are finally settling down, starting families and moving to the Burbs,” said Hubschmidt. “There is still plenty of upside left for properties that can be upgraded quickly and cost effectively and can be repositioned in the market.”
Rays of hope on the tax reform front
While nearly half of you (45%) told us in our unscientific reader poll that you were dissatisfied with the Trump tax reform package, there are still some less known provisions that should cheer up taxpayers from Red states to Blue states.
Our client, Blake Christian, CPA, of HCVT in Long Beach California shared this sampler from a recent interview in US News & World Report:
• 529’s plans can now be used for K-12 educational expenses (not just for college) to the tune of $10,000 per year.
• For 2018, the Child Tax Credit (CTC) doubles to $2,000 per qualified child from $1,000. In addition, now up to $1,400 of the CTC for each child is potentially refundable, explained Christian, even if the taxpayer has a tax liability less than the credit amounts. “For the 2018 year, taxpayers may also be eligible for up to $500 per non-child dependent.”
• The American Opportunity Credit of $2,500 per year is now available for couples earning less than $180,000 per year who are financing an undergraduate’s education.
• Achieving A Better Life (ABLE) accounts are designed for families with dependents who experienced disabilities prior to turning 26. Christian said that in such cases “the ABLE accounts allow family and friends to fund up to $15,000, up $1,000 from 2017, annually and these funds grow tax free and are also excluded (up to $100,000) from impacting various federal and state benefit programs.”
AI is NOT taking over everyone’s jobs
Our client Anthony Glomski, founder of Los Angeles-based AG Asset Advisory and author of the new book, Liquidity & You, said non-linear thinking has always been an asset in business. “Thinking globally and the box,” or “seeing the big picture” are clichés rooted in truth. As we enter the era of automated automation, these abilities are the key advantage we’ll (presumably) maintain over exponentially learning machines.” Technical expertise will become obsolete more quickly and it is still unclear how this plays out for workers and businesses; and on what timeline. “It seems likely, however, that opportunities and success will follow for individuals and enterprises that can best perceive, anticipate, strategize, and adapt,” added Glomski.
As my dad always reminded me, things are never as good as they seem when you’re on a roll and they’re never really as bad as they seem when you’re down in the dumps. As always, the truth lies somewhere in the middle. Be smart. Trust your instincts and keep your eyes focused on the big picture that lies ahead. As my boyhood basketball idol, Charles Barkley, famously said, ”Sometimes that light at the end of the tunnel is actually a train.”
Let’s hope the powers that be who are guiding our government, financial markets and economy have their eyes wide open as they lead us into the future.
TAGS, Anthony Glomski, Blake Christian, Charles Barkley, Matt Topley, Randy Hubschmidt