Why Bull And Bear Market Talk Is B.S.

/

This is officially the longest bull market in history. Or so I am told.

According to CNBC, this bull market run is 3,455 days old. It began in March of 2009 and has eclipsed the previous record run from 1990-2000. A bull market is a period in which stock prices rise without experiencing a -20% or more decline.

The thing is, who cares?

Bull and bear markets are irrelevant. The terms mean nothing. Investor Joseph Fahmy sums this up well:

(source: twitter.com/jfahmy)

I could not agree with him more. I understand why so many people talk about bull markets and bear markets. We are conditioned to think about investing in those terms because the financial media fascinates about them.

And in fairness I can see why. It keeps it simple and we like simple.

Bull market = Good
Bear market = Bad

We typically like things explained in black-or-white terms. So we use bull vs. bear markets as a primary way of judging the overall stock market because it requires little time or thought.

The problem is, it provides no value. The market is anything but simple and the notion of debating whether the bull market will end is largely emotional. Investing should be process-based and as emotionless as possible. I cannot imagine someone basing their investment decisions on whether they think we're in a bull market or a bear market. 

If someone asks me how long I think the bull market will continue here is what I say: The overall U.S. market remains in a rising trend, which to me, started back in the summer of 2016. When I say rising trend I mean the price trend of the S&P 500 index. It is based on the various timeframes we analyze. Until that rising price trend is broken, the benefit of the doubt goes to the market's ascent.

I will leave the bull market/bear market mumbo jumbo to others and instead continue to focus on the price movement of the stocks that comprise the overall U.S. market. To anyone who manages money, I would recommend they do the same.

In The Market...

The S&P 500 gained +0.9% last week. Let's look under the hood:

(price data via stockcharts.com)

The S&P is sitting at a new record high. The growth sectors all finished in the green while the dividend-heavy sectors (Real Estate, Utilities and Consumer Staples) were the lone losers. I found it interesting that bonds rallied (interest rates lower) amid the rise in growth stocks. But oh well.

We are fully invested across all of our portfolios and continue to be weighted toward Technology, which continues to lead the overall market higher. The Tech sector jumped to a record high as well and remains the healthiest looking sector out there.

If the market can continue to rise into September it may set up for a very nice end to the year. Seasonally speaking, the fourth quarter is the strongest. There is nothing more bullish than new price-highs and we are seeing them across many stock names.

In Our Portfolios...

What's New With Us?

It was a weird weather weekend here in Seattle, between the overcast and the haze that is still present from the B.C. fires. I managed to get some yard work done. While the smoke was bad early in the week, by the time most of it cleared on the weekend I'm not sure the air was any worse than it normally is in other major cities. I suppose we must be conditioned to having the cleanest of air.

Have a great week!

Brian E Betz, CFP®
Principal

New Tax Laws Might Influence How You Pay Your Mortgage

/ Percension Wealth Advisors, LLC/

Should you pay off your mortgage early? The new tax laws might warrant it.

If you normally itemize your tax deductions each year, you do so because the sum of those itemizations exceed the standard deduction amount that the IRS otherwise provides as the alternative. For instance, in 2017 the standard deduction was $12,700 for married couples. If you were married and had more than $12,700 in itemized deductions then you itemized. If not, you claimed the standard deduction.

In the tax bill that Congress passed earlier this year, the standard deduction doubles from $12,700 to $24,000 for married couples and $6,350 to $12,000 for single taxpayers. This is effective starting this year. It means fewer taxpayers will itemize their tax deductions.

This is where your mortgage comes in.

For many taxpayers, the biggest deduction is the interest paid on a home loan. For some taxpayers it is the only itemized deduction and has historically exceeded the standard deduction by itself. Now, because that threshold has doubled the tax benefits associated with paying mortgage interest will go away if the total interest paid falls short of the standard deduction amount.

Let's use a couple examples...

Example 1:

  • You are married
  • Your mortgage balance is $500,000
  • Your mortgage rate is 4.25%
  • Therefore, the approximate interest you will pay in the year is ($500,000 x 4.25%) = $21,250

Result: Assuming you have no other itemized deductions, you would take the standard deduction because $24,000 is greater than $21,250.

Example 2:

  • You are single
  • Your mortgage balance is $275,000
  • Your mortgage rate is 4.50%
  • Your total mortgage paid would roughly be: ($275,000 x 4.50%) = $12,375

Result: Assuming you have no other itemized deductions, you would continue to itemize because $12,375 is greater than the new standard deduction amount of $12,000 for single tax filers.

As mentioned, the big assumption in both examples is that there are no other itemized deductions. If there are, such as if you make large charitable contributions, then you will likely continue to itemize.

For the married couple in example 1 above, there is no longer any tax benefit related to holding a mortgage. It is costlier to keep paying interest (in their case, 4.25%) if they have the extra funds to pay off their home loan sooner than the loan term.

There are other variables too. Such as..

  • If you are able to leverage your money – meaning make more on your cash than what you pay in interest – then you may prefer to hold a mortgage and invest your excess cash instead.
  • The tax laws could change again in the coming years and the standard deduction could be reduced.
  • You might not have additional itemized deductions this year, but you could in future years.
  • You might not have the extra funds to increase your mortgage payments in the first place.

The bottom line is, if you own a mortgage and have historically itemized your deductions it is at least worth assessing whether you will continue to itemize in the future. If not, consider a plan that involves paying off your mortgage early.

In The Market...

The S&P 500 gained +1.5% this past week. Let's look under the hood:

(price data via stockcharts.com)

It was a nice week across the board, as nearly every sector was positive. Health Care (XLV) was up +3.0% and is a sector fund that is now owned within most client accounts. Health Care looks like it could be on the cusp of a nice rally in the coming days/weeks. Technology (XLK) had a nice week as well (up +2.3%) and is a sector that we added to some accounts.

It was an encouraging week, but one that followed two-straight weekly declines for the S&P 500 index. Looking more broadly the overall market continues to see-saw. The S&P enters this week nearly -4% below its previous high, which again is the price level we need it to burst through in order for the rally to resume. Right now the market is coming up on six-straight months of stagnation.

On the bond side, long-term Treasuries, Corporate bonds and Preferred Stock were all up more than +1.0%. We added Preferred Stock (PGF) to many accounts and swapped out our Municipal bond fund (PZA) for Preferred Stock within any IRA accounts that owned muni bonds. The tax-free nature of the interest earned on municipal bonds does not make them as conducive to be owned within IRA accounts, which is why we made the swap to a more growth-oriented bond fund in Preferred Stock. As a reminder, given the characteristics of Preferred Stock we treat it as a bond fund for our stock vs. bond allocation needs.

We are back to being nearly 100% invested as a result of these moves.

In Our Portfolios...

What's New With Us?

My family had a nice trip to Utah for the 4th of July. It is nice to be back for a full week as the market nears its historically most volatile time of the year.

Have a great week,

Brian E. Betz, CFP
Principal

The Irony Of "Sell In May And Go Away"

/ Percension Wealth Advisors, LLC/

In light of the holiday weekend I am just going to give a quick market update and then come back next week with a May wrap-up.

With 3 market sessions left in May, the S&P 500 is up +2.9% for the month. It would be the sixth-straight year in which U.S. stocks recorded a positive return in the month of May, barring a big decline in these remaining days. In fact, May has the longest winning streak of any month, which is ironic given the phrase "Sell in May and go away" that was coined in reference to the typically weaker summer months where stocks are more prone to losses. Such has not been the case in recent years.

The S&P 500 gained +0.3% this past week. Let's look under the hood:

(price data via stockcharts.com)

The good news is that the two sectors we own, Technology and Consumer Discretionary, both soundly outperformed the broader market. The Tech sector is just -2% below its record high. If Tech can reclaim that price-point and surge past it then a major rally could be in store. If it fails to reach a new high, as it has struggled to do for much of May (despite solid gains), then I suspect the market as a whole will continue moving sideways.

As for the Consumer Discretionary sector, it is showing nice momentum heading into next week. This is good to see given that we recently added a Discretionary fund (XLY) to many accounts. In the near-term this is the best looking sector, in my opinion.

Last week I mentioned that we would like to add an Energy sector fund (XLE) if prices within that sector pulled back a bit from the recent tear they have been on. Energy stock prices did in fact fall, but the problem is they fell too much. The sector was down -4.6% this past week. I was looking for a slight pullback that would give way to a bigger rally. But when prices fall as violently as they did, it now appears that Energy stocks could be choppy for a bit. Simply put, not the near-term price movement I prefer to invest.

The bond market got some relief as bond prices rallied and the 10-year Treasury yield fell back below 3.0%. We sold our Corporate bond (SPLB) and Treasury bond (SPTL) positions into that rally. While bonds rallied the past few days the longer-term picture still favors interest rates moving higher. We continue to own High-Yield bonds in most accounts.

In Our Portfolios...

What's New With Us?

We are staying in town this holiday weekend. We might go to a Mariners game but other than that I will be relaxing and working around the house. Happy Memorial Day!

Brian E. Betz, CFP®
Principal