Stocks Hit A 7-Month Low

/ Percension Wealth Advisors, LLC/

Thanksgiving week was anything but gravy for investors.

It is normally pointless to gauge too much from the holiday-shortened week because the stock market was closed Thursday and only open for three hours on Friday. However, a near-4% loss for the S&P 500 is noteworthy, even if trading volume was weak. (For context, if trading volume is high it usually gives stronger validation to market moves.) But now the S&P 500 index is again negative year-to-date and sitting at the lowest weekly closing price since April.

Take a look at the weekly chart of the S&P 500…

(created in stockcharts.com)

The highlighted section is 2018. You will notice that the market was poised to take off in mid-September, only to reverse course. The picture now looks very different, with stocks essentially having gone nowhere this year.

The fact is, the stock market is weak right now and perhaps weaker than it has been at any previous time in the past two months. The biggest reason is a pretty simple one: Stock prices fell to new lows. This past week’s closing price for the S&P 500 index of 2,633 was lower than the closing price of 2,659 from the week ending Oct. 26th. This is troublesome when looking at the weekly trend of the overall stock market, through the lens of the S&P index.

While a December rally is not out of the question, odds are stocks will continue to be choppy into year-end. Most client accounts continue to hold sizable cash positions. We would love nothing more than to allocate all of that cash, but it has not been prudent to do so in recent weeks. More on our current investment holdings below.

Despite the poor market week, I hope everyone had a relaxing Thanksgiving holiday.

In The Market...

The S&P 500 fell -3.8% last week. Let's look under the hood:

(price data via stockcharts.com)

Another rough week that saw every major stock sector in the red. Technology got hammered (down -6.0%) while Utilities were the best-performing sector despite still being down more than -1.0%.

Perhaps most concerning is that high-yield bonds continue to break down. I believe high-yield bonds provide a nice proxy for the future direction of stock prices, because they represent the middle-ground between stocks and more conservative bonds. The recent price declines within high-yield bonds has had me concerned about stocks for a number of weeks.

The two funds we currently own — Utilities (FXU) and a high-dividend S&P 500 index fund (SPYD) — were only down -1.6% and -2.4%, respectively, last week. These were both relatively better performers than the S&P index, despite still being negative on the week. When you combine that with the fact that we are holding a significant cash position I feel strongly about our current investment allocations. If market conditions improve, Health Care (XLV) is still the area of the market we will look to buy.

If you have any questions, please ask. Sometimes it is hard to boil down the tremendous amount of analysis Josh and I do into a short weekly blog. But know that we are continuously monitoring the market, adhering to our process and ready to buy or sell if conditions warrant doing so. Until market health improves, it is important to keep playing some defense.

In Our Portfolios...

What's New With Us?

I enjoyed a nice Thanksgiving with my family up Whistler, B.C. this past weekend. Other than the fact that there was more rain than snow, it was relaxing few days away. We came back a bit early, in time for us to go cut down our Christmas tree and hang all of our lights for the upcoming holidays.

Have a great week!

Brian E Betz, CFP®
Principal

Thanksgiving Means Tax-Loss Harvesting

/ Percension Wealth Advisors, LLC/

Hi everyone,

It is hard to believe that there are only six weeks left in 2018. With year-end approaching, tax-loss harvesting is something to consider if you own a taxable investment account. Essentially, any non-IRA or 401k account you own. Taxable accounts are those for which you receive a Form 1099 each year.

What is tax-loss harvesting? It is intentionally selling positions at a loss, in order to use those losses to offset other gains you had during the year. It is a very useful strategy toward reducing your tax bill.

Here is how it works from a high level… Suppose back in April that you sold a bunch of company stock that had vested for a nice gain. For simplicity let’s say that is the only investment transaction you have made so far this year. You would be taxed on that capital gain.

Meanwhile, let’s suppose you own other stocks/funds as well. Some of these investments have fallen in value since you acquired them. You can sell some of these positions and apply the resulting loss against the gain from the company stock you sold. This helps reduce or eliminate your capital gains tax burden. If you have multiple taxable accounts, the cumulative gains and losses are netted against each other for taxation purposes.

The bottom line is that if you anticipate owing significant taxes related to investments you own, or if you are holding investments at a gain, let’s talk.

In The Market...

The S&P 500 fell -1.5% last week. Let's look under the hood:

(price data via stockcharts.com)

Most sectors were in the red coming off of the prior week’s gains. I actually felt last week’s -1.5% loss was more constructive than the prior week’s +2.1% gain because after taking a big tumble to start the week, stocks stabilized as the week wore on. I still anticipate that the market will continue to be choppy, much like we saw back in February/March when it took 2-3 months before prices started to rise.

No major portfolio moves last week. We added to our dividend-heavy S&P 500 index fund. For those accounts that own individual stock we logged a gain on United Health Care and a loss on Apple.

In Our Portfolios...

Have a great week - HAPPY THANKSGIVING!

Brian E Betz, CFP®
Principal

Housing Prices Come To A Halt

/ Percension Wealth Advisors, LLC/

Something happened for the first time in a long time… Housing prices fell.

Not everywhere, just on the west coast. Seattle real estate dropped -1.6% and San Francisco homes dipped -0.3% in August, per the latest S&P/Case-Shiller report. Home prices were broadly flat nationwide during the month and are +6.0% higher compared to one year ago.

Here is a city-by-city look:

Despite the monthly loss, Seattle real estate has still appreciated +9.6% annually. Las Vegas remains atop all major cities, up +13.9% year-over-year, while San Francisco moved into the second spot (up +10.6%).

The annual growth rate has slowed just as I predicted a year ago or so. But growth is still growth, even if it is not the double-digit clip that most homeowners have come to expect over the past few years. I believe prices will slow a bit more, especially amid higher mortgage rates. I cannot speak to how loose or rigid the lending standards are compared to the past few years, but two factors working against housing demand are higher rates and a tepid stock market.

In The Market...

The S&P 500 gained +2.1% last week. Let's look under the hood:

(price data via stockcharts.com)

Last week was constructive, though not great. Most sectors rallied, which boosted the S&P 500 back above its 200-day moving average. This is a positive, but only if it sticks. Soon after the S&P eclipsed its 200-day moving average on Wednesday, selling picked up and pushed prices back down a bit.

These types of stalled-rallies are often the result of what many call “overhead supply”, where investors who held throughout a period of losses are looking for the first opportunity to sell their holdings once prices rebound. This amount selling (“supply”) overwhelms the number of investors looking to buy, which results in falling prices.

During strong markets, investors look to buy when prices fall. During weak markets, investors look to sell when prices rise. Is this a “weak” market right now? Tough to say. I tend to think so, but the next few weeks should bring clarity.

I do think the market will eventually resolve itself by moving higher, but right now I think investors remain a little too complacent coming off the October decline. The bet would be that this complacency leads to additional losses, until stocks have reached a truer “bottom” than the one we saw a few weeks ago.

We added a S&P 500 index fund (SPYD) that is weighted in S&P stocks that pay the highest dividends among the index components. We also added to our Utilities fund position (FXU). Health Care remains the top sector that we are looking to add when appropriate.

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®
Principal

The Benefits Of A Roth IRA Conversion

/ Percension Wealth Advisors, LLC/

Hi everyone,

The deadline to complete a Roth IRA conversion is Dec. 31st. Our brief video below explains the benefits converting pre-tax IRA funds to a Roth IRA. Check it out:

In The Market...

The S&P 500 gained +2.5% last week. Let's look under the hood:

(price data via stockcharts.com)

Stocks rebounded last week but the overall picture has not changed, as shown in the below chart of the S&P 500. The price of the S&P index remains below its 200-day moving average (a). There was some improvement in terms of Relative Strength (b), but that momentum indicator remains weak. And lastly, entering this week only 45% of S&P stocks are above their respective 200-day moving averages. This goes without saying given that the S&P as a whole is below its 200-day moving average, but it is worth highlighting because 45% is the lowest/worst ratio in nearly 3 years.

(created in stockcharts.com)

Midterm elections are this week. If you are wondering how those may influence our investment decisions, the answer is that they don’t influence them at all. Much like the 2016 election, we put zero emphasis on election results as it relates to buying and selling stocks and bonds.

We did trim our positions even further last week, in light of recent weakness. We will continue to be patient on the stock side, while bonds continue offering nothing. In fact, we sold our high-yield bond position last week. As a result we own no bond positions at this time.

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®
Principal

Stock Market Correction Or... Something Worse?

/ Percension Wealth Advisors, LLC/

Last week was ugly for stocks. The good news is that the stock market rises over the long run. There is 100 years of history as evidence of that. The bad news is that in the short run there may be more pain in store before that happens. Let’s take a closer look.

The good news…

The S&P 500 index dropped -4.0% last week. Yes, this is bad.

The S&P has fallen in four of the past 5 weeks, down roughly -10.0% from its previous peak set one month ago. Yes, that is even worse.

But it might surprise you to learn that a stiff decline like this is fairly common. Here are similar instances over the past few years where the S&P fell -7.0% or more in the matter of a few weeks. These periods measure from peak-to-trough:

March 2018: -7.8%
Feb. 2018: -12.0%
Jan. 2016: -13.2%
Aug. 2015: -11.2%
Oct 2014: -10.0%
Oct. 2012: -8.3%
May 2012: -10.4%

Including this latest one, that’s 8 times in the past 6 years. So these types of price “corrections” happen more frequently than we might think. Following each of these occurrences, stocks rebounded in full within 3 months. The point is that, more often than not, the market finds its footing and eventually rallies higher, even if it takes a few months to do so.

This is no guarantee that stock prices will rally in a similar fashion again here, but recent history supports it. This is the optimistic view.

The bad news…

All 7 of the prior occurrences where stocks fell happened during a bull market. What if that run is over? What if this time is different?

That question is routinely asked when the stock market becomes choppy. Many expect that another recession is right around the corner. I have contended that another major stock market decline is most likely to occur when investors are collectively complacent, not when so many remain nervous or paranoid. I sense investors are more complacent today than one or two years ago, but complacent enough? I’m not so sure.

Going beyond the emotion and turning to what the data says, the price trends will ideally tell us whether we should believe this time is different and whether we think stock prices will continue heading south.

The first thing we want to do is analyze the long-term price trends. So we look to the monthly chart of the S&P 500. Looking back to the mid-1980s, I see similarities between today and five other years: 1987, 1998, 2000, 2007 and 2015. These are highlighted in the chart below by the vertical dashed lines colored either red or blue. Take a look:

(created in stockcharts.com)

Two things to point out from above:

(1) Of these 5 comparable points in time, twice the market rebounded within months and three times the S&P fell -35%, -50% and -58%, respectively, before rallying again.

(2) Momentum is building, but in a bad way. Meaning, there is growing momentum behind falling stock prices. We use Relative Strength (RSI) as an indicator to gauge this price momentum. It helps legitimize the price trend that we believe is forming.

As of Oct. 26th, the monthly RSI reading for the S&P 500 took a big drop from its recent highs and currently sits at 56.0. If that falls much below 50.0 history suggests that steeper losses are coming (at least based on the past 30 years of market history). Bear in mind that there are still three market days left in October. The final RSI reading at month-end is what matters most.

Looking at shorter timeframes, the weekly and daily price trends are concerning as well. The S&P 500 fell further below its 200-day moving average. Meanwhile, 65% of the stocks that comprise the S&P index are below their respective 200-day moving averages. That is the worst such percentage since Feb. 2016.

Okay, so now what?

Patience and poise.

Our process did a nice job last week. Given everything I said above, we will continue relying on our analysis to limit losses should the market fall further in the weeks ahead. Any portfolio changes are likely to be gradual, not wholesale. Most accounts have a sizable cash balance right now to help buffer against losses. We are not going to rush reinvesting those funds if it looks like the market is going to fall further. Cash is never where we prefer to be, but if it is what is best in order to protect capital, then we will.

Try not overreact to what happens in a given day, week or even month in the near future. The market is likely to remain somewhat volatile, so do not be surprised by big swings both up and down in the coming weeks. Even if the market rallies for a short time, those rallies can reverse quickly and often lead to even bigger losses.

No one wants to earn back losses quicker than I do, but we cannot, and will not, be hasty about it. Unless you plan on taking all of your money out of the market within the next few months, patience usually wins in the long run.

When market conditions do improve, there are three areas I will be looking to buy (as of now): Health Care, Utilities, Technology. I will spare the analysis on those until one-or-more of these come to fruition.

In The Market...

The S&P 500 fell -4.0% last week. Let's look under the hood:

(price data via stockcharts.com)

Another week where there was pain all around. The only exception was if you were invested in Treasury bonds, but that is moot because bonds have had a poor 2018 overall.

Some of the biggest companies reported quarterly earnings last week, including Amazon, Google and Microsoft. All three share prices dropped, despite those companies posting solid-or-better earnings. This shows that when the overall market is falling, it is very tough for a particular company to buck that trend. Apple and Facebook both report this week.

This is around the time that you will see opinions come out of the woodwork about what you should and should not do with your money/investments. By now you should know how I feel about the things that are said or written. My main advice is to be careful about who you take advice from. The last thing to do is become too emotional when the market gets rocky. Give me a call if you want to discuss anything that is on your mind. 

In Our Portfolios...

 

Have a great week!

Brian E Betz, CFP®
Principal

5 Things To Know About 529 College Savings Plans

/ Percension Wealth Advisors, LLC/

Hi everyone,

In this week’s video, we highlight the top 5 things you should know about 529 college savings plans. Take a look:

To learn more, check out the video on our FAQ page of our site, where we expand on the things you should know about 529 plans. 

In The Market...

The S&P 500 was essentially flat last week. Let's look under the hood:

(price data via stockcharts.com)

Stocks looked poised for a nice rebound, rising nicely heading into Wednesday before giving back all of those gains by week’s end. Defensive sectors gained (Consumer Staples, Utilities) while growth-oriented sectors fell (Tech, Consumer Discretionary, Materials).

Normally we might see the bond market rally along with the more defensive sectors, but that was not the case. Why? Simply put, investor demand for long-term bonds has weakened. Weaker demand means falling bond values, which means higher interest rates.

Take a look at this chart I shared back in May, only now in current time. My fear today remains what it was then — short-term interest rates would rise too quickly and eventually eclipse longer-term rates, causing the “yield curve” to invert. This is still very much in play, when looking here at the 10-year Treasury rate (blue line) vs. the 2-year Treasury rate (orange line):

(created in stockcharts.com)

An inverted yield curve is abnormal and unintended. If you lend your money for 10 years you should expect to earn a higher annual interest rate than if you lend it for 2 years.

By my estimation, this is the result of two things working in conjunction. First, the Federal Reserve has accelerated its pace of raising short-term interest rates. Second, although investor demand for long-term bonds has weakened, it has not weakened enough. So while long-term interest rates have also increased over the past 2 years, short-term rates are simply rising quicker, and thus, closing the gap.

Okay, back to stocks…

For now it appears investors are selling any market rallies rather than buying any market dips. This is pretty typical in the days/weeks after a quick market drop like the one we just witnessed. We are remaining patient and being selective about reinvesting back into stocks.

Interestingly, recent market behavior resembles that of Oct. 2014, which also happened to be the last midterm election. In fact, many of today’s statistical measures align with that period of time. I will spare all of those details, but the important takeaway is that if the market continues to channel Oct. 2014 then we would expect the S&P 500 to rally roughly +10% over the next 6 weeks. Will it? Nobody knows for sure. But I thought it was worth highlighting.

Still though, upward price momentum has waned. The S&P 500 continues to hug its 200-day moving average, which is a line-in-the-sand that invites considerable buying/selling activity. We want to see more stock prices above their 200-day moving averages, not less.

Here is a look at the percent of stocks that are above their 200-day moving averages, collectively by sector. Josh tracks and logs this at each week-end. Notice how the percentages have slipped lower since the beginning of the year:

(data source: stockcharts.com)

If this percentage continues to decline, stock prices will likely fall further from here. Simply put, stocks need to hold their 200-day averages. It is a tricky market right now, no doubt.

In Our Portfolios...

 

Have a great week!

Brian E Betz, CFP®
Principal

Market Outlook Coming Off Its Worst Week In 7 Months

/ Percension Wealth Advisors, LLC/

Hi everyone,

I have quite a bit to say about the rough week we just saw in the market. Before I do, take a look at our video explaining how a 401(k) rollover works…

In The Market...

The S&P 500 fell -4.1% last week. Let's look under the hood:

(price data via stockcharts.com)

The above table tells the story. Last week was the worst for stocks in seven months. Just when it looked like a new rally was underway — with the S&P index having risen nicely above its previous record high — investors had the rug pulled out from under them. The S&P is down roughly -6% from that peak, which begs the obvious question:

Now what?

Let’s start by revisiting the chart of the S&P 500 that I shared last week. My inclination seven days ago was that stocks were positioned to bounce coming off the prior week’s decline (see my notes in blue). This does not happen, as evidenced here:

(chart created via stockcharts.com)

The losses were quick and significant (see pink arrow). To the point that the S&P 500 fell to its 200-day moving average, which is that reddish shaded area. The 200-day moving average is a critical level for a lot of investors, including us. It is arguably the best reflection of the long-term price trend of any investment. In this case the S&P 500 index, which we believe most accurately represents the entire U.S. stock market.

It is no coincidence that the S&P finished the week right on top of its 200-day average because of how influential it is to so many investors. It often serves as a battleground statistical price-point between buyers and sellers, resulting in a supply/demand tug-of-war.

When the market is healthy, stock prices often bounce higher after falling to the 200-day moving average. When the market is unhealthy, stock prices can struggle to hold above the 200-day average, often falling considerably below it.

So right now, we want to see stock prices hold that 200-day moving average line. Additional losses could steepen fast if there isn’t a quick rally higher. Here are some of my thoughts, which hopefully provides insight into our process with the market entering this week at such a crucial level…

Near-term market outlook:

  • Best-case scenario right now is that we see stock prices rally back a few percentage points before getting hit with another wave of selling. This is how I thought the market would respond back in February after the S&P fell more than -10%. In that instance the market did exactly that — it rallied back, fell again, and ultimately took 3 months to regain its footing.

  • Worst-case scenario is that the losses are only beginning and that any rally attempts are quickly halted by more investors looking to sell.

Portfolio activity:

  • We selectively sold a couple investment positions last week, in effort to play a little defense. If stocks fall further in the next few weeks, playing defense will hopefully curb those losses. If stocks rally from here then we still have our other current holdings that should benefit from market appreciation.

  • If stocks prove that this past week was just a blip and quickly rally back to new highs, we will reinvest the cash from our recent sales and go back to being fully invested. I doubt this will be the case, but if it is, we will have zero regrets about having played some defense.

Bond market:

  • Normally we would look to the bond market as a potential hedge against stock market weakness. The problem right now is that the bond market is weak. Both short-term and long-term interest rates have been rising, which means bond values are falling. The lone bright spot (relatively speaking) has been high-yield bonds, which we continue to own.

  • In theory it is great to see higher interest rates, but not at the expense of a falling stock market. Rising rates and falling stock prices is a bad combination that we do not want to see because it means investors are pulling their money from both the stock and bond markets.

  • So, for now, rather than pivot and buy bonds, it is more likely we will sit tight in cash until either the stock and/or bond markets improve.

Additional thoughts:

  • We are unlikely to make wholesale portfolio changes. Part of the reason we mostly keep our investment sizes from 10% to 25% of the total portfolio is to give some flexibility when the market looks iffy as it does right now.

  • Most investors think of gains in terms of percentages earned and losses in terms of dollars lost. The larger your account the worse any short-term losses will feel, but stay calm. Focus on the longer-term view beyond the stretch of a few days.

  • I am sure that the media buzz will build in the coming days. What is written or said in the media has no bearing on how we manage money. You should not let it sway you, either.

  • Sometime soon there will be a nice buying opportunity. It could take a bit of time, but eventually it will come.

We are continuously assessing the long-term and short-term health of the market. We will stick to our process and make buying/selling decisions using our best judgment based on the data we employ.

If you have any questions, feel free to ask. Hopefully the above addresses some of the things you might be curious to know at this time.

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®
Principal

How Restricted Stock Is Taxed (RSUs)

/ Percension Wealth Advisors, LLC/

Hi everyone,

This week’s video explains how shares of restricted stock (RSUs) are taxed. If you own RSUs, check out this brief video:

In The Market...

The S&P 500 fell -1.0% last week. Let's look under the hood:

(price data via stockcharts.com)

This week’s losses took the wind out of the sails of a market that appeared ready to extend its all-time highs. The bad news is that many of the leading sectors, including Technology (XLK) and Consumer Discretionary (XLY) under-performed last week. The good news though is that the S&P 500 bounced right where we wanted to see it bounce. Take a look:

(created in stockcharts.com)

This may turn out to be an example of when price “resistance” turns into price “support”. Here is how it works:

  1. The price of a security, in this case the S&P 500, struggles to get above a certain point (“a” above).

  2. Once it eventually surpasses it, what was a price ceiling is now potentially a price floor (“b”).

  3. This floor is now the price where we might expect the security to rebound if it falls back down to it (“c”).

We will have to see how the next few weeks play out before knowing if this comes to fruition or not. But these areas of price support are things we continuously look for whenever the market, or any security we own, becomes volatile.

The bond market, meanwhile, got hit pretty hard last week. Long-term interest rates finished the week at highs not seen since June 2011. This spells more trouble for conservative bonds, like Treasuries, which have experienced a poor 2018.

Rising interest rates are healthy as the economy expands, but has made it more challenging to find invest-able opportunities within the bond market. We reduced our bond positions last week by selling Preferred Stock (PGF). The only bond fund we currently own is a High-Yield fund (SHYG). Relatively speaking, high-yields have held up well amid broader bond market weakness.

In Our Portfolios...

What's New With Us?

 We went to a dinner/auction on Saturday night that benefited the Boys & Girls Club. It was a really enjoyable night — a ton of money was raised for a great cause.

Have a great week!

Brian E Betz, CFP®
Principal

How Restricted Stock Works (RSUs)

/ Percension Wealth Advisors, LLC/

Hi everyone!

We are making some tweaks to this weekly blog post, most notably moving from the written summary to more visual information. One big change will be trying to add a 1-2 minute video that covers a very specific topic.

This week’s video highlights restricted stock units (RSUs), describing what they are, how vesting works and the benefits of owning them. Check it out and let me know what you think!

This does not mean I won’t write about certain topics from time to time. It just depends on the flow of news and market activity.

In addition to these short videos, we have also started posting longer-form videos on topics like this under the “FAQ” link of our site. Take a look at those as well. 

In The Market...

The S&P 500 fell -0.5% last week. Let's look under the hood:

(price data via stockcharts.com)

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®
Principal

Unintended Outcome Of The New Tax Laws

/ Percension Wealth Advisors, LLC/

The number of corporate stock buybacks is reaching peak levels this year.

In the first quarter, S&P 500 companies bought back $189 billion of their own stock from investors. That was the most since 2007. Take a look:

(source: Yardeni Research, Inc.)

The estimate for Q2 is close to nearly $200 billion as well, though preliminary. 2018 is poised to be a banner year when it comes to share repurchases among large corporations.

What is a stock buyback? Simply put, it is when a publicly traded company uses cash to literally buy shares of itself that are owned by investors. It results in fewer shares outstanding, which helps concentrate share ownership and subsequently boost the share price.

Is this a good thing?

It is not good or bad. It just is.

What makes all this newsworthy is how it relates to the recent tax law changes that went into effect this year. The new laws give companies the ability to repatriate, meaning bring back, profits from overseas at a reduced tax rate compared to the previous 35% charge (which was reduced to 21% in the new bill as well). The new laws will only assess a 15% tax on repatriated liquid assets like cash and 8% on non-liquid assets like equipment.

The idea behind the Trump/GOP tax plan was that the reduced tax rate would entice big corporations to bring assets back to the U.S. and invest more domestically. Historically, large companies have been reluctant to bring home foreign profits due to the hefty 35% tax charge for doing so.

What does this have to do with stock buybacks?

Presumably, much of the cash being repatriated is being used for buybacks. I hesitate to say it is being used for buybacks “rather than investing in new U.S. operations” because it is way too early to make that distinction. But the clock is ticking.

President Trump has said that “trillions” (specifically $4 trillion as recently as August) in corporate funds would be brought back to the U.S. as the result of the tax law changes. According to the Wall Street Journal, only $143 billion has been repatriated so far in 2018. Those funds come from 108 publicly traded companies that comprise the bulk of the $2.7 trillion in overseas profits, although two companies — Cisco and Gilead Sciences — comprise a whopping two-thirds of the total amount. It is premature to draw too many conclusions because giants like Apple, which has pledged to bring back a large amount of capital, have yet to do so but very well could.

The elephant in the room is answering the question: Do companies have a responsibility for prioritizing investment over share buybacks with these repatriated funds? No, they do not. Of course there is so much lobbying that is done between powerful companies and powerful politicians that the idea of “owing” anyone anything is a bad rat hole to go down. So that aside, I would argue the companies are not under any obligation to use the funds in a particular way. If they choose to buy back shares of stock, so be it.

In The Market...

The S&P 500 gained +1.1% last week. Let's look under the hood:

(price data via stockcharts.com)

 A nice bounce-back week for the overall market. The S&P is back near its recent record high, while 9 of the 10 stock sectors finished higher on the week. Corporate bonds ticked higher as well, which is good to see.

It has been a pretty quiet couple of weeks with regards to portfolio moves. I feel pretty good about most of our current positions and those that I am becoming lukewarm on are not worthy of selling just yet.

In other news, I want to share an actual article that I saw this past week, courtesy of Bloomberg:

(source: bloomberg.com)

I am not providing the entire article because I myself did not even get past the second paragraph. Some things I just shake my head at in disbelief. This being one of them.

If you believe that cryptocurrencies like Bitcoin are a fad, these are the types of developments that will be looked back at as evidence in the future. The evidence being the sheer over-engineering that is going into finding ways to invest in an ultra-volatile asset class. I would use the word “bubble” but given how much the price has plunged in 2018 that is not really applicable (though for context, the price of Bitcoin is still higher over the past full 12 months).

Look, I have no idea what the future holds for cryptocurrency, and frankly, do not really care. My skepticism largely stems from the disconnect between what Bitcoin was created to do versus how it is actually being used. It was created as a means of completing e-commerce transactions. It is more widely used - or should I say held - as an investment. In my opinion this is problematic. But time will tell.

In Our Portfolios...

What's New With Us?

 I will be out of the office on Friday this week. If you need something urgent on Sept 21st, contact Josh Baird directly.

Have a great week!

Brian E Betz, CFP®
Principal

10 Years Ago This Week...

/ Percension Wealth Advisors, LLC/

It is hard to believe that 10 years ago this week marked the beginning of the global financial crisis.

On Sept. 15, 2008 the financial services firm Lehman Brothers filed for Chapter 11 bankruptcy. It remains the largest bankruptcy in history. At the time, Lehman was the 4th-largest investment bank in the world, with $600 billion in assets and 25,000 employees.

The main culprit was Lehman's exposure to mortgage-backed securities. Mortgage-backed securities are a type of investment where the investor is paid a return based on the reliability that mortgage debt holders will make their house payments. The financial firm (i.e. Lehman) essentially serves as the intermediary, whereby the investor is the one effectively lending the money to the homeowner, in exchange for the interest payments the homeowner makes against their mortgage.

Seems harmless enough, right?

As housing values rose in the 2000s, lending standards loosened. Prospective home owners with poor credit started being approved for mortgage amounts they could not afford. These riskier loans were dubbed "subprime" due to the higher default risk. Problems arose as mortgage-backed securities extended more and more to these subprime loans. It was a recipe for disaster.

Sure enough, just as the housing market cooled and unemployment spiked in late-2007, homeowners started missing their mortgage payments. Delinquencies led to loan defaults. A domino effect ensued, causing mortgage-backed securities to plunge in value. This led to the demise of many large financial firms, and ultimately, a collapse in the U.S. stock market.

It took nearly 5 years for the market to fully recover to where it had peaked in 2007. Since that recovery point in Aug. 2012, stocks have mostly continued to climb higher, although there have been some notable drops in the Summer of 2015 and early-2018. History suggests we are closer to the next recession than the last, but it will likely be a while given that stock prices remain near all-time highs.

In The Market...

The S&P 500 fell -1.0% last week. Let's look under the hood:

(price data via stockcharts.com)

It was a crummy week. In fact, it was the worst since June. But I suppose if a one-percent down week is the current definition of "crummy" then in the broader context things are pretty good. Both stocks and bonds were broadly down. Our Technology position got dinged pretty good, although our Utilities position was up more than +1.0%.

The losses in the bond market are noteworthy, mostly due to how quiet bonds have been the past few months. Something to watch in the coming weeks.

In Our Portfolios...

What's New With Us?

I watched the Seahawks lose a frustrating game, in between a lot of yard clean-up. A pretty uneventful weekend for me, but it is nice to have football back.

Have a great week!

Brian E Betz, CFP®
Principal

Seattle Housing Streak Comes To An End

/ Percension Wealth Advisors, LLC/

Seattle's run is finally over.

For the past few years Seattle real estate has consistently ranked #1 in terms of annual price growth. That remarkable run ended when Las Vegas knocked Seattle from its perch in the latest S&P/Case-Shiller housing report. Homes in Vegas rose +13.0% year-over-year, compared to the +12.8% growth in the now second-ranked Seattle. San Francisco sits in third, up +10.7%.

On average, home values increased +6.0% in the past year nationwide, including +0.8% in the most recent month reported (June). Here is a full city-by-city look at the housing data:

Real estate continues to chug along, although the market here in Seattle does not seem as hot as one year ago. There are fewer homes for sale and those that are seem to be on the market longer than in 2017 and 2016. If we fast-forward one year I would anticipate we will see home values settle in to a +5% or so growth rate. So, slightly lower than what we see today.

In other news... here is something I never thought I'd see...

The ride-sharing service Lyft is reportedly preparing to go public in 2019, ahead of its rival, Uber. This seems crazy. Uber has become brand-synonymous, like Kleenex is to facial tissue. Uber has become a verb, like "Googling" has replaced "searching". Uber is much larger, both in terms of revenue and market share. Uber's most recent capital raise from Aug. 2018 valued the business at $71 billion. Lyft's most recent capital raise from June 2018 valued its business at $14.5 billion.

For Lyft to IPO before Uber it must be betting that it will continue to eat into Uber's market share in the coming years. Uber has had a slew of problems in recent years, which has opened the door for Lyft to carve out a bigger slice of the market. Whether Uber's problems have delayed its own IPO process is unknown. I believe so.

While most focus on Uber vs. Lyft, I have long contended that Amazon remains the biggest threat to both companies. I am not sure if Amazon will ever decide to enter the ride-sharing market, but if it does it would mean serious problems for both Uber and Lyft.

In The Market...

The S&P 500 gained +1.0% last week. Let's look under the hood:

(price data via stockcharts.com)

So much for seasonality? The S&P climbed higher for the third-straight week and fifth-straight month, rising +3.2% in August. The ascent to new all-time highs ran counter to the poor seasonality typically associated with August. Most sectors were positive this past week, which was a quintessential "risk-on" week with the growth sectors leading the way and the more conservative ones lagging.

Looking ahead, stocks appear primed to rally. Here are 3 reasons why:

  • The new record high for the S&P 500 is bullish because, well, new highs are bullish.
  • Market strength is well distributed across all 10 sectors, as 70% of the 500 companies in the index have prices above their respective 200-day moving averages. This is a very important metric to us. The ratio is 10% higher (69% vs. 58%) compared to the number of stocks that traded above their 200-day moving averages back when this rally started in April.
  • We are quickly approaching the fourth quarter, which is seasonally the strongest period of the market year. Given the contrary nature of how August just behaved this reason may seem less valid, but historically Oct/Nov/Dec. sees the best gains for stocks.

Of course, nothing is guaranteed so we will see. But right now the outlook is pretty good.

In Our Portfolios...

What's New With Us?

We stayed around Seattle this past weekend. We went to a bbq and took our daughter to the zoo. I did some work around the house, which included 4 or 5 hours fixing an issue with our refrigerator. The good news is I think I fixed it.

Have a great week!

Brian E Betz, CFP®
Principal

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

Say Goodbye To Quarterly Earnings?

/ Percension Wealth Advisors, LLC/

I recently heard an idea that I kind of like.

In a meeting with President Trump, Pepsi Co. CEO Indra Nooyi proposed that publicly-traded companies move from reporting earnings results each quarter to announcing them just twice per-year.

I had never really considered this, but it makes some sense. Earnings season is important for the simple fact that it is a corporation's duty to inform investors of what is going on -- both good and bad. Shareholders who invest in these companies have the right to know.

But do we need to be updated every three months?

Reducing the number of times companies release results will drive down corporate costs. More importantly, it will allow companies to focus more time on conducting business and less time on crafting an earnings call narrative to explain their latest results and future projections.

Besides, certain performance measures that used to carry meaning seem to matter less each year. For example, investors have grown to ignore whether a business meets, exceeds or falls short of analyst estimates. They want to know what lies ahead more than what happened. Investors care more about whether a business sees its sales numbers increasing in the future than they do about whether the business met its sales expectations for the prior quarter.

To that end, earnings announcements always seem to boil down to a few key insights:

  1. Will sales increase or decrease in the upcoming year?
  2. Are you expanding your market share via customers, users, regions, etc.?
  3. Are they any major announcements? Such as shutting down a product line or delving into a new market.
  4. How have certain business development decisions performed? For instance, if the business recently acquired another company, how has the acquisition worked out so far?

Earnings calls contain a lot of excess noise. In reality, investors usually react to a couple key nuggets of data.

One of the chief arguments in favor of moving to a bi-annual earnings calendar is that it will lessen the volatility that stock prices endure around the time they release results. I am not so sure. It might only displace that volatility by increasing the amount of price movement that occurs around those two earnings announcements.

Without knowing more, I think I would be in favor of this change. We will see how it develops in the coming months.

In The Market...

The S&P 500 gained +0.7% last week. Let's look under the hood:

(price data via stockcharts.com)

It took 8 months but the stock market finally reached new highs. When including dividends, the S&P 500 eclipsed the weekly closing high from January. Take a look:

(chart created in stockcharts.com)

Time will tell whether this holds and stock prices break through to higher levels. It is important to emphasize that these highs are on a dividend-inclusive basis. Excluding dividends, the S&P still has a bit of work left. However, we typically like to include dividends when showing the S&P 500 because dividends are part of an investor's returns. Market momentum is pretty good heading into this week, which means we could see further highs sooner than later. Technology, Health Care and Utilities look to be the healthiest sectors.

Most sectors were positive last week. The dividend-paying sectors -- Utilities, Consumer Staples and Real Estate -- were the big winners. Energy was the only real loser, falling -3.6%.

Bond values gained as well (rates lower) as it appears the bond market has stabilized in the past few weeks. We might even get a run of lower interest rates in the near future. That would be good news for bond investors and is something we are keeping an eye on, although our bond allocations are already fully invested in Preferred Stock (PGF), High-Yield bonds (SHYG) and Municipal bonds (PZA). A potential move would be to sell one of these positions and invest in either Investment Grade bonds or Treasury bonds. 

In Our Portfolios...

What's New With Us?

I am thrilled to share that Josh Baird passed his Series 65 exam last week! It is a great accomplishment and will bolster his ability to contribute even more to our firm. Josh has been an excellent addition to our team in the short months he has been here.

Have a great week,

Brian E. Betz, CFP®
Principal

The Misconception About Gold

/ Percension Wealth Advisors, LLC/

Every so often someone asks me about gold and whether they should own it. Here is a look at the price of gold over the past 10 years:

(chart created in stockcharts.com)

You will notice a big run-up in the price of gold post-recession, from 2008 to 2011. Then the price fell -40% over the following years and has floundered around since then. Beyond the fact that we do not invest in currencies or precious metals (at least yet), gold lacks the one thing that matters most to us, which is a rising trend. The price of gold has been a mess for nearly 7 years.

So then why do people want gold?

Many consider gold to be a hedge against inflation. As prices rise throughout the economy (inflation) the theory is that the U.S. dollar becomes less valuable. If the dollar is less valuable, that means it requires more dollars to buy the same goods and services than it did in the past. This is what it means to lose "purchasing power".

This is where gold comes in.

The perception is that buying gold hedges against this risk that the dollar will become less valuable. Because gold is a hard asset and the oldest form of currency, it is believed to have a more stable value than the dollar, which fluctuates based on a variety of factors like stock market conditions, international trade and Federal Reserve actions. Using this logic, the "hedge" is that when the prices of all these other things in the economy eventually peak and reverse lower, gold will thrive.

In reality, it is really just a hedge against how we think others will react in times of economic fear.

The fear starts with feeling that real estate values and stock market prices will fall (for whatever reason). This stems to fear that the economy will fall into recession. Finally, because the U.S. Dollar is intrinsically linked to the economy, there is fear that the dollar will collapse. This all leads to the notion that buying gold might be a good idea because if the dollar dissolves the nation will be left with gold as its currency.

That entire thought process is flawed because the reality is that gold is an asset, not a currency. No one buys gold with the intent of transacting goods and services. They buy it because they think it will become more valuable should everything else they own plummet in value. The entire essence of thinking something will rise in value is based on believing that someone else will want it and be willing to pay you more for it. To that end, those who own gold are doing so as an investment, not as a means for bartering the exchange of goods and services.

If you consider buying gold at any point, ask yourself why...

  • Because you can touch/feel it? There are many physical assets you can hold that may or may not rise in value, from antiques to baseball cards to classic cars.
  • Because someone on TV said to buy it? By now I hope you know how we feel about taking advice from the financial media.
  • Because you will earn an immediate return on it? Actually, no you won't. Gold does not pay a dividend like a stock and it cannot be rented out for income like a house can.
  • Because you already own a lot of stocks? I would be willing to bet you lunch that if we looked at the distribution of your assets that there is probably something you do not own that is as good as, or better than, gold as a long-term investment.

I realize I sound somewhat negative when it comes to gold, but I am more so annoyed about the misconceptions that exist.

In The Market...

The S&P 500 lost -0.2% this past week. Let's look under the hood:

(price data via stockcharts.com)

Last week's loss snaps the 5-week winning streak for the S&P 500, which had gained +4.6% over that span. Most sectors were negative as the overall market struggles to eclipse the previous S&P 500 record high from January.

This comes as no surprise. I felt the market would run into some headwinds right now, as I wrote about in recent weeks. We sold our Health Care sector position (XLV) last week, as it appeared to be sharing in the struggle to get above its previous peak. Take a look:

(chart created in stockcharts.com)

The risk/reward slanted in the favor of selling this fund and capturing the nice gain we had earned in the prior weeks. The price ran back up to the previous high just as we anticipated it might. But it appeared to lose a bit of momentum when it got there, so we felt it was wise to sell and reinvest the proceeds into another area of the market that might have more upside. I normally do not go into too much detail recapping these types of decisions, but because most accounts owned this Health Care fund it is worthwhile to share our thought process.

In Our Portfolios...

What's New With Us?

I posted another short video on our "Video Q&A" page, which discusses our investment beliefs. Take a look:

Have a great week!

Brian E Betz, CFP®
Principal

The First Company To Reach $1 Trillion In Value Is...

/ Percension Wealth Advisors, LLC/

There were so many interesting stories and reports that popped up this past week that I am going to quickly share them all.

Apple hits $1 trillion. Following its quarterly earnings release, Apple became the first company to reach a $1 trillion valuation. This is based on its market capitalization, which is the share price multiplied by the number of shares outstanding. Amazon is the next-largest company, but still sits roughly $100 billion behind Apple, followed by Google ($850 billion) and Microsoft ($830b).

Man rigs McDonalds Monopoly game. An absolutely crazy story about a guy who rigged the McDonalds Monopoly contest back in the 1990s. It is a long article, but if you have 30 minutes it is worth reading. Not soon after this came out, Ben Affleck and Matt Damon announced they will turn it into a movie.

Another solid month for housing. Homes rose by +6.5% on average across the country in May. Seattle maintained its lead on the rest of the country, with prices rising +2.2% during the month and +13.6% in the past year. Las Vegas (up +12.6%) and San Francisco (up +10.9%) held on to the second and third spots. Here is a complete city-by-city look:

What the heck is "blockchain"? Have you been wondering what "blockchain" means and is all about? Here is a good explanation, in basic language.

Capital gains tax change? The Treasury Department is weighing a change to capital gains taxes that would radically alter how investors calculate long-term capital gains. The proposal involves allowing investors to increase their cost-basis by adjusting it for inflation.

Here is roughly how it would work. So let's suppose you invest in something today for $100,000 and sell it in 6 years for $250,000. The capital gain would be:

($250,000 - $100,000) = $150,000 capital gain

Under the proposed change, the "cost-basis" (essentially the purchase price) is adjusted higher for inflation. Let's say inflation is 3% per-year. Your cost basis would increase from $100,000 to roughly $120,000. This reduces your capital gain by $20,000. So, instead of owing taxes on $150,000, you would owe taxes on $130,000.

More bad news for Wells Fargo. Following up on what I wrote a couple weeks ago, more and more details are coming out about the bad business practices that have occurred at Wells in the past decade.

Federal Reserve says "no change". The Fed decided to hold its target lending rate, the Federal Funds Rate, at 1.75% following its most recent committee meeting. It is likely the Fed will raise rates once more before the end of the year, pending stock market behavior.

The Fed Funds rate is the benchmark that banks use to lend more to one another and it is ultimately the rate that trickles down to consumer banks that you and I use when investing into short-term CDs or money market funds.

Unemployment back below 4.0%. The unemployment rate improved to 3.9% in July as +157,000 hires were made during the month. Unemployment remains right near the previous lows from 2000. Take a look...

In The Market...

The S&P 500 gained +0.8% this past week. Let's look under the hood:

(price data via stockcharts.com)

The S&P index rose for the 5th-straight week, while most sectors finished in the green. Real Estate made a big move, rising more than +3.0%, while Energy was the main loser, down -1.8%. Both of our sector positions performed nicely, with Health Care (XLV) rising another +2.1% and Technology (XLK) rebounding +1.2%.

July gains: The S&P climbed +3.7% in July, marking the 4th-straight monthly gain. Health Care (XLV) was the biggest winner, up +6.6%, while Tech (XLK) gained a little more than +2%. Including the early-August gains, the S&P 500 is still -1.0% below the previous high.

No-cost funds? Fidelity announced it will be rolling out some no-cost index exchange-traded funds (ETFs) in the near future. Fund creators are steadily lowering their fees as there is more and more competition. This move by Fidelity to a zero-fee fund is indicative of that.

ETFs are quickly replacing more traditional mutual funds, due to their reduced costs and greater tax efficiency. Mutual fund providers historically charged anywhere between 1% and 3% to investors for the ability to invest in their funds. Those costs have been driven down as ETF competition has provided largely the same level of performance at a fraction of the cost. Eventually, mutual funds will be very niche and few in number.

For context, we use ETFs that are either very low-cost to own, or, relatively low cost but carry no costs to buy and sell. I am happy to share more if you are interested.

In Our Portfolios...

What's New With Us?

I spent much of the weekend trying to locate and destroy a yellow jacket nest that is forming near the ground next to our house. I have learned more about bees in the past 72 hours than I ever cared to know. If anyone has a tip, I'm all ears. So far I have won a couple battles, but the bees are ultimately winning this war.

Have a great week,

Brian E. Betz, CFP®
Principal

Stock Market Finds It Tough To Stay On Top

/ Percension Wealth Advisors, LLC/

We went from an uneventful week to one of the more memorable weeks of 2018.

The broad stock market has played out pretty much as I thought it might. The S&P 500 continued its ascent back up to its previous record high from late-January, only to reverse course and go backward Thursday and Friday. The area highlighted in the below chart shows how the S&P 500 got stuffed as it ran back up to that previous high:

(chart created via stockcharts.com)

It took six months but the S&P finally made it back to the peak. I figured it would have trouble staying on top if/when the S&P 500 flirted with that previous high and so far that has been the case. My reasoning was pretty simple: If investors were looking to sell the last time stock prices reached this point then they are likely to do so again. The question now becomes whether more losses are to come before the index potentially rallies to fresh highs. I suspect that stocks will be choppy in the next few weeks. It is too early to say how the market resolves itself from there.

We are in the midst of what has historically been the worst market stretch of the year. In fact, dating back to 1970, August is the only month in which the S&P 500 has registered a negative average return (down an average -0.6%). Even if you remove the particularly awful years of 2002 and 2008, where the S&P was down -11% and 9%, August still has a negative average return dating back those 50 years.

So we will see what happens as we roll into August. More on the market below.

In The Market...

The S&P 500 gained +0.6% this past week. Let's look under the hood:

(price data via stockcharts.com)

It sure does not feel like the broad market moved higher last week, considering how things ended. But it was a good week in the sense that the S&P index finished in the green. It was a tough week in that Technology -- which is one of our holdings and has been leading the market higher over the past two years -- was down -1.0%. Seven of the 10 stock sectors finished positive, despite the broad market losses to end the week.

We sold our Materials sector fund (XLB). That sector did not materialize as we thought when we bought it nearly two months ago. The price has been below its 200-day moving average, which is bad, among other price factors we do not like to see. We ultimately took a small loss on that position. The cash proceeds from that sale may be invested into the aforementioned Tech fund (XLK) for those accounts that do not already own it.

You will notice below that we purchased shares of Facebook (FB) for accounts that own individual stock. You may be aware that the Facebook share price fell roughly -20% following its quarterly earnings release. We bought Facebook after it announced earnings. Facebook had been on our radar for some time. The price drop is no doubt concerning for the long run, but in the near term it seems like an exaggerated loss. We will see if our opinion pays off.

In Our Portfolios...

What's New With Us?

I would encourage you to visit our Video Q&A web page. We will be posting short (2-3 minute) videos that answer many of the questions we routinely get. Here is one we recently put up about whether it makes sense to rollover your 401k to an IRA.

Have a great week,

Brian E. Betz, CFP®
Principal

Wells Fargo Tries To Reinvent Itself With Technology

/ Percension Wealth Advisors, LLC/

As you may know, it has been a rough couple of years for Wells Fargo.

From opening millions of fake customer accounts to pushing sketchy investment products to charging customers for auto insurance they did not need, it has been one unethical move after another. Now, the big bank is undergoing a massive change in light of its shake-up.

Wells Fargo is phasing out human investment advisers in favor of an automated approach that slots client funds into what are effectively non-managed portfolio models. From what I gather this is the Wells iteration of a "robo" advisory service, similar to what the more pure robo-advisers like Wealthfront or Betterment offer.

I am no fan of these robo-advisers, although I do see the purpose they will serve in the future once many of the kinks are ironed out. Right now the robo-approach is a flawed first-generation technology. But as the technology improves it will become a sound option for small investors who have previously been without a good solution.

I do not think there is anything wrong with this shift that Wells Fargo is making away from human advisers (here is the full story). I think it does highlight three things though:

  1. It signals the direction where big firms are headed. It is becoming increasingly difficult for large investment firms to provide better and better value to clients over time, due to increased industry competition, particularly those companies that are saving money by replacing headcount with technology.
  2. It reiterates how vital it is that we as advisers are actually advising and managing portfolios, rather than sitting back and collecting a check or commission payment.
  3. It reinforces the need to conduct financial planning. Robotics will have a very difficult time comprehending and reacting to the human emotion that goes into personal finance. Part of the reason we focus so heavily on behavior is to limit the negative influences that emotions can have on your money decisions.

We manage client portfolios on a daily basis. If the market is open we are evaluating it, even though most of the time it does not result in any specific action. We are always available to help you plan, whether that means assisting you with a one-off financial matter or digging into a comprehensive plan.

In The Market...

The S&P 500 was essentially flat this past week. Let's look under the hood:

(price data via stockcharts.com)

Technically the S&P index gained +0.07% last week, but we will call it flat. It was kind of a weird week ahead of quarterly earnings announcements that are looming from the likes of Google, Amazon, Facebook, etc.

We are closing in on what has historically been the weakest time of the year for the stock market. Last year was pretty kind, as the S&P 500 fell only -2.0% before continuing its rally. The two years prior, 2015 and 2016 were much bumpier rides. For now though there is not much to update based on last week, but again, earnings announcements will change that soon.

In Our Portfolios...

What's New With Us?

We have been creating short informational videos on various investment and financial planning concepts. They will be available here on the site as we publish them. Here is one in which we explain everything you need to know about Restricted Stock ("RSUs").

Have a great week,

Brian E. Betz, CFP®
Principal

Stocks Hit A Six-Month High

/ Percension Wealth Advisors, LLC/

I saw something for the first time the other morning.

Before walking into the office I decided to grab a coffee at the Starbucks one block down from our building. There was only one problem...

The Starbucks was gone.

I was stunned to see the trademark green and white decor replaced with boarded-up windows. I cannot remember a Starbucks store closing, although they obviously have. As you could expect, there are two other Starbucks locations that are equidistant from our office, so all was good. But still, I was surprised.

I find this ironic considering that consumer confidence is back to levels not seen since the 1990s. I am sure the store closure is more of a one-off thing, but nonetheless found it pretty funny considering you always see new Starbucks locations popping up, not shutting down. After all, there are more than 28,000 Starbucks shops worldwide.

While we're talking retail, Amazon "Prime Day" starts today. There should be a frenzy of buying as Amazon unveils massive discounts over the next week.

In The Market...

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

(price data via stockcharts.com)

Eight of the 10 stock sectors were higher, with 7 of them rising more than +1.0% on the week. This was the second-straight weekly gain for the S&P 500, which finished the week at its highest close since Jan 31st. The index is now just 2.5% below its all-time high set back in January, as shown here:

(chart created in stockcharts.com)

The edge goes to the market moving higher in the long-term. But as I have said for weeks, while I suspect that the S&P will run back up to its previous January high, it is likely to be met with a wave of selling when it does. I would be pleasantly surprised if stocks burst through that previous high and take off much higher without resistance from sellers. I believe it will take a few weeks for that to shake out before the long-term rally actually can resume.

A number of you have asked me about individual stocks in the past year. We do buy individual stocks for certain client accounts, so I want to share some analysis around how we evaluate stocks. This past week provided a good example, as we purchased Activision Blizzard (ATVI) for those accounts that own individual stocks.

ATVI meets many of the criteria that we seek before buying a stock:

  1. The Technology sector that it resides in is performing well. We prefer to buy stocks in sectors where peer companies are performing well too.
  2. In terms of its price trend, ATVI looks good on all 3 timeframes we analyze - Monthly, Weekly, Daily. This gives us confidence that the long-term trend will continue rising.
  3. ATVI meets most of the statistical criteria we care about. For example, the price is above its 200-day moving average as well as its 21-day moving average. Also, Relative Strength (RSI) is building momentum.

The one thing that jumps out about ATVI right now is the fact that it just logged a new record high, eclipsing the price it hit back in both March and June, as highlighted here:

(chart created in stockcharts.com)

These kind of price patterns - where the price keeps bumping up against a particular level without surpassing it -- often results in a big rally that zooms past it. This is what we are betting on here with Activision. New price highs are bullish. It is exactly what we want to see. It certainly is no guarantee, but I believe based on our analysis that it will rally. We will now wait and see if that is the case.

In Our Portfolios...

What's New With Us?

I have a question for everyone... Would you be interested in hearing from us quarterly by webinar? The intent of a webinar would be to:

  • Quickly recap the prior quarter in the market
  • Look ahead to the upcoming quarter
  • Discuss what we own and why
  • Provide timely financial planning guidance (e.g. tax-planning)
  • Answer your questions

We would try to keep the webinar to within 45 minutes, since I know most of you are very busy. If you cannot attend it live we would make the recording available afterward so you can listen at your leisure.

I am interested to hear your feedback before making any decisions. Let me know.

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