April 08, 2019

Now Is Your Chance...

April 08, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

If you were freaking out in December when stock prices dove -15% in a matter of 3 weeks.
If you were worried prices would fall even further and you would lose more money.
If you wished you had sold some investments prior to that happening.

Now is your chance.

The S&P 500 index is a sand wedge away from its all-time high of 2,940, which it set back in late-September. Stock prices have rebounded most of the way back to previous levels, which means you have a chance to rewrite history and do things differently if you want.

But you won’t.

Whether due to recency bias or something else, there is usually a contrast between what we say we will do and what we actually do. The fear that plagued so many investors months ago shifts back to greed as prices rally back. No matter how much you convinced yourself you would not get caught flat-footed the next time around, when that next time comes around the result is more inertia.

The thing is, that is probably the right call.

Suppose you do sell, the feeling of satisfaction you get is short-lived. The pride you feel in knowing you executed what you said you would do is soon overshadowed by the next decision you have to make…

Now what?

If you are right and stock prices do plunge again, you may think you are smarter than the average investor but what is your next move? When do you buy back in?

If you are wrong and stock prices zoom higher to new record highs, will you maintain your conviction that those gains will be fleeting? Or, will you be compelled to buy back in at those higher prices?

My point here is to expose the likelihood that while you think you are making informed decisions you are really just winging it. There is no process that informs your decisions to buy and sell. The decision-making is 90% emotional, 10% intellectual.

If you do have a process, there is easily an argument to be made in favor of selling at these price levels. Or at least reducing some of your stock exposure. But if you don’t have a process then doing nothing is likely your best choice. The stock market has 100 years of history to show that it moves higher in the long run. That is a tough trend to fight. You can certainly maneuver around it, but it requires a disciplined process.

Nonetheless, if you are hellbent on not getting caught with your pants down again, now is your chance.

In The Market...

The S&P 500 +2.2% last week. Let's look under the hood:

I obviously mentioned it above, but the S&P 500 is back within a percentage point or so from its previous all-time high. Last week was a quintessential “risk on” week, where investors preferred the more aggressive pockets of the market like Materials, Consumer Discretionary and Technology. Conversely, Treasury rates climbed higher as investors sold those relatively safer bond investments.

While market conditions continue to look good, we are no doubt on alert that a potential wave of selling could ensue now that stock prices are back to their previous highs. Many of the momentum indicators we care about have improved nicely and they must continue to do so in order for stock prices to really break out higher to fresh highs.

Portfolio-wise, we sold a S&P 500 index fund and replaced it with a Semiconductor sector fund (XSD). The aim here is that Semiconductor stocks have simply shown stronger price momentum relative to other areas, which validated the decision to buy.

In Our Portfolios...

What's New With Us?

Check out our latest video, which explains the tax benefits of doing a 1031 Exchange. If you own a rental property, you should definitely check this out.

1031_Exchange 4-2-19 from Brian Betz on Vimeo.

Have a great week!

Brian E Betz, CFP®
Principal

April 01, 2019

Buy The IPO Or Just Say 'No'?

April 01, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

The ride-sharing service provider, Lyft, went public on Friday. This means you can buy shares of the company if you want to own an equity stake. Even if you exclusively use Uber, you have likely heard of Lyft as it is the second-biggest player in the industry behind Uber. The two companies have combined to render the yellow cab industry obsolete.

Which leads me to the question you may be asking…

Should I buy shares of Lyft?

My answer ranges between “no'“ and “I have no idea”. My rationale for saying no is based on the fact that there is no price history (unless you consider 1 day to be enough). For how we analyze stocks and funds we need to be able to assess some amount of price history — ideally a minimum of a few years.

Let’s set aside this rationale, because there are other ways to evaluate an investment and you may want to buy it regardless. An alternative rationale is to buy because you feel positive about the business fundamentals. On that basis, I really have no idea whether Lyft is a good investment or not.

And odds are, neither do you.

The reality is, most of the time someone wants to buy into a company that is going public, it is due to the sex appeal of, well…. simply the fact that the company is going public. The more you hear about it in the media, the more intrigued you become. This can lead to a fear-of-missing-out. You feel so compelled to buy it because, otherwise, you might miss out on owning a piece of the next Google.

Thing is, no matter how you end up at the point of buying a newly public stock, you are just guessing. If you disagree, then let me ask you:

Do you understand the company’s financials? More importantly, do you even know what to look at and what matters?
Do you know the company’s risks that could hurt growth and the future share price?
Do you know the company’s opportunities that could boost growth and the future share price?
Do you understand the company’s market share within its industry?
What is the future outlook for the industry as a whole?

And I have not gotten to my most important point, which is that if you plan to “get in on the IPO”, you actually are not. Unless you are able to obtain shares in the primary offering (highly unlikely) you are simply buying shares once they hit the secondary market. Meaning, once those initial owners — the ones who actually did get in on the IPO — turn around and sell those shares to you and the masses in the secondary market.

To be clear, you are buying through the secondary market when you log in to your account at TD Ameritrade, Fidelity, Schwab, etc. to buy shares. Even if you had bought first thing on Friday when it went public you did NOT get in on the IPO. I highlight this because you are likely going to pay significantly more per-share when you buy on the secondary market than you would if you were actually buying through the IPO.

If you are ever interested in buying shares on the secondary market in a newly public company like Lyft, let me know. As mentioned, we rarely look to buy companies that are going public, but we are happy to discuss.

In The Market...

The S&P 500 gained +1.2% last week. Let's look under the hood:

A nice bounce-back week for stocks, which had tumbled to end the prior week. The S&P index gained +1.8% in March, which marks the 3rd-straight monthly gain to start the year. As far as last week is concerned, we wanted to see the S&P finish above 2,825, which was the closing value/high from two weeks ago. It did, ending the week at 2,834.

Home values slide yet again: Home prices fell -0.2% in January. Seattle homes declined for the 7th-straight month, down -0.3%. Year-over-year, home prices remain roughly +4.0% higher nationwide. Most major cities hover around that mark, with only Las Vegas still experiencing double-digit annual growth (up +10.5%). We have yet to see a city turn negative on an annual basis, although San Diego is close (up just +1.3% in the past year).

The leveling-out of home prices that I anticipated 18 months or so ago has reached its full extent of what I expected. It will be interesting to see if the Spring season boosts demand, and subsequently prices, or if prices will fade further. My sense is that we will see a modest uptick in the coming months.

Here is a complete city-by-city look of the Case-Shiller housing data:

Portfolio-wise we made some moves among portfolios that own individual stocks, but did not make any major allocation changes regarding the diversified funds we own.

In Our Portfolios...

What's New With Us?

We celebrated our daughter’s 2nd birthday on Sunday. Of course we delayed her opening presents until after the Duke-Michigan State game had ended. Priorities… (kidding). We took her to the zoo on Saturday as well, which was a lot of fun.

Have a great week!

Brian E Betz, CFP®
Principal

March 25, 2019

What To Know About Employee Stock Purchase Plans (ESPP)

March 25, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

We created a brief video explaining Employee Stock Purchase Plans (ESPP). We discuss how an ESPP works, the benefits of such a plan and the tax consequences that participants should understand. If you have an ESPP through your employer, take a look:

ESPPs - 3-22-19 from Brian Betz on Vimeo.

Similar to other videos we’ve created, this ESPP one is always available on our site, under: FAQ > ESPP

Speed up your mortgage payments? Last week I mentioned that it might be wiser to pay down your mortgage before saving for college. How so? Let’s explore…

Under the new tax laws the standard tax deduction increased from $12,000 to $24,000 for married couples ($6,000 to $12,000 for individuals). As a result, many taxpayers who previously itemized their deductions will now take the standard deduction.

If you historically itemized and your primary deductions are mortgage interest and property taxes, there is no tax benefit of paying those expenses moving forward if the sum of those things fall short of the standard deduction.

To illustrate this, consider the below example where a married couple owns a home valued at $500,000 and a mortgage of $250,000. If we assume a 1.0% property tax and a 4.5% interest rate on the mortgage, using rough math we can conclude that the sum of those two expenses are roughly $16,000 for a given year. Here is how the tax deductions compare under the previous tax laws (2017) versus the new tax laws (2018 and on):

Notice how this married couple would have itemized their deductions under the previous tax laws and now claim the standard deduction under the new laws. Since they now take the standard deduction their mortgage interest is no longer deducted, which means there is no tax advantage to carrying the mortgage.

What does this have to do with saving for college? Well, frankly it isn’t just saving for college. This applies to other savings that occur outside of tax-deferred retirement accounts as well. The question that needs to be asked is: Can I reasonably earn more by investing (after taxes) than I pay on my mortgage?

Obviously, the higher your mortgage rate the more you need to earn to justify the investment. But there is another factor, which is the risk component. In order to earn what you need, you have to assume some degree of investment risk. Assuming your mortgage is a 30-year fixed rate, there is no risk of that rate going up, which gives the edge to paying down the mortgage (in my opinion).

The trade-off of doing this is that you are obviously not allocating that money toward other savings goals. This means you would need to fund those with future income when the time comes. Ideally though, your mortgage would roll off sooner, which would free up that money to allocate toward other things like retirement, college, etc.

These new tax laws will sunset at the end of 2025. So this approach could be short-lived if things revert back to the way they were. For now though, consider reevaluating how you prioritize spending and savings.

In The Market...

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

It looked liked the market was poised to post another nice week of gains, only to have those wiped out (and then some) on Friday. The S&P index fell nearly -2.0% on Friday to end the week right at 2,800. This is no coincidence, as 2,800 was previously a key level that the index had failed to rise above. Now we will see if 2,800 provides support from which stock prices can rebound.

The bond market rallied nicely following the Federal Reserve’s announcement that there would likely be no additional interest rate increases in 2019. This contradicted previous indications that there would be one or two more rate hikes this year. That news boosted demand for longer-term bonds. The 10-year Treasury yield fell to 2.4%, which is the lowest since Dec. 2017.

The notable addition we made last week was adding a High-Yield bond fund (SHYG) to more moderate accounts. High yields have rallied nicely in recent weeks and appear to be continuing that ascent.

In Our Portfolios...

What's New With Us?

I was over in Spokane on Friday meeting with a couple clients but am back in the office all week.

As an additional reminder, let us know if you would like to establish or refresh your financial plan. We recently implemented a new financial planning software through Right Capital. Our previous Microsoft Excel-based financial planning model worked well, but we finally reached a point where it made more sense to purchase a more user-friendly software to create and maintain financial plans.

Have a great week!

Brian E Betz, CFP®
Principal

March 18, 2019

Are You In For A Tax Season Surprise?

March 18, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

If you have yet to file your taxes, you will notice some significant changes. I mentioned these a year ago when the new tax laws passed, but now they really go into effect as tax returns are coming due for 2018.

The biggest changes have to do with deductions and exemptions. The standard deduction doubled from $6,000 to $12,000 for single tax filers and from $12,000 to $24,000 for married couples who file taxes jointly. This means fewer taxpayers will itemize their deductions. You will continue to itemize if the sum of things like your mortgage interest and property taxes paid exceed the standard deduction. If they do not, you will claim the higher standard deduction.

The benefit that many will enjoy from the doubling of the standard deduction will be offset to some degree by the elimination of personal/dependency exemptions. Historically you could claim an exemption for you, your spouse and each of your kids (as well as other dependents you care for, such as a grandparent or cousin who lives in your home). In 2017 the exemption was $4,050. So if you were married with 2 kids you could claim $16,200. You were phased out from being able to claim personal/dependent exemptions if you earned too much, but most taxpayers were able to benefit from this.

These exemptions are now gone and while a boost in the standard deduction may compensate for exemptions lost, for many it will not.

The best example of this would be the family whose itemized deductions tally between $20,000 and $25,000. These taxpayers probably won’t see their deduction total change much, only how they arrive there. They will either claim the increased standard deduction of $24,000 or they will claim their typical itemized deduction total, provided it exceeds the $24,000 standard deduction.

This family will feel it when their exemptions go from $8,000 (married couple) or $12,000 (married + 1 kid) or $16,000 (married + 2 kids) to zero. Said differently, the amount of income that is taxed will increase by whichever of these exemption amounts previously applied.

It is worth noting that the marginal tax brackets went down slightly. For instance, where taxable income between $76,000 and $153,000 was previously taxed at 25% for a married couple, taxable income between $77,000 and $165,000 is now taxed at 22%.

It is hard to say just how much the reduction in income tax rates will help in light of the increased standard deduction and removal of exemptions. Frankly, I think the changes in the tax brackets and corresponding rates is mostly window dressing.

The bottom line? Don’t be surprised if your tax bill is different than in years past. In light of the increased standard deduction, next week I will explain why it may be smarter to prioritize paying off your mortgage over saving for college.

In The Market...

The S&P 500 gained +3.0% last week. Let's look under the hood:

A really solid week for stocks, for a number of reasons:

The S&P index crossed nicely above 2,800 (finishing at 2,822). This marked the highest weekly close since July 2018.
More importantly, the S&P cleared the previous price-high from early December. Back then, stock prices quickly reversed lower when they reached that point, losing roughly -15% before stabilizing. This matters greatly and needs to hold going into the next couple weeks.
Stock prices “gapped” higher in 4 of the 5 days last week, which is often a sign that a new rally is commencing. A “gap higher” is when a stock’s price opens the next market session measurably higher than where it closed the previous session. In this case, the gap higher I’m referencing is for the S&P 500 as a whole. This shows collective strength in the U.S. market.
Coming off of last week’s losses, I was curious how stocks would respond to start the new week. The S&P quickly jumped back above its 21-day moving average, which is another sign that investors were ready to buy the dip. (I don’t often discuss the 21-day moving average because it is such a short-term indicator, but I think it is relevant here.)

As crazy as this may have sounded back in December, the S&P 500 is back within a few percentage points of its previous record high. That value for the S&P index is 2,930. If this rally does continue toward that price (and I think it will), it will become much more difficult at that point for the rally to sustain. Why? Because I believe there will be plenty of investors looking to sell at that level, when we get there. This does not mean that I expect prices to plummet from there, but I would expect prices to stagnate for a time.

We added to our S&P 500 index funds early in the week. These were not major additions, but are still worth mentioning. We are nearly fully invested across most client accounts.

In Our Portfolios...

What's New With Us?

This is setting up to be a fantastic week. Spring is here, the temperature is supposed to reach 70 in Seattle and March Madness kicks off Thursday. Other than having to start mowing the yard again, it is nice to see more daylight and warmer weather.

Also, we added a new financial planning software that we will begin implementing during/after client reviews. If you are interested to learn more or apply it to your situation, let us know.

Have a great week!

Brian E Betz, CFP®
Principal

March 11, 2019

A Massive Jobs Miss (In More Ways Than One)

March 11, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Before I get to the flop that was the February unemployment numbers, here is a video we made recently that explains how we go about managing investment portfolios for clients. You likely know much of this already, but if not, hopefully it sheds light on our process.

How_We_Manage_Accounts_BB - 3-8-19 Second Edit from Brian Betz on Vimeo.

Jobs numbers thud: Something funny happened on Friday. I was sifting through news on my way into the office and saw the headline showing that the economy had added 200,000 jobs in February. Not thinking much of it, I continued on with my morning.

A couple hours later I was grabbing coffee and noticed that this particular jobs report was getting more buzz than normal. So I looked at it again. Economists expected 180,000 jobs to be added and the actual number was +200,000 jobs.

Great, so it beat expectations. Still though, I didn’t understand the reaction.

Then I realized it…

It wasn’t 200,000 new jobs. It was 20,000 jobs.

A BIG difference… Except after a few minutes went by I noticed my reaction was the same as when I thought the number was just 20,000.

This sums up how economic data points influence our day-to-day work. The market and the economy are two different things. The market leads the economy, not the other way around. Even if that was not the case - let’s say the stock market did react to such data points - it would be impossible to base an investment process off of economic readings.

The irony is, the unemployment rate actually fell from 4.0% to 3.8%, as the number of people considered “not in the labor force” increased. When that number rises, those who are excluded from the labor force are removed from the unemployment calculation altogether. This helps lower the unemployment rate. If they were instead looking for work they would be considered unemployed.

In The Market...

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

Last week was the worst since mid-December and just the second down week of 2019. If you read my thoughts the past couple weeks this was not a total surprise, as there were multiple reasons to think that stock prices would stall. Here is essentially the same chart of the S&P 500 index from last week, highlighting three things:

The aforementioned -2% weekly price decline.
The falling trend in Relative Strength (RSI), reflecting possible weakening momentum.
The falling percentage of stocks that are above their respective 200-day moving averages (54%), which also reflects possible weakening momentum.

Not shown in the above chart, the S&P 500 fell below its 200-day moving average as a collective whole. Normally that would be cause for concern, and to some degree it is. However, I think the odds favor a bounce from here rather than a continuation of losses in the weeks ahead. Without getting more technical, I believe that the market has digested much of this “corrective” behavior and is closer to starting a new rally than it is to deeper losses. I could be wrong there, and the picture is anything but clear, but that is my judgment.

We made a few moves last week, most notably shuffling our bond positions out of Long-term Treasury Bonds (SPTL) and over to Long-term Corporate Bonds (SPLB) for certain accounts. We also made some buys and sells among the individual stocks we own, for those accounts that own individual stocks. As always, feel free to ask if you have any questions.

In Our Portfolios...

What's New With Us?

Happy birthday to us! Our firm turned 7 years old as a Registered Investment Adviser (RIA) firm. It has been a great experience and want to thank you for trusting us to advise you and manage investments for you. Here is to many more great years ahead!

Have a great week!

Brian E Betz, CFP®
Principal

March 04, 2019

What To Make Of The Recent Decline In Home Values

March 04, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

With tax day quickly approaching, so too is the deadline for making Traditional IRA and Roth IRA contributions for 2018. This video explains the contribution limits for various types of retirement accounts.

Retirement_Account_Contributions_Deductions 1-18-19 from Brian Betz on Vimeo.

If you have any questions regarding whether you qualify for a Traditional IRA or Roth IRA, please ask. If you plan to make either type of contribution (or both) you will need to do so not only before April 15th, but before you file your 2018 tax return.

Home values slide in December: The average home fell ever-so-slightly, down -0.1%, in the latest S&P/Case-Shiller home price index report. Seattle homes fell for the 6th-straight month, as home price appreciation slowed throughout the second half of 2018. The average home is up +4.7% annually, which is more in-line with historical averages but still a bit of a shock compared to the +7% to +8% growth we saw not much more than a year ago.

If you were reading this blog 18 months ago, this is exactly what I predicted would happen. I think this is perfectly normal, but as always, it helps to gain historical perspective before drawing any conclusions about what is next. Here is a look at the rise in home prices dating back 30 years.

(source: FRED Economic Data, via S&P/Case-Shiller HPI)

You can see how real estate has leveled-off as of late, so much so that you might argue a bigger decline is forthcoming. I am not so sure about that, but whatever happens, one thing I am pretty sure of is that the stock market will lead the way (for better or worse). Stock prices are the leading indicator that influences both hiring and real estate values. If company values rise, more people are employed and investor confidence rises, which directly boosts housing demand. If company values fall, the opposite occurs and housing demand will weaken.

Proof of this is what occurred last Summer. It is no coincidence that housing prices started to slow around June/July, just a few months after the S&P 500 had fallen roughly -10%. I can say with confidence that the shock of seeing stocks drop caused homebuyers to pause a bit in their housing pursuits. If you disagree I would be curious to hear what you think.

Here a complete city-by-city look at the latest housing numbers:

In The Market...

The S&P 500 gained +0.4% last week. Let's look under the hood:

It was another constructive week for the stock market, despite modest gains. The individual sectors were a bit mixed but the week ended strong, which is what we like to see. The S&P 500 finished the week just above 2,800, which many think is an important level for the index to hold given it represents the previous high from both November and December — instances where stock prices fell sharply soon thereafter. Will this time be different and see the rally continue into March?

Our cumulative analysis would suggest yes. However, there are two momentum indicators that give us pause, which were the same problems that occurred back in November and December when the S&P failed to hold above 2,800. These are shown in the chart below, which illustrates how Relative Strength (RSI) and the percentage of stocks that are above their respective 200-day moving averages are both lower compared to when the S&P 500 index hit its previous two highs back in Jan. 2018 and Sept. 2018. Take a look…

The large chart in the middle shows the actual price movement of the S&P, including the recent rally to start 2019. RSI is shown in the chart above that, where you’ll notice it is fading despite these price rallies. RSI compares the size of gains in periods when price rises and compares it to the magnitude of losses on days when price falls. The above is a weekly chart, so each period being considered is one week. The important takeaway is that we want to see RSI rise — or at least remain elevated — when stock prices rise. When RSI stalls or fades amid a stock market rally, it indicates that price momentum is weakening and a reversal may be near.

Additionally, the percentage of stocks that are above their 200-day moving averages is lower compared to those previous highs from 2018. Today, 61% of stocks in the S&P index are above their 200-day moving averages. That ratio was much higher during 2018. This measure of what is called market “breadth” statistically represents how well the stocks that comprise the S&P 500 are moving in unison or not. We would like to see this percentage higher, not lower. If the S&P 500 is rising, but this percentage is falling, it indicates that a few big companies are doing all the heavy lifting, which often is not sustainable.

While we remain bullish short-term, I wanted to highlight these two indicators as factors that we are closely tracking, as they influence our buying and selling decisions.

We were pretty inactive on the portfolio front last week. The bond market took a sharp negative turn, which may result in reallocating some of those positions in the coming days. We sold our Municipal Bond fund (PZA) for a modest gain within accounts that owned it.

In Our Portfolios...

What's New With Us?

It was a fairly relaxing weekend. The weather was nice, so I was able to get outside and do some yard work. I had to cut up a tree that had fallen last month as a result of the snowfall. The tree was decaying and the weight of the snow was its final blow. Luckily it did not cause any other damage, but it did take some time to saw it apart.

Have a great week!

Brian E Betz, CFP®
Principal

February 25, 2019

10 Ways Seniors Are Being Targeted By Scammers

February 25, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Public Service Announcement… If you ever have issues accessing our website, could you please let me know? A couple people have said they could not access last week’s blog post. If this occurs, I want to figure out if it is a problem on our end or your end. The last thing I want is to publish content that you cannot see. Our website is a secure site that rarely runs into problems, but please let me know if you cannot reach the website.

Beware these scams! I encourage you to check out this list: 10 common scams targeting seniors. These fraudulent efforts seem to be expanding and becoming more clever. Years ago my grandmother got a call from someone impersonating me, who told her that I was in trouble and needed money wired as soon as possible. Luckily nothing came of it because my grandma got off the line and called me directly, but you never know how it might play out.

If someone calls you trying to impersonate a relative or someone you know, a quick way to sniff it out is to ask them to answer a personal question about yourself — something that you know they would know, if they are who they say they are — your son/daughter/grandchild/sibling/cousin/etc.

Another thing to know is that the IRS will never call you. So if someone calls saying that you need to file something or that you may imprisoned if you don’t respond, disregard.

Lastly, beware of notices you receive in the mail as well. A letter can look pretty official when, in fact, it is a fraudulent attempt to get you to reply with sensitive personal information like your Social Security number or bank account information.

If someone tries to scam you, please pass along the details if you are comfortable doing so. It helps to share this type of knowledge to prevent others from falling victim to fraud attempts.

In The Market...

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

A decent week and also a short week. I can’t say we learned too much except for that investors stepped up to buy when stock prices started dipping on Thursday. This is the hallmark of a rising market, one in which stocks have now risen in 7 of the past 9 weeks.

The majority of stock sectors were higher, again led by growth-oriented segments like Technology, Materials and Consumer Discretionary. Bonds again were fairly muted, slipping a bit but nothing that damages our positive longer-term outlook.

For stocks the story remains the same. The S&P 500 ended the week at 2,793, just below the 2,800 threshold that is the next hill to climb. In fact, 2,800 is the exact high that the S&P index hit back in early December right before it fell -16% between Dec. 3rd and Christmas. Stock prices could easily stall in the near future, but momentum remains quite strong so we will see.

We added a second S&P 500 index fund to most accounts last week. We are fully invested, but remain a bit cautious in the near-term given the rejection that occurred nearly 3 months ago when stocks were sitting at similar price levels.

In Our Portfolios...

Have a great week!

Brian E Betz, CFP®
Principal

February 19, 2019

Is Another Historic Presidential Election On The Horizon In 2020?

February 19, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

This is random, but something so interesting that I wanted to share. There is a possibility, albeit a small one, that we may see a truly rare 2020 presidential election. What if I told you that the House of Representatives could decide the next U.S. President?

Following the 2016 election, I felt that President Trump’s success would open the floodgates for all sorts of independent candidates to emerge in 2020. Whether truly independent or loosely tied to their political party like Trump, more independent candidacies means more split votes.

If it happens where a handful of independent candidates garner enough votes, the result could be that no candidate — Republican, Democrat or otherwise — captures the majority of electoral college votes required to win the presidency. This requires winning 270 of the 538 electoral votes. If this were the outcome, the House of Representatives elects the president by voting among the top five candidates. Each house representative has one vote. Majority wins.

There is precedent for this but it was 200 years ago. These “contingent” elections occurred twice — first when Thomas Jefferson won in 1800 and again when John Quincy Adams won in 1824.

The last independent candidate to muster a legitimate presidential bid was Ross Perot in 1992. He won just 19% of the popular vote, carrying no states for a whopping zero electoral college votes. And that was considered remotely successful.

For this to occur today, it would effectively mean that the current two-party system is blown up, which a lot of people think is inevitable but has not come close to happening. So it seems unlikely that the above scenario would play out, but then again, after the 2016 election anything seems plausible.

In The Market...

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

Another nice week for stocks, which have now gained in five of the first seven weeks to start the year. Every stock sector was higher as rising momentum has sustained along the way. Bonds were more mixed, as Treasury yields rose (Treasury values fell) but not as much as we might have expected given the rally in stocks.

Last week I discussed how we incorporate the 200-day moving average into our analysis, highlighted by the fact that more stock prices were rising above their respective 200-day average prices. Last week, 50% of stocks in the S&P 500 were above that mark. Entering this week, 61% are above their 200-day moving averages.

This is encouraging because it reflects that the stocks that comprise the market (via the S&P 500) are rising together. If the S&P 500 index were rising but the percent of stocks above their respective 200-day moving averages was stagnating, it would indicate that the larger companies in the S&P index are doing all the heavy lifting (since the 500 companies in the index are weighted based on size).

However, there is a ton of potential price resistance ahead in the near future. In the chart below, I have circled the four previous instances over the past year where the S&P 500 tumbled upon trying to break out higher:

In comparison to the previous instances from this past October and December, stock price momentum is stronger today than it was last Fall. These statistics are not shown above, so you will have to take my word for it.

We sold the Cloud-Computing Tech fund (SKYY) and purchased an Industrials sector fund (XLI) across most accounts. While the software niche within Tech has been on a tear, prices were starting to bump up against previous highs. Industrials, meanwhile, appear to have more room to run before hitting resistance. As such, we rotated from one to the other.

Additionally, we purchased a Preferred Stock fund (PGF) for certain accounts, representing a bond position within those portfolios. Preferred Stock — and the broader bond market — continues to appeal on both short-term and longer-term time frames.

In Our Portfolios...

What's New With Us?

The snow finally cleared and the new highway-99 tunnel running through downtown Seattle has finally opened. Slowly our office hours are getting back to normal as we enter the thick of tax season.

Have a great week!

Brian E Betz, CFP®
Principal

February 11, 2019

Tax Forms And Social Security Reminders

February 11, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

A quick note about tax forms. If you own a taxable/brokerage account, your 1099 is ready. While we can email you that form today, we prefer to wait just in case there are revisions to it between now and the final version being issued. That final version of your Form 1099 should be available this week. When it is, Josh will securely email it to you using password-protection. The password to open the email will be the last four digits of your Social Security number (or the primary account owner if it is a joint account).

Check your Social Security! Last week I received an email from the Social Security Administration, which I have shared below. You may receive a similar email. If your Social Security profile is already set up on the website, I suspect you too would receive this notification. If you have not set up your profile, visit the SSA website here.

We highly recommend establishing your account online, so that you can check your earnings history for accuracy. After all, the figures shown are what will determine your eventual Social Security benefits (if they have not started yet). You can also see your current, estimated monthly benefit.

Let us know if you have any questions about this, or strategies for claiming Social Security in general.

In The Market...

The S&P 500 was essentially flat last week, gaining +0.1%. Let's look under the hood:

It was a pretty mixed week for stocks. The bond market made more noise, as Treasuries and Corporate Bonds both gained nicely on the week.

One of the bigger developments has been the number of stocks that have risen above their respective 200-day moving averages. Back when the market bottomed just before Christmas, only 10% of stocks in the S&P 500 were above their 200-day averages. Today, that figure has improved to 50%.

Here is a look at how this measure of “breadth” — the percentage of stocks above their 200-day moving averages — has fluctuated over the past three months. The following chart shows the breadth for the S&P 500 and its individual sectors:

On the surface this is a positive development, as we like to see stock prices elevated above their longer-term moving averages. However, notice that the 50% ratio for the S&P 500 as a whole is right where stocks capped out in November coming off the October declines. What followed was a -10% market plunge in December. Will stocks lose steam again here? Tough to say.

One argument in favor of stocks continuing to rally is that the growth-oriented sectors, namely Technology, Consumer Discretionary and Industrials, look stronger today than they did in late-November. For instance, 60% of Tech stocks are above their 200-day averages, which is 20% more than there were back in late-November.

I have written about this many times before, but one of the reasons we track this kind of market breadth is because we want to see the components that make up the market rising together. When only a few sectors are rising it often is not sustainable. In addition, we want to be able to distinguish the stronger sectors from the weaker ones, which is something that this breadth measurement helps us do.

In Our Portfolios...

What's New With Us?

I cannot remember ever getting this much snow in the Seattle area. As of last night we had nearly 11 inches at our house. The bad news is that it makes it tough to get around. The good news is that we are able to work from home and conduct most of our regular business operations. Here is to hoping that the snow clears in a couple days.

Have a great week!

Brian E Betz, CFP®
Principal

February 04, 2019

Context, Context, Context

February 04, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

There is a narrative from this past week that I can’t let slide. I saw headlines Thursday afternoon praising the fact that January was the best month for the stock market in 30 years. Whether technically true or not, the reference lacks context. A more appropriate narrative would be something to the effect of:

“The S&P 500 is nearly even since the end of November, down -1.5% over that time.”

No doubt January was a strong month, but usually when we hear the “best” of something happened, we assume that great things are to come.

Is this the case? Will stocks zoom higher in February? No one knows for sure. But the story of January, in which stocks rallied more than +8.0%, cannot be told without realizing that stocks fell -10.0% the month before. Context matters. More discussion on my stock market outlook below.

Housing prices flatten: Real estate values were essentially unchanged nationwide in November and are up roughly +5.0% in the past year. Growth rates continue to level off, especially on the West Coast where homes in Seattle and San Francisco (both down -0.7%), as well as Portland (-0.5%) and San Diego (-0.6%) were all negative in the month.

Whereas Seattle and San Francisco used to lead the nation by a considerable margin in terms of annual appreciation, housing in both cities are only up roughly +6.0% in the past 12 months. I believe this is the fifth-straight monthly price decline for Seattle real estate. Here is a complete city-by-city look at this latest S&P/Case Shiller housing data:

In The Market...

The S&P 500 gained +1.6% last week. Let's look under the hood:

Stocks up. Bonds up. All is great, right?

We are still not out of the woods. Here is the same long-term monthly chart of the S&P 500 index that I shared at the end of December. Stock price history over the past 6 months resembles three different points in time. These are the areas highlighted on the chart. Notice how in two of the three instances, stock prices fell a lot further in the months that followed. In the third (and most recent) instance, prices floundered a bit before starting a new, big rally.

No predictions here, just emphasizing the longer-term picture in terms of how recent market behavior plays into it. At the end of December, the market outlook was very negative. If we are to believe that is still the case, then January was just one big counter-rally inside of a larger downtrend. I will say that the short-term stock market outlook looks neutral-to-positive. New uptrends have to start somewhere, so there is a possibility that this is it. I would not count on that just yet, but certainly conditions have improved since one month ago.

Portfolio-wise we were really only active with our individual stock positions, for those accounts that own both stock funds and individual stocks. We captured a very nice gain selling Twilio (TWLO) and absorbed a modest loss on Microsoft (MSFT).

Heading into next week, the Software segment within the Tech sector continues to look strong. Health Care continues to look the best among all major sectors, while Real Estate (VNQ) made a big jump and is showing up on our radar as a potential breakout sector.

On the bond side, we will likely add Preferred Stock (PGF) sometime soon, as that asset class looks poised to continue its recent rally.

In Our Portfolios...

What's New With Us?

Going into Super Bowl Sunday I was really excited for what I thought was going to be a great game. I left being more excited about the fact that it had snowed 2 inches here, our first snow this Winter. I can appreciate a good defensive game, but it felt as much sloppy as it did a defensive struggle.

Have a great week!

Brian E Betz, CFP®
Principal

January 28, 2019

Tax Deduction Rules When Claiming Retirement Plan Contributions

January 28, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

With tax season on deck, here is a summary of the tax deductions you can claim relating to different types of retirement account contributions:

Retirement_Account_Deductions 1-27-19 from Brian Betz on Vimeo.

If you want to make Traditional IRA or Roth IRA contributions for 2018, you have until April 15th to do so. Contact us if you have questions. Also, the above video is available on the FAQ page of our site, under the drop-down Taxes.

In The Market...

The S&P 500 fell -0.3% last week. Let's look under the hood:

The loss snaps the four-week winning streak stocks had been on. Six of the 10 stock sectors declined on the week. Real Estate and Technology led the way, while Energy, Consumer Staples and Health Care were each down more than -1.0%.

Stocks were resilient despite the weekly decline. Prices started the holiday shortened week lower, before rallying the rest of the way. Last week was constructive, yet there is still a ton of price resistance to contend with for the January gains to hold. So far they have, which often isn’t the case when stocks rally off of a big downward move. The best-case scenario right now is that stock prices move sideways for a couple weeks, before continuing their ascent.

Our bond positions performed well last week. We continue to own Treasury bonds and Corporate bonds in most accounts.

On the stock side, we were more active compared to prior weeks. We added a S&P 500 growth fund to many accounts, which is heavily weighted in companies in the Technology and Consumer Discretionary sectors. We also added to the cloud-computing Tech fund that most accounts already owned. The Tech sector has been leading this recent rally, specifically the Software and Semiconductor industries.

In Our Portfolios...

What's New With Us?

I painted the guest room in our house on Sunday, which was my highlight. That now makes roughly 75% of the interior of our house I have painted.

Have a great week!

Brian E Betz, CFP®
Principal

January 21, 2019

The Tax Planning Dates And Forms To Know

January 21, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Your tax forms will be ready to view soon. Here are the dates when TD Ameritrade will release Form 1099s:

This week: Initial draft of your Form 1099 will be ready to view. We are happy to securely email you a copy of your 1099 when they come available. You should expect a 1099 if any of the following apply:

You own a taxable brokerage account
You made contributions into an IRA account
You took withdrawals from an IRA account

If you own an IRA but did not make any contributions or withdrawals, you will not have anything to report for tax purposes.

Feb. 7: A revised draft of your Form 1099 will be available. Revisions occur if there are tweaks, such as reclassifying dividends. The differences between the initial draft and revised draft are usually minimal, however I recommend waiting to file your taxes until you have the FINAL version of your 1099.

Feb. 13: A second revised version is available, if needed. Note that many 1099s will not need any revision. As such, this date and the Feb. 7th date may not apply.

You should receive notification by email when your tax forms are available to view. We are happy to email you your forms as well, so just ask. To learn more about which specific tax forms you should expect to receive, watch our brief video here:

Tax_Forms 1-18-19 from Brian Betz on Vimeo.

In The Market...

The S&P 500 gained +2.9% last week. Let's look under the hood:

Stocks rallied for a 4th-straight week. The difference last week is that it came without much volatility. This is encouraging, no doubt. Every stock sector was positive except for Utilities, showing that investors preferred growth over safety last week. Further evidence of this was reflected in the long-term Treasury bond market, where bond values fell and rates rose.

Last week I highlighted a ton of potential price resistance that could keep stock prices from ascending. Those headwinds still exist, but a near-3% positive week was constructive toward more potential gains in the weeks ahead. It is still wise to be cautious though. It is common to see these types of rallies following a serious decline. It is rare to see prices rally in a straight line higher coming off the type of declines we saw in December, without choppiness along the way. Point being, I still expect more chop.

We added to our stock positions last week. Meanwhile, we are using stop-loss orders to try and protect against another sharp decline, should that occur. A stop-loss is an order to sell an investment if its price falls to a certain point. Our stop-loss orders have not triggered because prices have risen over the past few weeks. In response, we have raised the price of those stop-loss orders to capture recent gains.

We bought a Cloud-Computing fund (SKYY) that focuses on the software niche within the Technology sector. Some of the bigger components of this fund include Netflix, VMWare, Salesforce, Google, Cisco and Microsoft. The fund owns many of the names that are frequently showing up on our buy list. The software space looks as appetizing as any segment of the U.S. stock market right now, but of course software companies face the same macro risks that non-tech firms face.

In Our Portfolios...

What's New With Us?

A pretty typical weekend for me, consisting of soccer for my daughter, Home Depot and football. The market was closed today (MLK Day).

Have a great week!

Brian E Betz, CFP®
Principal

January 12, 2019

401k And IRA Contribution Limits Go Up For 2019

January 12, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

For the first time since 2013, the amount you can contribute into an IRA is increasing, from $5,500 to $6,000 ($7,000 if age 50 or older). The 401k contribution limit is increasing as well. The amount of pay you can defer into your 401k plan goes up from $18,500 to $19,000 ($25,000 if 50 or older). This chart Josh put together does a nice job detailing the 2019 contribution limits for various accounts, as well as the gift and estate tax exclusions. Take a look:

A couple things to stress regarding IRA contributions:

Your ability to deduct your IRA contribution may be limited/restricted if you already contribute into a 401k plan. Check with us or your CPA before doing so.
The $6,000 limit covers all IRA plans you own. For instance, if you intend on making both Traditional IRA and Roth IRA contributions, you can split the $6,000 between accounts but your cumulative contribution cannot exceed $6,000. Meaning, you could not deposit $6,000 into one IRA and another $6,000 into a second IRA. But you could do $5,000 into one IRA and $1,000 into another IRA, or $3,000 into one and $3,000 into another, etc.
If you plan on making a Roth IRA contribution, we advise waiting until the calendar year is over to do so, rather than make recurring monthly contributions. This ensures that your income does not exceed the IRS limit that prevents you from making Roth contributions. You have until April 15th of the following year to make IRA contributions for the prior year, so there is plenty of time. You don’t want to risk funding a Roth IRA throughout the year, only to learn that your income was too high and have to scramble to get the funds out of the Roth to avoid paying a penalty.
The above IRA limits apply to 2019, not 2018. I emphasize this because if you plan on making IRA contributions for 2018 (which you have until April 15, 2019 to do), the contribution limit of $5,500 applies ($6,500 if age 50).

If you have questions on any of the above, just ask!

In The Market...

The S&P 500 gained +2.6% last week. Let's look under the hood:

A 3rd-straight weekly gain for the S&P 500, which saw every major stock sector finish in the green. Is this the beginning of a much larger rally? Maybe, but I would not bet on it for one major reason.

Looking back over the previous market “corrections” that have occurred since the start of 2018, the S&P 500 found what is called price “support” each time it fell to 2,600 (the dashed line in the chart below). This means that stock prices rebounded when the S&P fell to this price on three separate occasions. These points in time are circled in the chart below.

The fourth time this occurred in December (last circle on the right), the price support at 2,600 did not hold and the S&P sharply fell another -10% below it in a matter of days. Since then, S&P index stocks have methodically worked their way back up toward 2,600, finishing last week just below that mark.

Now what?

Technically speaking, we might anticipate that 2,600 will become a “resistance” level that prevents stock prices from building on this current rally. It is common for a price-point to turn from support to resistance after the support is broken. This potential outcome is plain as day when looking at the above chart.

If this alone were the only headwind that existed I may be more optimistic, but the fact that many of the other statistical measures we care about are damaged fuels the stock market risk I believe is present heading into next week.

With that being said, the picture is better than it was last week, which was better than the week before that, which was better than the week before that… So there has been improvement. However, the market does not go up or down in a straight line, so it is most likely that further declines come before the S&P 500 eventually mounts a sustainable rally.

If we are right, then patience pays. If we are wrong, we will adjust accordingly by potentially adding to our stock positions.

We added a couple bond positions last week — a Corporate Bond fund (SPLB) and a Municipal Bond fund (PZA). The Muni bond fund was only added to taxable/brokerage accounts, as the tax-exempt nature of the bond interest paid by Muni bonds is of no benefit to IRA accounts. I believe the bond market has potential over the coming weeks and could potentially provide a hedge in the event that stock prices do fall lower from here. We shall see.

In Our Portfolios...

What's New With Us?

On my commute home from the office Friday I drove along the Highway-99 Viaduct one last time before it closed down for its pending demolition. As excited as I am for the new underground tunnel and a Seattle waterfront that may rival San Francisco’s Embarcadero, I’m going to miss the Viaduct. On a clear day, the view driving along it through downtown Seattle is been tough to beat.

On that note, our office hours will be more varied over the next few weeks until the new tunnel opens. Josh and I may potentially be working from home a bit more due to the massive increase in traffic that the Seattle Dept of Transportation anticipates. I am all about efficiency and sitting in a long, unnecessary commute is inefficient. Our business hours will remain the same, as will our effort and focus, so I expect no impactful change on our day-to-day operations. But I do want to give you the head’s up.

Have a great week!

Brian E Betz, CFP®
Principal

January 12, 2019

401k And IRA Contribution Limits For 2019

January 12, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

For the first time since 2013, the amount you can contribute into an IRA is increasing, from $5,500 to $6,000 ($7,000 if age 50 or older). The 401k contribution limit is increasing as well. The amount of pay you can defer into your 401k plan goes up from $18,500 to $19,000 ($25,000 if 50 or older). This chart details the 2019 contribution limits for various accounts, as well as the gift and estate tax exclusions. Take a look:

What To Know About The RMD Laws

January 07, 2019/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

If you are aproaching age 70 and own a 401k or IRA, you need to know about the Required Minimum Distribution (RMD) laws, which mandate that you withdraw a certain amount each year starting at that time. Our video below explains what you need to know about the RMD rules, when they apply and how to calculate them.

Required_Minimum_Distributions 1-3-19 from Brian Betz on Vimeo.

The RMD rules run deep. Please ask if you have any questions, especially when it comes to the calculations. You can access this video — and others — by visiting the “FAQ” page on our site.

In The Market...

The S&P 500 gained +1.9% last week. Let's look under the hood:

Stocks put together consecutive weekly gains for the first time since early November. It was a pretty bumpy ride getting to last week’s gains, as is often the case around year-end. We saw decent improvement, but it is tough to make too much out of it considering the market was sleepwalking through New Year’s Eve and closed altogether on New Year’s Day.

The S&P 500 experienced its first truly negative year since 2008, falling -4.5% (including dividends). Coming off of the worst December on record ever for the U.S. stock market, are better things to come in 2019?

The headwinds remain the same as they were in late-November, when stocks looked primed to mount a meaningful rally but instead fell hard in December. There is much ground to be made up, so we must be careful when it comes to trusting any of these short-term rallies. Looking at things through the broad lens of the S&P 500, the following issues persist:

Price of S&P 500 is below its 200-day moving average (would like to see the price be above it)
Slope of the 200-day moving average is falling (would like to see it rising)
Nearly 80% of the companies that comprise the S&P 500 are below their respective 200-day moving averages (would like this to be above 50% or better)
Relative Strength (RSI) remains weak, just below 50.0 (would like to see it above 60.0)

These are just a few. Ideally with time the market will stabilize, these measures will strengthen and the long-term outlook will improve as a result. The challenge is how long that may take. Right now we should remain cautious when it comes to short-term gains because we are likely to see more volatility to the downside as well.

We did not make any major portfolio changes last week. We did add to our Long-term Treasury bond fund (SPTL) across most accounts. If the stock market continues to move higher this week we may selectively add to our stock positions, but again, patience is key.

In Our Portfolios...

What's New With Us?

I spent Saturday night sick from a 24-hour stomach flu I picked up from my daughter. It was either that or the Seahawks game that did it. Rough weekend for me, but I’m back at it.

Have a great week!

Brian E Betz, CFP®
Principal

December 31, 2018

Stocks Get A Santa Rally, Real Estate Slumps

December 31, 2018/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Stocks and real estate sputter their way into the new year. Housing prices were flat again in the latest monthly report, based on the average of the 20 major cities tracked by the S&P/Case-Shiller report. Seattle home prices fell -1.1%, the worst among all major cities and the the fourth-straight monthly decline. Nearly half of the cities saw price declines, including San Francisco and Portland (down -0.7% and -0.6%, respectively).

The Southwest has seen a nice surge as of late, with Las Vegas homes up nearly +13% over the past year and Phoenix up nearly +8%. Despite recent declines, Seattle and San Francisco homes have still appreciated more than +7% annually, but those growth rates have tapered off compared to this past Summer. On average, homes are up roughly +5% nationwide in the past year.

Here is a complete city-by-city look:

In The Market...

The S&P 500 gained +2.9% last week. Let's look under the hood:

The good news is that stocks bounced back somewhat coming off a three-week span in which the S&P 500 fell a collective -12%. Growth-oriented sectors led the way as most segments of the market were higher. This is nice to see. It appears the “Santa Rally” has been in effect, which is the seasonal tendency for stocks to gain over the last 5 trading days of the year plus the first 2 trading days of the new year. I don’t give much credence to seasonal tendencies, but it is fun to track nonetheless.

The bad news is that this recent rally could be short-lived. The period right around Christmas is the lowest volume time of the year, meaning it sees the least amount of investor activity. As investors come back from the holidays and volume picks up, we will have a better sense for whether the market has hit a bottom or if lower-lows are ahead.

Technically speaking, there wasn’t much improvement this past week. The end of the year tends to be a crap shoot too because many investors are looking to buy/sell solely for tax reasons. If I were to guess, I would imagine that there are a lot of investors who are looking to sell once the new year rolls over. That is a negative near-term outlook, based on nothing more than my gut opinion.

The bigger issue is the long-term view of the market. At the end of October, a month in which the S&P fell roughly -7.0%, I showed the below monthly chart of the S&P 500 index. I indicated that there were 5 points in history dating back to 1987 that resembled how the market looked at October-end. Two of those comparable points in time had positive outlooks, while the other three were starkly negative. The market was unable to rebound after the sharp October declines, making the outlook more and more bearish:

In terms of price movement there are comparisons to be drawn between today and the past two recessions. The most significant resemblance shown on this chart is that Relative Strength (RSI) is fading. This is shown in the smaller chart above the main chart. RSI has gone from a reading above 70 to falling below 50 in a few short months. As a reminder, we want RSI to stay elevated because a higher value means greater positive price momentum.

The one thing the above chart does not mean to indicate is that we should expect losses the likes of 2001 or 2008. The S&P fell more than -50% from those peaks, whereas today it is down roughly -20% from the recent peak. It does not mean we are in for an additional -30% decline. What it means is that the future long-term outlook is simply much more negative than positive, however negative that may be if it comes to fruition.

We added to our long-term Treasury bond position (SPTL) last week across most accounts. No other major changes on the week.

In Our Portfolios...

What's New With Us?

We enjoyed a fun Christmas hosting family. We mostly hung around our house, which was nice. Other than that it was a normal work-week for us. I hope you all have a safe New Year’s.

Have a great week!

Brian E Betz, CFP®
Principal

December 24, 2018

14 Things I Think About The Recent Stock Market Drop

December 24, 2018/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Normally this time of year there is very little to write about. Not the case right now. I may have more to say right now than any time over 7 years and the 350 or so weekly blogs I have written.

I want to start by wishing you all Merry Christmas and Happy Holidays. I hope you are enjoying time with friends and family over the next few days.

I am going to break this down in 3 parts:

What has happened in the market these past few weeks and the damage the market has incurred in December.
My opinion in light of current market conditions.
How we are currently invested, what we have done and what we plan to do next.

In The Market...

The S&P 500 fell -7.1% last week. Let's look under the hood:

The -7% decline is the worst for the S&P 500 in more than 7 years. The S&P is down -9.7% for the year with basically one week left. Barring a Christmas miracle, it will be the first down year for stocks since 2008 (2011 and 2015 were essentially flat years).

Last week I posted a chart of the S&P and emphasized how stocks were teetering on the brink of a potential drop. That was not meant to be a prediction, but more so an illustration of the risks that persist. There are multiple risks that I have consistently highlighted dating back to October. Here is that same chart from last week, updated accordingly with the fat red candle on the end that reflects last week’s S&P decline:

The S&P 500 fell through the trap door of those two dashed lines (1 and 2). Those lines coincidentally converged at a price level that may have provided support for stock prices to bounce. It did not. When that support is not held, prices can fall quickly as they did last week.

The headwinds that led to this have been there for weeks. A variety of statistical measures implied that this could happen, from falling moving averages to dwindling price momentum (via Relative Strength). It does mean it was destined because the market has a way of surprising. But the warning signs were there and is the reason we have been sitting heavily in cash the past few weeks.

So now what?

There are two problems I keep coming back to, one of which is more short-term and the longer is more long-term. In the near-term, I get the sense that most investors remain too complacent. Whether that is because they are focused on the holidays or they think that stocks will quickly bounce back like they have at other points in the past decade or they simply do not want to think about it whatsoever. Whatever the reason, it feels like most people are not paying attention. This complacency is one of the reasons I think the market has further to fall in the weeks ahead.

The longer-term problem is that we have shifted from a market where investors are looking to buy when prices drop to a market where investors are looking to sell any rallies. This difference is stark. The whole idea of a rising market trend is that investors are itching to buy when stock prices fall. This leads to prices rising higher and higher over time. In contrast, when the market is damaged like it is, many investors cross their fingers that they can make back something before selling. This leads to prices falling lower and lower over time.

Mark my words, there will be rallies. Significant ones. But they are likely to be followed by more downside volatility.

Here are some of my other thoughts regarding current market conditions and investing behavior, in no particular order:

If someone says they predicted this market drop, take it with a grain of salt. I won’t refute that they may have said it, but I would question how many other times they previously said as much in recent years, only to be wrong. On a long enough timeline any prediction can come true. Most people use hindsight only when it works to their advantage.
Evaluate others not on what they say, but what they do. If someone has believed that the market would plunge, I would be eager to see what they actually did about it within their investment accounts. If they are still heavily invested in stocks or stock-heavy funds, they are contradicting themselves.
If this month is causing you to reevaluate your risk tolerance, good. That does not mean you necessarily need to change anything, but it is important that the risk tolerance you say you are comfortable assuming is actually something you are willing to tolerate.
Focus on the future. You cannot affect what has already happened. With investing, if you dwell on the past without learning anything tangible, it will likely result in making a poor, emotionally charged decision. This is why most investors buy high and sell low.
Have a plan. Be ready for when the time comes. I spent time this past week generating a list of stocks and funds that are on our “buy list” for when market conditions improve. That way we can hit the ground running when it comes time to reinvest.
Your goal should be to capture gains and limit losses. Your goal should NOT be to maximize gains and prevent losses. Notice the difference? For instance, if the market is falling you need to realize and accept that you will lose money. But it is about softening those blows, not eliminating them. If you focus on eliminating them you will be more apt to respond irrationally.
Focus on the long term, which is months and years, not days and weeks. If you are watching your account every day or even every week, it accomplishes very little and will only stress you out.
Do not stop investing. Keep contributing to your retirement accounts. It does not mean you should necessarily buy stocks right now, but it is good to keep the cash contributions coming so that you maintain a consistent behavior.
Buy-and-hold investing is a fine plan if you are comfortable with the volatility associated with the investments you own. If you are not, then it may not be the best plan because when the market falls you rely on hope, not process.
The market can fall -10% or -20% in a calendar year and it does not mean we are having a repeat of 2008. Different times. Different market conditions.
Are we in a bear market? I don’t know and I don’t care. It doesn’t mean anything tangible. I say “bullish” and “bearish” to distinguish between positive and negative, but I don’t get into defining whether we are in a bull market vs. bear market.
If you hear that stocks are “undervalued” or “overvalued”, disregard it. Supply and demand is the only thing that determines price and is the only thing that matters.
Forget politics. In the same way that I did not credit President Trump when the market rose throughout 2017 I do not blame him for the market falling today. If you disagree with me that is fine, but you are wasting your energy because you cannot prove it. We have an innate tendency to want to explain why things happen. Politics are an easy target for that. But ultimately you cannot know what motivates buyers to buy and sellers to sell, so it is a fruitless exercise to credit/blame politicians.
Guess what? In the long run, stocks do go higher. As I wrote back in February and again in October, it likely would be a bumpy ride for a while. But unless you refute 100+ years of market history, eventually the market will recover.

What we are doing: As mentioned we have been holding a significant cash position across most accounts, so December has not been as bad for us as it has been for others. Most accounts continue to be anywhere between 50% and 75% cash. With that said, we are not 100% cash so some level of loss is likely when the market tumbles like this.

We continue to hold a Health Care sector fund (XLV), which turned out to be a poor buying decision in hindsight. But I can live with it given the high percentage of cash we are holding and the fact that Health Care, relatively speaking, remains the healthiest segment among the 10 major stock sectors.

We cut our position in the high-dividend S&P index fund (SPYD) very early in the week. So, while half of that position bore the brunt of the full week, the half we sold was fairly unscathed.

The bond market has perked up in the past few weeks, as it often does when stocks decline. We added a small position in a long-term U.S. Treasury bond fund (SPTL) at the very end of last week. In the event that the stock market moves lower, there are relatively good odds that more investor money will flow into conservative investments, such as Treasury bonds. However, because the near-term odds of this are not quite as bullish as we would like to see just yet, we kept the size of the purchase pretty modest. We will look to add to this position if bond market conditions keep improving as we think it may.

For accounts that own individual stocks, we have had a couple misses in the past two weeks but have done an okay job of limiting those losses.

In Our Portfolios...

What's New With Us?

Enjoy the holidays. If you have any questions, we will be working all week (Christmas aside). I deeply appreciate the trust you all place with us to make wise investment decisions. In doing so we will continue to levy our best judgment based on the rigorous amount of analysis that goes into our investment process.

Have a great week!

Brian E Betz, CFP®
Principal

December 17, 2018

Deadlines To Make Retirement Plan Contributions

December 17, 2018/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Quite a bit to cover this week. Let’s start with a change we are making next year, which will affect some of you.

We are going to conduct all client reviews during the first quarter, between January 1st and March 30th. If you already meet with us during this time period for our review then nothing has changed. However, if we typically meet outside of those months, expect that we will want to move up our review date in 2019. The exception would be if we met very recently then it does not make sense to meet so soon again. But contact us and we can discuss whether a review is necessary.

We are doing this for a couple reasons. First, it allows us to meet with you during tax season, which is a time when most of you are already thinking about your finances. Second, it helps us streamline our annual review process.

We have received numerous questions about retirement plan contribution deadlines. Here is a brief video we created explaining the different deadlines for various IRAs, as well as 401k plans.

Retirement_Account_Contribution_Deadlines 12-17-18 from Brian Betz on Vimeo.

There were a few interesting headlines to come out of last week. In no particular order:

Johnson & Johnson executives reportedly knew that the company’s baby powder contained asbestos for decades but failed to report it. J&J executives refuted the reporting done by Reuters, however J&J shares still dropped -10% Friday.

Apple (AAPL) plans to build a $1 billion plant in Austin, TX.
Amazon workers in New York are threatening to unionize due to what they say are poor labor conditions.
The European Central Bank (ECB), which is to Europe as the Federal Reserve is to the US., plans to end its years of bond-buying programs that have been used to boost the European economy. This is specifically known as “quantitative easing” (QE).
Meanwhile, the U.S. market fell to a 9-month low.

In The Market...

The S&P 500 fell -1.2% last week. Let's look under the hood:

Another rough week for stocks. The S&P 500 finished at its lowest weekly close since March 2018. The S&P index is down -2.8% year-to-date with 2 weeks left.

As I write this the S&P is down roughly -6.5% in December. How rare is it that the S&P would be negative in December, let alone down -6%? In the past 30 years, the S&P has only been down 5 times in December. Very rare, indeed.

Entering this week the S&P faces three stiff challenges, as illustrated in the chart below. The first is that the price of the index has fallen back down to its previous low from February/March. The hallmark of a healthy market is seeing higher price-highs. Conversely, an unhealthy market is characterized by lower price-lows. In this case, if the S&P falls below that dashed line (#1) it is anything but healthy.

Take a look at this on the chart and then I’ll explain the other two problems.

Similarly, the other dashed line (#2) represents the long-term rising trend line that the S&P 500 has previously used to buoy itself and propel it higher. If that occurs again here, great! But if it doesn’t and the price falls below, look out.

Finally, and possibly most concerning, is that Relative Strength (RSI) is fading lower and lower (#3 above). We use this statistic to supplement our price analysis. It helps indicate whether there is strong or weak momentum behind the price moves that occur. Right now RSI is struggling, which is a problem amid falling stock prices. In fact, notice how RSI is lower today than it was back in Feb./March, a time when the S&P was roughly around the same price as it is today. Back then RSI was holding around 50, whereas today it is holding around 40. In short, we want RSI to be higher, not lower.

We made no major changes to client portfolios last week and continue to sit on a moderate cash balance. In a rare move, we bought and sold a position within the same week. That position was Merck (MRK), which we bought/sold for accounts that own individual stocks.

It is never our intent to buy and sell this quickly, but given how flimsy the market is right now we put a stop-loss on the position, which triggered the sale when MRK fell to the specified price. Simply put, we took a stab and it didn’t work out. Nonetheless, we were out of the position at no gain or loss, so I am content.

In Our Portfolios...

What's New With Us?

On Saturday we took our daughter to a kids soccer class and then on Sunday we went out to Snoqualmie to ride a Christmas train. Both were fun. What wasn’t fun was watching the Seahawks lose a frustrating game against the 49ers.

Have a great week!

Brian E Betz, CFP®
Principal

December 10, 2018

10 Interesting Market Stats Heading Toward Year-End

December 10, 2018/ Percension Wealth Advisors, LLC/ Brian Betz

Three weeks left in the year and we are still awaiting a 4th-quarter rally. With the S&P 500 again negative year-to-date stocks acting pretty volatile, time is running out.

Some stats that might interest you:

If the year ended today, it would be the first time since 1990 that both stocks and bonds finished negative for the year (stocks as measured by the S&P 500 and bonds as measured by the 10-year Treasury bond). In 1990, the S&P lost -3.1% and the 10-year Treasury yield climbed climbed from 7.9% to 8.1%.
A down year for stocks would be the first since 2008, when the S&P 500 fell -37%.
Apple stock, which at one point was up nearly +40% on the year, is now only up +1% in 2018.
The biggest gainer in the S&P 500 this year? The clothing & accessory company Fossil, which is up roughly +115%.
The biggest loser in the S&P year-to-date? Auto part manufacturer Delphi Technologies, which is down roughly -70%.
Bitcoin, which many people had been asking me about this time one year ago, is down -76% in value in 2018 per the NYSE Bitcoin Index (NYXBT).
For what it is worth, the S&P went on to gain +30% that next year in 1991.
The yield curve is extremely close to inverting. More on this below.
General Electric is down -78% from its peak back in 2016.
65% of stock prices among the S&P 500 are below their 200-day moving averages.

In The Market...

The S&P 500 fell -4.4% last week. Let's look under the hood:

Stocks fell back to the lows from two weeks ago. The overall market continues to look weak. Nothing new there. The bond market was more eventful, as the yield curve gets closer to inverting.

A yield curve “inversion” is when shorter-term interest rates exceed longer-term rates. Specifically, we are looking at the 2-year Treasury bond yield potentially eclipsing the 10-year Treasury yield. Here is where they respectively enter the week:

10-year yield: 2.85%
2-year yield: 2.72%

So we are close. Inversion is totally ass-backward, in that it would mean you could earn a higher interest return lending your money for 2 years than you can lending your money for 10 years. That makes no sense and is not what anyone wants to see. Even if the yield curve does not invert, the fact that the spread between short-term and long-term rates is so slim is problematic enough.

So how does it happen that short-term rates could surpass long-term rates? I believe there are two reasons. First, the Federal Reserve has raised short-term rates aggressively, increasing the Federal Funds rate seven times in just the last two years. Second, long-term rates have sank lower due to renewed demand for long-term Treasury bonds over the past month (remember, higher bond demand means rising bond values, which means falling bond rates).

In an ideal world. the Fed would raise short-term rates as the stock market rises. Meanwhile, the demand for long-term Treasury bonds would weaken because investors prefer being in stocks over bonds. Weaker demand for long-term bonds means long-term rates go up as well.

But lately this has not been the case. Short-term rates have risen, but stock prices have fallen. Meanwhile, investors are migrating back into long-term bonds, which has pushed long-term rates lower. In my opinion, this is the worst trifecta of all: Rising short-term rates, falling long-term rates and stock market stagnation.

I’m not quite at the point of talking “recession”, but there are some signs out there that have me concerned. I’ll lay those out if it becomes appropriate to do so. An inverted yield curve is not required for a recession to occur. However, just know that there has never been a recession without one. It usually takes at least a year though for a recession to occur from the time when the yield curve first inverts, so there’s that.

We sold our Utilities fund position (FXU) last week for a modest gain, which consequently increased our cash position. We will continue to seek out new opportunities, however right now the market is so choppy that it is unlikely we will just yet.

In Our Portfolios...

What's New With Us?

It was a pretty rainy weekend, but despite that we went down to Green Lake on Saturday evening. The entire pathway around the lake was lit up, including a pair of giant hot air balloons that was pretty cool to see. It was a fun holiday outing.

Have a great week!

Brian E Betz, CFP®
Principal

December 03, 2018

How Different Investment Accounts Are Taxed

December 03, 2018/ Percension Wealth Advisors, LLC/ Brian Betz

Hi everyone,

Before I get into the latest housing numbers and last week’s stock market performance, watch our brief video explaining how different investment accounts are taxed. Hopefully this serves as a good resource as you start prepping for tax season in January.

Taxation_of_Accounts 11-30-18 from Brian Betz on Vimeo.

Let us know if anything is unclear or if you want additional information regarding taxes.

Real Estate: Home values continue to stagnate nationwide. Home prices were unchanged in the month of September and fell for the second-straight month in Seattle, down -1.3% (per the latest S&P/Case-Shiller report). Seattle was the biggest loser among the 20 major cities tracked, of which 8 cities experienced monthly price declines. Year-over-year, Seattle homes remain +8.4% higher, which is above the +5.5% national average but a far cry from the +13% growth of just a few months ago.

Take a look at how each major city behaved:

Las Vegas has been on a tear, up +13.5% annually, while San Francisco remains in the second spot (up +10%).

In The Market...

The S&P 500 gained +4.7% last week. Let's look under the hood:

The stock market was resilient last week, almost the exact opposite of what had happened the week before. Coming off a -4% weekly loss, the S&P index rallied nearly +5% as all 10 sectors gained.

There were some distinct positives about last week, including the S&P getting back above its 200-day moving average. The end of the week happened to coincide with the end of the month, for which the S&P gained +1.8% in November. It really was not a good month for the market considering stocks lost roughly -7% in October. Most of the same risks that I have been emphasizing since then still exist. Prices are likely to remain choppy, although the news on Sunday that there may be some trade tension relief between the U.S. and China seems to be boosting stocks to start this new week.

We finally added the Health Care sector fund (XLV) that I have mentioned over the past few weeks. By my estimation, Health Care is the strongest sector and last week’s rally has it poised for a bigger run. We will see.

Most client accounts are getting closer to being fully invested, although we are still holding some cash. The bond market continues to flail around, providing no good opportunity. Until that changes, any accounts that include an allocation into bonds will continue to hold cash instead. Contact us if you would like to discuss.

In Our Portfolios...

What's New With Us?

My family went to Safeco Field on Saturday evening, which was transformed into a holiday event called “Enchant Christmas”. From the light maze to ice skating to all of the other activities and vendors there, it was a cool event that apparently will be there all month. Our daughter loved it, as did we.

Have a great week!

Brian E Betz, CFP®
Principal

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