Stocks Get A Santa Rally, Real Estate Slumps

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:

(price data via

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:

(created in

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®

How Different Investment Accounts Are Taxed

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.

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:

(price data via

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®

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

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

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®