Sound Advice

This Time It’s NOT Different   Whether economic times are good or bad, there always seem to be wizards making weighty pronouncements that suggest dramatic changes have taken place in the fundamentals underlying the economy and the marketplace.   If in fact one of these turns out to be on target, it most assuredly was as probable as winning a lottery.   The reality is that over time the world of business and investment markets moves ahead in cycles, not in a smooth linear pattern. Interest rates rise and fall.   Inflation surges and moderates.   Corporate profits climb, with hiccups along the way.   And there’s always geopolitical trouble under way or in the wings. There have been numerous events that could have earned the label “different”, but none stopped the ongoing rise in the stock market. In the early 1970s, we were mired in the Vietnam war.   Now the conflict is in Ukraine.   During the late 1970s, interest rates soared into the mid...

The Pendulum Swings Both Ways   For many measures, the average or normal values are rarely the most common.   For the stock market, prices tend to spend more time closer to the extreme ends of the traditional spectrum.   What comes along with this tendency is the expectation that the current path is the one that’s most likely to be followed. Not only is there an expectation of more of the same, but optimism grows as prices climb and pessimism increases as prices drop, which from an investment standpoint is counterproductive.   Lower prices mean you’re getting more for your money.   And vice-versa.   Yet, investors are increasingly spooked by the latest reversal in stock prices. We’ve been through this before and we’ll go through it again.   The pullback that’s been under way since the beginning of the year reflects the long-term process of digesting ongoing economic and geopolitical developments. It’s all part of a much broader picture.   ...

Taking the Pulse of the Market   Although investors are regularly bombarded by claims that movements of individual stocks as well as those of the market overall are predictable, those pitches are on a par with the Wizard of Oz and the Tooth Fairy.   It is reasonable to believe that over extended periods of time changes in the prices of individual stocks and the investment market as a whole reflect changes in underlying profitability.   It is, however, not reasonable to think that forecasts of what will take place in relatively short periods of time have any merit. With that said, however, there are some indicators that may be helpful in pointing toward what lies ahead.   Two of the more useful ones are the Goldman Sachs U.S. Equity Sentiment Indicator and the CBOE Volatility Index, a.k.a., the VIX or Fear Index. The last 14 times the Goldman Sachs indicator hit the extreme low levels that we’re seeing now, returns from stocks in the time that followed were posi...

Are Health Care Stocks on the Mend?   The two sectors that have provided the highest returns in years past have been technology and health care.   We discussed technology last week.   This week it’s health care’s turn and even though the pandemic has brought a renewed focus on health care, most of these stocks have also experienced weakness this year. Let’s focus on Johnson & Johnson, Pfizer, and Moderna since they have been the leaders in development of Covid vaccines.   Although all three have been in high gear turning out hundreds of millions of doses, their stock market performances have been anything but consistent. Last year, it was estimated that Pfizer and Moderna had over $50 billion in sales from their Covid-19 vaccines.   Johnson & Johnson had $2.4 billion in Covid vaccine revenues.     Given those numbers, one might well have expected a significant upsurge in the shares of these companies.   But the net result was anyth...

The Ups and Downs of Technology Stocks Over extended periods, some of the strongest returns have been turned in by technology stocks.   But along the way, there have been big upsurges and unnerving plunges.   Last year, the group of technology stocks known as the FAANGs were market darlings.   The group includes Meta Platforms (a.k.a., Facebook), Amazon, Apple, Netflix, and Alphabet (a.k.a., Google). So far in 2022, they’ve hit the skids.   Here’s the comparison.   In calendar 2021, the FAANGs, led by Alphabet (+65%), climbed 27% on average.   Since January 1 st , they’ve dropped 30%. Other popular pandemic names had even worse fates.   Zoom Communications, often the virtual meeting application of choice, went down 46%, followed by a similar collapse this year.   DocuSign, another favorite, lost 32% in 2021 and then had a further loss of 44% for the year to date. Although the recent rough going for the markets reflects investors’ fears ste...

Qualified Charitable Donations   If you have an Individual Retirement Account (IRA) and give to charitable organizations, you may want to consider doing so using a Qualified Charitable Donation (QCD).   This option will be of particular interest to people who have reached the age (72) of the first Required Minimum Distribution (RMD).   A donation from an IRA with a QCD must be made out and paid directly to an approved charity, not indirectly from an individual’s taxable account after the RMD has been transferred from the IRA.   It must be a cash donation, not a transfer of a property, tangible or intangible and it must be completed within the tax year.   The IRA owner can receive the check and deliver to the charitable organization, but cannot deposit the check and make out another one to the charity. A list of approved charities can be found on the IRS website.   This group includes nonprofit groups that are religious, charitable, educational, scient...

Tough Time For Bonds Over the years, difficult periods for the stock market have invariably prompted “flights to quality” on the part of investors.   In most cases, these shifts meant that funds were being moved from higher risk holdings to those appearing to offer increased safety.   That usually led to a redeployment from stocks to bonds, typically those of the U.S. Treasury or high-grade corporate borrowings.   With interest rates now rising, however, that approach is no longer working.  Indeed, in recent months it has backfired.  In the latest calendar quarter, the Treasury market posted its worst performance in more than 40 years.  For the period, the ICE 15+Year U.S. Treasury Index sustained a loss of 13%.  The iShares 20+ Year Treasury Bond Index dropped 14%. This is typical of what takes place when interest rates are rising.  The rule of thumb for bonds is that when rates rise, bond prices fall.  In most cases, the longer the ma...