Moore Financial Solutions First Quarter 2021
Tyler A. Moore • April 1, 2021
Q1 2021 is now in the rear-view mirror, and it left us with a lot to review. This quarter brought an unprecedented amount of “firsts”. This is the first full quarter of Moore Financial Solutions, and I am proud to bring personal management with a cutting-edge platform. I would like to continue to welcome you to Moore F.S. and thank you for choosing to do business with us. You remain my (and our) #1 priority, and I wish to make very clear that I am always able to be reached to discuss your account directly. We see life getting back to some level of normalcy in 2021 and a shift back to consistent face to face meetings. I have missed engaging with you in person, face to face. Four Q1 events will be detailed below.
First, Q1 hosted the one-year anniversary of the start of the pandemic. I consider the start of the pandemic when the Big 12 tournament cancelled games in early-mid March 2020. It was clear we were in unprecedented times regarding society, health, and your investments. Looking back over the past 12 months, we see recovery in equity prices, having moved from approximately 2,237.40 on the S & P 500 on 03/23/20 to 3,972.89 to end Q1, and ultimately falling one trading day short of hitting 4,000 on the S & P 500. Moore F.S. clients did a great job of having faith that equity prices would recover when things were very scary, and I personally thank you for that trust. I remember in March ’20 seeing empty store shelves, lock down orders, and the sight we all became very used to, masks! This was undoubtedly a scary sight, but a year later markets are recovering and are on solid footing.
Second, a Q1 interest rate rise is welcomed news to many investors holding investments that pay dividends. However, the long-term gain of interest rate rises comes with some short-term pain. In the first quarter of 2021, the U.S. 10-year treasury yield nearly doubled from approximately .93% to 1.73%. This increase brings rates back to a more normal level as the 10-year treasury historically has been over 4%. Fixed income and bond portfolios saw price pressure as interest rates rose, as they maintain an inverse relationship of price and yield. When yields go up, Moore F.S. will be able to purchase bonds for you that have higher yields. This is a great thing, but the bonds you already have in your portfolio will lose some price, because they are less competitive in yield to the newest bonds issued at higher yield. For example, a bond that was worth $100 may have decreased to $99 dollars on days interest rates sharply rose. Moore F.S. portfolio management strategy was to continue to hold high credit quality bonds with shorter durations. These short duration bonds did not experience as much negative price pressure as longer duration bonds. Q1 had roughly half a dozen trading days where equity markets were higher, but a rise in interest rates caused a balanced portfolio to be down overall for that day due to bonds’ repricing. Bonds now have a better entry point than they did to start the year, having already experienced the interest rate rises this quarter. We expect interest rates to continue to rise over the intermediate and long term.
Third, “stimulus package” became the talk in mid Q1 as rumors of a $1.9 trillion dollar emergency package drove the market higher. These payouts likely gave consumers a bit more confidence in what was a difficult time for many, and businesses were positively impacted with a jolt of sales. It is still to be determined, and a near term concern of Moore F.S., if these large jolts will spark inflation and to what degree. It goes without saying that the Q1 stimulus package will go down in history.
Last, GameStop. You definitely heard about this monumental market force that had never been seen until Q1 ’21. The number of calls I received questioning the movement was unprecedented. Ultimately, the GameStop movement had little impact on your portfolio and was a phenomenon few expected. As the pressure of many large hedge funds betting against GameStop mounted, the stock price was driven down. Collectively, investors began to drive the price higher by betting in favor of GameStop and buying the shares. As the price began to rise, those betting against GameStop had to purchase the shares to undo their previous short. These dual forces along with momentum traders jumping on board drove the stock upward significantly. Moore F.S. client accounts did not include ownership of GameStop before or at any point during this phenomenon and we remain committed to owning equities of higher current earning companies, generally speaking.
Looking forward, we believe equities will maintain a path to higher levels in Q2. Of course, it is hard to make assumptions in a limited term such as three months. But we believe the American consumer will continue to live their life as if they now have the freedom to leave their houses after a year and will get out and spend money. Optimistically, we see the Federal Reserve keeping a close eye on inflation and continuing to near their 2% goal. A stronger dollar of recent weeks might act as a tailwind for consumers, while inflation has the opposite effect. An infrastructure bill will likely inject more money into the system, and Moore F.S. plans to increase allocation to areas that may be positively impacted. Moore F.S. looks to add holdings of PAVE, a U.S. infrastructure development ETF, to client accounts when appropriate in Q2, as well as small weightings to Columbus McKinnon Corp. (CMCO) and Builders First Source Inc. (BLDR). We plan to continue to hold recovery names such as Carnival Cruise Lines and Red Robin Gourmet Burger through Q2, when appropriate for clients. We see corporate tax rates heading higher and inflation ultimately pressuring companies in Q2. We see the second quarter
of 2021 being less eventful than the first but remain maneuverable within our investment philosophy. Together we make a great team and aim to accomplish your goals.
Tyler A. Moore
913-731-9105
TMooreFinancialSolutions.com
This material has been prepared for information and educational purposes and should not be construed as a solicitation for the purchase or sell of any investment. The content is developed from sources believed to be reliable. This information is not intended to be investment, legal or tax advice. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values. Investment advisory services offered by duly registered individuals on behalf of ChangePath, LLC a Registered Investment Adviser. ChangePath, LLC and Moore Financial Solutions are unaffiliated entities.
The past 35 days have humbled investors as we witnessed the S&P 500 lose approximately 6% from February 25th into the quarter's close. The S&P 500 finished the entire quarter 4.6% lower, which represents the first losing quarter since Q1 of last year, in which the S&P 500 lost about 4.59%. Much like an emotional play or movie, the market offered three scenes of varying benefit to investor portfolios. Scene one was brief but fruitful. In these first 12 days of the year the S&P 500 rose about 1.92%. Scene two left investors leaning on the emotional lessons learned from 2025's market downturn, with the S&P 500 moving about 9% lower from day 13 of the year until March 30th. Scene three flashed quickly and only represented one day. On this last day of the quarter, the S&P 500 meaningfully rose about 2.9% in an effort to heal a portion of the quarter's losses. I believe, based upon my nearly 14 years of money management, that stock market history doesn't repeat itself, but it does rhyme. Though I'm not predicting a positive year for the S&P 500 (and admittedly not in the business of making such predictions) this year's chart for the broad stock market looks somewhat like last year's. Those first quarter '25 stumbles were later looked at as a massive buying opportunity, symbolizing the power of "buy and hold" as it relates to stocks. Only time will tell if these stock market worries are warranted and if there will be continued damage to stock portfolios because of the conflict in Iran. Additionally, the market is eyeing oil price increases, interest rate increases, various geopolitical risks, and the additional unforeseen risks on the horizon. Or are stock market investors currently pricing in many areas of worry, all of which will subside in the coming weeks? Dive into the quarter's review in which I attempt to illustrate investing through my eyes, discuss quarterly geopolitical events, and speak to market moving factors of Q1 and investor emotions as a result. Use this tool to educate yourself and reduce worry or fear as it relates to investing.
As 2025 ends, we joyfully review another positive quarter for the S&P 500, with it logging about a 2.3% gain, plus dividends (1). Much like a banked 3-pointer in a game of basketball, we won’t complain about scoring points, even though it may not have looked pretty, with extreme volatility near April (and again seven companies creating a large portion of gains.) Realistically, the annual return of 16.39% on the S&P 500 for the year is great, especially when it follows 24% and 23% returns the prior two years (2).However, we take exception to the continual heavy lifting done by the “Mag 7” (Google/Alphabet, Nvidia, Microsoft, Tesla, Meta/Facebook, Apple, and Amazon) as they now make up nearly 35% of the S&P 500. The other 493 stocks making up the S&P 500 represent the other approximately 65% of the index and only returned approximately 10% for the year. I will discuss much more on this and how Moore F.S. has attempted to mitigate some of this Mag 7 risk. Additionally, we’ll discuss interest rate movements along the yield curve, the Federal Reserve, and share our most recent trade and strategy for 2026. More than likely “Mag 7” is a phrase you’ve heard of. Naturally, some of you have not heard of the financial term Mag 7, so perhaps the only thing coming to mind is the 1960 movie The Magnificent Seven. In today’s world Mag 7, as mentioned above, refers to some of our largest publicly traded companies in the United States. Not by coincidence, each of these companies are all using Artificial Intelligence (A.I.) in some way. This ranges from Microsoft being extremely involved, Nvidia the A.I. hardware backbone, to Tesla using moderate adoption for self-driving. Our view is that the recent run up in big tech likely is merited, with J.P. Morgan recently offering, “the advent of generative AI is a seminal moment in tech, more so than the Internet or the iPhone (3).” With some offering such a bullish viewpoint on the Mag 7 we do not fear investing in it for the appropriate client. But, with the Mag 7 having about a 29 price to earnings ratio (read MFS Q1 ’24 review to learn more about how we use P/E ratios) and the other 493 stocks that make up the index having a P/E ratio of only about 20, we believe the time has come to reduce our exposure to Mag 7 holdings. We consider it our foremost goal to balance risk. By taking a risk/reward analysis approach, we believe the value is in the 493, but we are not abandoning the Mag 7 holdings.
