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.
About thirteen years ago when I started my career as a Financial Services Professional, I was almost instantly astute to the number one factor that determines client success. Of course, this determination was solely my own opinion. I’ve never turned on CNBC and heard scientific data backing it and likely never will. You can nearly ignore researching passive management vs. active management, throw out a comparison of exchange traded funds vs. mutual funds, and forget all about whether a Roth IRA or Traditional IRA suits you best. I believe the number one determinate of success that a client must have is “Proper Expectations”. It is by no coincidence that I believe Moore Financial Solutions clients have extremely reasonable, and ultimately the proper, expectations regarding investing. Investing long term is no casino, rather a patient approach to creating current income and future earnings. Prior to gaining licensure to be on your side financially, I know people that panicked and sold their entire portfolio and moved to cash positions in the Great Recession of 2008-09. They told the story years later to me regarding the vast missed opportunity and harm in locking in the losses. Imagine an investor panicking in Q1 of 2009 and selling stocks below 700 on the S&P 500, an index that is about eight times higher today at 5,635 (1). The S&P 500 would see gains of over 75% in the eleven months to follow, peaking this client’s FOMO and desire to get back into the market, only to sharply drop 16% over the next two months (2). My advice to you, and the number one way I can help you with your investment success, continue not being like this example investor. But rather, stay rooted in your investment philosophy. Realistically, the stages of someone’s investment life are humorous. We typically have little money early on, and it is easy to overcome the emotional impact from the money movement (a 10% decline in a portfolio of $2,500 might equate to a couple days’ earnings). But the problem is, there aren’t ample funds in that portfolio to provide life-changing growth either. For example, last year’s approximately 25% increase in a hypothetical S&P 500 index would have added only $500 to that portfolio. You want to play in the big leagues? Think you can handle the emotional impact of stocks and bonds? Try having an account of $750,000 or $1,000,000. You might want to pick up a fun hobby known for reducing stress, because there are going to be times when your portfolio hits rough spots. But there is good news too. Mathematically, just a 5% return on one million dollars is a gain of $50,000, and the reward for taming the emotional torment is much greater. Sadly, Q1 2025 was a great month to lean on those stress-reducing hobbies because the S&P 500 moved 4.59% lower for the quarter (3). Additionally, the S&P 500 moved 8.66% lower from February 19th, 2025, to the end of Q1 (4). Though the 4.59% has some sting to it, moving down nearly 9% in 40 days undeniably tests the emotional resilience of an investor, and we understand this firsthand. We are excitedly moving forward with this quarterly review to discuss what moved markets, tariffs, and what opportunities may arise. Without question, Wall Street found it very difficult to plan around the Trump tariff shifts. On January 26th, 2025, President Donald Trump announced a 25% tariff on Columbian imports as President Gustavo Petro attempted to decline inbound Columbian migrants. Petro retaliated with a 25% tariff against United States made imports. Shortly after, Petro begrudgingly received the migrants, and the trade dispute 2 ended, providing our president a quick trade war win. Moore F.S. believes this quick victory would go on to fuel President Trump’s confidence using tariffs as weaponry. On February 1st, 2025, President Trump laid the foundation for a 10% China tariff and 25% tariffs on Canada and Mexico. Just two days later the president would signal a 30 day pause on each of our neighbor’s 25% tariff (5). These back-and-forth movements continued off and on for much of the first quarter, with many tariff strategies subjecting only specific industries, e.g. automakers or steel producers, creating not only volatility in the broad stock market but especially within specific industries caught up in the talks. President Trump has labeled April 2nd, 2025, as “liberation day” signaling a big event. Throughout this back-and-forth, Moore Financial Solutions has made every effort not to be on the “wrong side” of the trade and has remained well rooted within our equity portfolio, when appropriate. We view, as mentioned in previous quarterly reviews, the volatility within the stock market as the “cost” or “price” paid emotionally to be able to receive the effective returns stocks could offer. In greater detail, rather than Moore F.S. attempting to time markets or predict the president’s next move and potentially being wrong, we’ll ride the storm out. Although Moore F.S. does not predict a bear market (described as a move down of 20% in the stock market), we point to the resilience of the stock market, overcoming all 29 previous bear markets and having done so rather quickly, taking an average of only 289 days to recover from the drop (6). Though we can’t rely on past market performance to guarantee its future, we believe this reaffirms our approach to using the stock market for clients with a long enough time horizon and ability to pay the emotional “cost” of seeing a portfolio move lower. Moore F.S. has theorized in past quarterly reviews, with no data to back it up, algorithmic trading (computers buying stocks at a “floor” or low point which might give the market support), and a trend of increasingly younger portfolio managers who have only seen speedy recoveries and long bull market rides might reduce the average bear market duration.
It is with great pleasure to work as your trusted advisor for another year! We hope you and your family had a Merry Christmas and you’re headed into a Happy New Year. To the surprise of some other financial firms, the stock market created sizable gains in 2024 with the S&P 500 increasing 23.3%, ironically within 1% of the year prior’s 24.23%. Additionally, that same market index returned a modest 2.06% in the fourth quarter of 2024, with all figures mentioned not including dividends (1). With Q4 of 2024 hosting one of the biggest elections of our lives, at least as described by some, we plan to discuss how our money management strategy evolves. We proudly stayed true to our strategy and didn’t decrease our allocation to stocks, while many other firms were selling covered calls and reducing their allocation to stocks as they incorrectly predicted a downturn in the markets for 2024. Even if you were living under a rock, you were likely informed that Donald Trump is headed back to the White House. We reference this change with the understanding that the leadership of current President Joe Biden is quite contrasting to the leadership we’ve seen from Donald Trump in the past, and his campaign promises. The Federal Reserve seemed to have had to slightly adjust their projected pace of rate cuts with the understanding that Trump will be more favorable to the economy through deregulation, corporate tax cuts, and repatriation of jobs. These factors, along with the deportation initiatives, may reignite inflation in the short term. The Center for American Progress puts the undocumented immigrant population in the United States at around 11.3 million, with 7 million of them working (2). To make matters worse, many of these jobs are considered “difficult to fill” and/or “less desirable jobs”. We believe the Federal Reserve felt the need to signal plans to slow rate reductions, after reducing rates in 2024. In September, the median projection for the end of 2025 implied four more rate cuts next year, but the median projection from December’s meeting only projects two more cuts (3). Below is the Federal Reserve’s dot plot, which is a chart that visually represents each member of the Federal Reserve's policymaking committee's projection for where they expect the federal funds rate (the benchmark interest rate) to be over the next few years.
