Moore Financial Solutions First Quarter 2023
Tyler Moore • May 1, 2023
The first quarter of 2023 provided an increase in the S&P 500 of 7.03% (1). This welcomed sight to equity investors occurred as the U.S. 10 Year Treasury Note moved from 3.88%, down to 3.471% (2). Without surprise, equities rallied, as corporations were eyeing a lower interest rate, as they prefer to operate with lower rates. Q1 of 2023 continued the trend of falling rates in the open market, while the
Federal Reserve continued to raise rates. In this quarterly review, we discuss the divergence of decreasing open market rates against the increasing Federal Funds rates. We will also highlight the sudden banking crisis (felt mostly by regional banks), and the strategies surrounding rapid increases in short term rates. The Federal Reserve has been aggressively increasing rates. As mentioned in previous Moore F.S. reviews, interest rate increases help determine how quickly the economy will grow. Low interest rates generally mean an easier path to growth but may lead to an overheating economy resulting in inflation. A higher interest rate will reduce inflation but will slow the economy. Currently, Jerome Powell has raised rates multiple times to slow inflation. In many areas, a higher rate has set in, especially in ultra short-term rates. However, the Federal Reserve has struggled to get a meaningful increase on longer dated rates. Furthermore, shorter term debts (a couple years or less) have seen massive increases in yield while longer term debts, such as 10 to 30 year obligations, have increased much less rapidly. In our opinion, investors seem willing to bet that interest rates will not rise significantly over the next few years. Since investors remain willing to purchase treasuries yielding 4.5%, this keeps an invisible cap on rates. Last month the one-year U.S. treasury yield briefly went above 5% (3). Suddenly portfolio managers and fiduciaries had the solution to low yields that we’ve been searching for over the last decade. Just as suddenly, the stock market has a competitor of investment attention, the bond market. The 10 year treasury now offers approximately 3.5% yield, while only one year ago in late March of 2022, it paid only approximately 2.4% (4). This undoubtedly takes away demand from the broad stock market. We began using individual U.S. treasuries in Q1 due to the sudden surge of short-term yield. This marks the first purchases of individual treasuries for Moore F.S. as we found no need to buy treasuries with the
previously extremely low yields. This recent addition allows Moore F.S. to purchase conservative government treasuries at a higher rate than bank certificates of deposit. We note two types of hypothetical investors regarding rates and inflation. First, inefficient investors two years ago (hypothetically) who purchased extremely low yield while their money was significantly eroded due to the high inflation over the next couple years. Secondly, investors experiencing high current short term treasury rates going into what may be cooling inflation. In other words, we aim to see a yield that is significantly higher than the inflation rate. Clearly Moore F.S. intends to be in the second group and although we are not giving the “all clear” on the risk of rising rates, we feel much better at these levels than we did a year ago. As your fiduciary we aim to reduce our exposure to bonds/treasuries while rates rise and own bonds/treasuries in flat or falling interest rate environments.
If you stay up to date on Moore Financial Solutions quarterly reviews, you remember reading about Sam Bankman-Fried (S.B.F. as he is often called) and his real-life story of how not to operate a hedge fund, or any business for that matter. We recently discussed our stance on how S.B.F. and his operations were not connected to broad equity investments. This quarter the latest concern is Silicon Valley Bank (SVB). SVB was the 16th largest bank in the United States with assets of $209 Billion in December (5). Like any bank SVB took in deposits of customers and essentially drove revenue on those deposits in one of two ways; lend out deposited money for a higher rate or buy securities that offer a higher rate than the rate they pay on deposits. Examiners were able to determine the main detriment of the business was the over exposure to U.S. treasuries, like the 10-year treasury that we previously mentioned(6). Let’s dive into the fundamentals of a treasury note. A 10-year treasury note hypothetically issued today pays around 3.471% as discussed above. This investment is typically purchased for $1000, and 10 years later will mature, returning the investor’s $1,000, and each year along the way will pay interest of$34.71. Bonds contain financial risk in two major ways: inflation risk- the potential that the interest rate of 3.471% will lose purchasing power to inflation, and interest rate risk- a reduction in price of the bond due to a rising interest rate environment. Since everyone knew interest rates were rising (except this bank somehow), a limited amount was allocated to bonds in most cases. For example, Moore F.S. recently discussed that we trimmed bond positions July 14th of 2022 to let the “storm” of rising rates pass and buy back into bonds at a lower price. Furthermore, as interest rates were rising, the bonds that SVB purchased for $1000 were losing value. Yes, they would eventually mature 10 years later at $1,000 but SVB had to sell bonds to meet other obligations, and this led to a $1.8 Billion loss (7). The Sub-Prime Mortgage Crisis of 2008 taught us to understand that banks are closely related, and a “run on the banks” can cause a contagion effect. Thus, immediate action is needed. This problem is further complicated by the reaction of individuals and businesses to make a “run on the bank” and desperately/rapidly remove their deposits from the bank. To meet withdraw requests, SVB, in this case, needed to sell notes/bonds at a loss. For each $1,000 they invested in notes they only received $970 from the sale of the note, hypothetically. The more withdraw requests that came through, the more notes were sold at a loss, and this uncontrolled spiral led to the collapse of what was the 16th largest bank in the U.S. just 100 days prior. On March 26th, 2023, First Citizens Bank bought the majority of SVB deposits and stepped in to calm people’s fears (8). Markets have reacted positively, and although a few more banks have fallen, the threat of widespread bank failures seems limited. Moore F.S. aims to add a weighting to the financial sector as bank’s balance sheets remain healthy, and in our opinion, rates will remain high enough to positively impact profits. We believe most clients need to be in the stock market and willing to tolerate the volatility that comes with it. There are many things that can knock the market down; SBF, SVB, etc. and there will always be new problems coming, but we are going to continue to be disciplined in markets. Much like your home, there are always going to be issues arising, but tackling them as they come in is a much better strategy than selling your home. Likewise, volatility in markets doesn’t mean we should sell.
In our discussions with clients, we spend a lot of time strategizing stocks because ultimately more strategy goes into a stock allocation than a bond allocation. Additionally, for many clients with a long enough time horizon, a full stock allocation remains prudent. However, bonds are making a comeback, and in some cases very rapidly. The rates that Moore F.S. can offer through holdings of short-term treasuries have jumped considerably. For example, two years ago (March 28th, 2021) the U.S. 1 Year Treasury Bill offered a less than desirable yield of .065% (9). The current yield to close the quarter now stands over 72 times higher at 4.689% . Furthermore, in those same two years the U.S. 10 Year Treasury Note yield only saw an approximate doubling from 1.72% to 3.471% (10). In the opinion of Moore F.S. we believe this offers an incredible opportunity for a higher yield than bank savings, while continuing to offer a conservative strategy. In our opinion, every interest rate tick higher by short-term treasuries creates more reason to avoid rushing to pay down debts that were issued in a very low interest rate environment. Please call if you’d like to discuss these strategies as we are getting many of these inquiries.
Moore F.S. portfolios are created uniquely and individualized for every client. I not only take pride in this style of management, but I think this is truly the only opportunity to act as a fiduciary in managing the account. In the last six months I have seen an alarming rate of clients just following broadly based advice without identifying what is optimal for their individual situation. Luckily, these clients find better efficiency when they come to Moore F.S. I just want to take a moment to encourage you to ask questions and feel free to run strategies by me. Financial advisory is like health care, there may be some rules to live by that apply to most everyone, but the greatest treatment will always be individualized.
Tyler A. Moore
913-731-9105
1. https://finance.yahoo.com/quote/%5EGSPC/history/
2. https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
3. https://www.cnbc.com/quotes/US1Y
4. https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
5. https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676
6. https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676
7. https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676
8. https://www.investopedia.com/what-happened-to-silicon-valley-bank-7368676
9. https://www.cnbc.com/quotes/US1Y
10. https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
11. https://www.raymondjames.com/soundwealthmanagement/pdfs/sbbi-1926.pdf
12. https://www.marketwatch.com/investing/fund/tlt
13. https://finance.yahoo.com/quote/BTC-USD/history/
14. https://fred.stlouisfed.org/series/MORTGAGE30US
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 Creativeone Wealth, LLC a Registered Investment Adviser. Creativeone Wealth, 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.
