Moore Financial Solutions Fourth Quarter 2021
Tyler Moore • January 13, 2022
Quarter four of 2021 provided the best quarterly gain for the year, sending the S&P 500 10.65% higher (Yahoo Finance, 2022). This productive quarter allowed the S&P 500 to move higher in all four quarters within 2021 (Yahoo Finance, 2022). The current low interest rate environment, coupled with a projected gradual increase in rates, continued the “only game in town” theme for stocks, confirming our theory stated in the last Moore Financial Solutions quarterly review. Moore F.S. continued to hold high quality stocks for clients in situations that would allow, and we remain optimistic on the longer-term outlook of United States equities. Q4 offered a slight increase to interest rates, as the 10-Year U.S. treasury moved from 1.487% to 1.51% (MarketWatch, 2022). This modest move higher offered the benefits of higher rates, without the growing pains associated with rapid increases in rates. We consider higher rates a benefit to holders of fixed income in the long-term. This quarterly review will detail how interest rates are determined and how that plays a role within your investment goals. Additionally, we’ll review Federal Reserve policy, Moore F.S. holdings and our 2022 outlook.
We continue to pay significant attention to interest rates. The companies Moore F.S. invests in have a significant ability to make advances when interest rates are low. Just like your household, companies can refinance or make capital improvements at a lower interest rate, reducing the overall cost of these advancements. We would go as far as to say that it may be inefficient for these companies to pay “out of pocket” to make an investment instead of finance the improvement, given the relationship between interest rates and inflation. With interest rates so low globally, it becomes hard for portfolio managers to find safe, low risk income. Short term portfolios may look to the 10-Year treasury or similar investments to provide safe, low risk income. When significant demand is seen at auction for the 10-Year treasury, the yield decreases. By contrast, as the demand decreases, the yield will likely rise. Moore F.S. believes the 10-Year treasury can be a flight to safety in turbulent stock market moments. With the Federal Reserve potentially aiming for interest rate increases, the 10-Year treasury yield will likely rise. If 10-Year treasury yields increase while global interest rates stay low (or negative), demand for treasuries will likely keep a lid on interest rates, as yield hungry investors demand more purchasing at auction. It would be foolish to begin to predict the overall trajectory of rates, so we plan to avoid this prediction. Moore F.S. believes the Federal Reserve has hinted towards rate hikes within 2022. The goal of the Federal Reserve is to not let the economy overheat and to keep a healthy level of inflation. In Q4 of 2021 we have witnessed the Federal Reserve become less confident that inflation is “transitory” and more prepared to make policy change to reduce the risks of inflation. In portfolios where Moore F.S. clients cannot own equities entirely, bonds can offer a portfolio decreased volatility despite having interest rate risk.
Prior to 2008, the Federal Reserve allowed the 10-Year treasury rates to hover around 5% (MarketWatch, 2022). On November 3rd, 2021, Jerome Powell discussed the near-term plan to taper the rate of asset purchases (New York Times, 2021). This was predicted in the last Moore F.S. quarterly review. This tapering of asset purchases started the process of the Federal Reserve getting back to a more normal level of monetary policy. Moore F.S. believes the Federal Reserve will likely increase rates multiple times in 2022. This movement will position interest rates to better handle inflation and recreate an emergency valve for the economy by allowing interest rates in the future to be reduced in a financial emergency. Currently, with rates so low, there isn’t much “dry powder” for the Fed to use in terms of interest rates decreases. In our opinion, the lack of ability to lower rates more, and other factors, created the usage of direct stimulus payments to individuals which may have sparked inflation. We remain optimistic in the Federal Reserve to implement subtle policy change and avoid quick reaction, something both stock and bond holders would appreciate.
In our Q1 2021 review, published in April of 2021, we mentioned the addition of equity holdings that we thought would benefit from public spending, low interest rates and a healthy consumer. In April we added three positions to each client’s account. These positions included Global X US Infrastructure Development ETF (PAVE), Builders FirstSource Inc. (BLDR), & Columbus McKinnon Corp. (CMCO). Moore F.S. plans to keep a close eye on these holdings throughout this quarter and potentially sell the positions, especially ones that have increased rapidly. Accounts created at Moore F.S. in 2021 may not hold the previously mentioned positions.
With a new year comes new goals and strategies for many individuals. For Moore F.S. the new year includes a continued strategy to manage each account on an individual level and include personalized management for each client. In a recent MarketWatch article, J.P. Morgan analysts offered a 2022 S&P 500 closing price estimate of 5,050 (MarketWatch, 2021). If this prediction is correct, a closing price at that level would represent an annual increase of just under 6%, with the S&P 500 closing 2021 at 4,766.18 (Yahoo Finance, 2022). Moore F.S. believes 2022 will be a more turbulent year than 2021, as the Federal Reserve attempts to thread the needle by increasing rates enough to be effective but not send panic through equity markets. We believe the Federal Reserve will increase rates two times in 2022 with each increase consisting of 25 basis points (.25%). We feel that broad consumer strength will be high, company earnings will continue to grow, and stockholders will benefit from exposure to high quality U.S. companies. We estimate earnings growth will not be as significant in 2022 as it were in 2021. 2022 might remind equity investors that, in order to get long-term returns, one must accept near-term volatility. By contrast, predicting a not so fruitful year and missing out on returns, like the ones just posted by 2021, could be more costly. This reflects the buy and hold strategy we outlined in the last quarterly review.
In closing, I want to take a moment to wish you and your family a Happy New Year! It is with great pride that I continue to act as a fiduciary to manage your financial goals in life. I’d like to remind you that I am always available to answer any financial questions you may have, even beyond any questions regarding the assets that Moore F.S. manages. I’d like to offer you my services when it comes to allocating other assets you may have, such as your employer-based 401k plan, for example. If your plan isn’t managed by us, I would be happy to just confirm your holdings are in the most prudent funds, as a value add. I continue to offer life insurance, disability insurance, and long-term care insurance for you and your loved ones. Moore F.S. will never be high pressure about these conversations, but instead will take the approach of education regarding these levels of defensive financial positioning, such as life insurance. The beginning of 2022 serves as an opportunity to remind you that I believe in you and your goals and am excited to move into the next year of our strategy. I strive to continue to offer you cutting-edge trading and reporting through the platform, while personally empowering you to continue to move forward! Whether you’re moving forward for yourself or your family, I’d like to remind you of a quote from Warren Buffett,
“Someone is sitting in the shade of a tree today because someone planted a tree a long time ago.”
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.
