Moore Financial Solutions Second Quarter 2021
Tyler Moore • July 14, 2021
The second quarter of 2021 showed strength in equities with the S&P 500 being up each of the three months. The United States equity markets rallied to go three for three, while keeping a close eye on inflationary drag on companies and a historical supply chain issue from Covid-19. The monthly returns of the S&P 500 this quarter were 5.24% in April, .549% in May and 2.22% in June. The U.S. and global economy faced supply chain issues ranging from the inability to physically get shipping containers, to a boom in commodities, such as the well documented surge in lumber prices and labor shortages. One thing seemed clear; the American consumer continued
to spring back from the Covid-19 lull of spending. This quarterly report will review aspects of Q2 regarding supply chain issues, Federal Reserve discussions, interest rates, the Delta Variant, and discuss projections/strategies moving forward.
As the second quarter of 2021 continued the post COVID recovery process, many consumers continued to spend after months of savings. This V-shaped global recovery created an imbalance between consumers and suppliers. This results in price fluctuation. The U.S. and other global economies lack the ability to be highly maneuverable. Instead, these economies take months, if not years, to ramp back up after such uncertainty from the pandemic. After years of demanding smart technology in what seems like everything we use, there has been an increased demand in computer “chips” (to oversimplify). The great 2021 chip shortage, as well as other materials/labor shortages, have created a new phenomenon of “depreciating assets” having appreciated, such as trucks, machinery, equipment, etc. We use this as an example of the impact global supply chain issues can have on our everyday lives.
At Moore F.S., we believe U.S. equity market investors had a close eye on the Federal Reserve and their intentions regarding interest rates and the purchase of securities on the open market. It is our belief that the Federal Reserve will make policy change in some form within a
year or two. Jerome Powell seemed to thread the needle and calm U.S. equity investors’ nerves this quarter with gentle language surrounding the subject of policy change. The Federal Reserve is eyeing the strategy of slowing their purchase of assets on open markets. These purchases essentially add money into the economy and have a quantitative easing effect on our economy. This easing strategy was implemented in the recovery of the great recession and have not fully been discontinued. Investment allocation strategy, especially for more conservative investors, becomes paramount during these times of potential interest rate changes. Moore F.S. bond portfolios favor high quality limited duration bonds, along with other bond types.
Interest rates decreased within the second quarter of 2021. The U.S. Ten Year Treasury note started the quarter with a yield of 1.745% and ended the quarter at 1.469%. In the opinion of Moore F.S., this slight decrease was a result of the overshot of interest rates in March, a month that saw a .33% increase of yield from 1.415% to 1.745%. Additionally, the Federal Reserve strongly sent the message that interest rate increases are not immediately on the horizon. This decrease of rates had a positive impact on the price of bonds. As interest rates fell, the bonds Moore F.S. held appreciated in value, because it became harder for investors to find new bonds paying that higher yield. The iShares 20+ Year Treasury Bond ETF TLT can illustrate this with a Q2 appreciation of 6.57%, moving from a starting value of 135.45 to 144.35 per share. This 6.57% increase in TLT paired nicely with an 8.06% increase in the iShares Core S&P 500 ETF IVV for the quarter. The IVV remains the largest holding of Moore F.S. for Q2 2021. Generally, bonds and stocks may have an inverse relationship, but a decreasing interest rate for the second quarter was a broadly favorable event for investors of both equity and debt holdings. The reduction of interest rates helps potentially increase the margins of companies, then reflects in the share price. Additionally, falling interest rates lead to an increase in the current price of bonds within a portfolio.
Lastly, we believe the Delta Variant of Covid-19 kept U.S. equities from hitting the thrusters with more emphasis. We seem to have lived through so much in the last couple years that it is without surprise that we are not fully in the clear from this mutation. The Delta Variant continues to spread globally and seems prevalent within the Midwest. The uncertainty of how rapidly this variant can spread and how effective current vaccines are will continue to be a key focus in our lives and within equity and bond prices.
Looking forward, Moore F.S. believes the recovery is on, and investors and consumers are willing to continue a path to more spending and higher equity prices. We remain highly invested in the United States equity markets, when appropriate for investors, and continue to be invested lightly into what we consider recovering assets, such as the cruise lines. For investors that can tolerate risk and exposure to volatility, we see Small Cap U.S. equities leading the trend higher over the next few years with much uncertainty in interest rates to potentially influence this trade. We see many of the supply chain issues being resolved in the next 9-15+ months, depending on the industry and sector of the economy.
I remain committed to managing every portfolio in a unique and personalized manner while individually trading each account. It is with great pride I continue to work with you on your financial goals and bring you the most efficient and cutting-edge portfolios and tradability. I continue to manage your goals and dreams, not simply your stocks and bonds. Moore F.S. continues to strive to use high quality companies with ideal earnings, generally speaking. On a personal note, within the second quarter of 2021, my wife, Samantha, and I welcomed second our daughter, Harper, into the world and things have mostly returned to normal within the Moore F.S. schedule and visiting with clients. As always please reach me personally if you have any questions or if I can help you. I remain committed to steering Moore F.S. in the direction of being as efficient and competitive as the largest firms, while providing strategic and personalized service you would find within the smallest of organizations.
Tyler A. Moore
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.
