Moore Financial Solutions Third Quarter 2023

Tyler Moore • October 17, 2023

After the S&P 500 recorded an 8.3% return for Q2 in 2023, Q3 was a quick reminder of the downward trend equity investors have seen since the highest levels of January 2022. The Q3 2023 report highlights this quarter’s -3.65% S&P 500 move from 4,450.38 to 4,288.05 (1). With most Moore F.S. investors viewing their statements monthly, these last two months offer additional disappointment following a fruitful July, where the S&P 500 created a 3.11% return. We look forward to the quarterly reviews that highlight the many positive factors commonly on the horizon for U.S. equities, but for now, we are left detailing three major concerns within equity investing and a couple positives that may be looming. However, it remains my personal goal to not trade in and out of equities as these three issues could all hypothetically be resolved overnight, and Moore F.S. clients be left behind in the markets.

Since you’ve likely been leaning on the Moore F.S. quarterly reviews to get quarterly general information on what is setting the trend in your account, you’ve likely understood some basics. A major influx of cash into the economy from quantitative easing (oversimplified as the Federal Reserve adding money to the money supply since the Great Recession) as well as direct payments to citizens during the pandemic created high inflation. If left untamed, this inflationary risk could go on for a few more years and then burst into a very deep recession, or worse. Monetary policy tightening can occur by the Federal Reserve (which we will shorten in title to “the Fed”) through interest rate increases, quantitative tightening, and increases to bank’s reserve requirements. The Fed has elected to continue a firm trend of quantitative tightening and a variable trend of interest rate increases. In other words, they aim to be data dependent on the rate of interest rate hikes, and continually monitor if more interest rate increases are needed. Thus, the stock market hangs on every word the Fed presents, in hopes of identifying the short-term direction of stocks. In Q3 the Fed seemed to suggest they were ok with rates staying higher for longer given the solidity in U.S. job markets.

Up until this recent quarter, most of the Fed’s rate hikes have increased short term rates, while the long end of the yield curve was slow to react. The yield curve inverted, creating a strange occurrence of short-term yields being higher than long term yields. Moore F.S. bought more short-term debt in Q3 than any other debt. However, a major transformation occurred in Q3 2023, where longer-term interest rates suddenly increased as well. In Q3 2023, the U.S. 10 Year Treasury Note moved from 3.84% to 4.58% (2). We feel that the Fed is looking at the labor market to determine their success with interest rate increases, and they wish to see slight cracks in the labor market to ensure their battle against inflation is won. Moreover, we feel that interest rate movements are largely supply and demand driven, so until the bond market (bond investors) bought into the Fed’s determination to keep rates higher for longer, as the Fed has indicated, rates were too stubborn to move. We view the Fed’s conversation regarding accomplishing its goal as coming within 6-15 months based on these significant rate increases on the longer end of the curve. We see the Fed as a risk to the market, but also one of the greatest potential positive impacts to markets as well. The risk of the Fed’s overtightening could negatively impact markets, while the Fed signaling their work is done against inflation might be the driving factor to reach the previous 2022 market highs. Additionally, we believe the Fed will likely reduce rates within 12-18 months of their last interest rate increase, impacting stocks and bonds positively. Rate cuts occurred about eight months after the last round of rate increases, which ran from 2015-2018. These three rate cuts in 2019 were actions taken by the Fed in what the Fed referred to simply as a “mid-cycle adjustment” (3).

Another contributing factor to Q3’s lack of performance includes the unprecedented strike of the United Auto Workers union (UAW) against the big three auto makers, General Motors, Ford, and Stellantis. Wall Street weighed the risks of the domino effect that a long-lasting strike may have. “Our theoretical math suggests that labor cost increases should largely be manageable for the D-3. Further, a work stoppage should keep inventories low and support prices staying elevated, which should be a near term offset for higher wages,” RBC Capital Markets analyst Tom Narayan said in an investor note (4). Automakers represent a basic economic example of the ripples that can be sent through suppliers and local communities. Areas where UAW labor makes up a large portion of economic activity could quickly see nonessential businesses (e.g., restaurants and entertainment) close their doors. While a small supplier of windows used in the production of cars could be sitting on inventory and loans needing to be paid and could be losing money quickly. We view the risks related to the UAW strike as potentially more impactful than just lost wages in Detroit. “When GM gets a cold, the suppliers get pneumonia,” said Arthur Wheaton who is the director of labor studies at Cornell University’s School of Industrial and Labor Relations (5). Clearly, it is best to resolve the stoppages sooner than later for the broad economy. We look forward to a resolution that avoids long-term concerns and believe a deal will positively impact the broad market, continuing the theme that this issue could be resolved overnight, and we must remain allocated to equities when appropriate.

It couldn’t be a Moore F.S. quarterly review if we weren’t counting down the days until the next debt ceiling is reached, whether mentioned in our reviews or not. However, we feel each deadline becomes more difficult to reach a deal as the debt ceiling allowance ultimately is increased each time, it is currently above $33,500,000,000,000 ($33.5 trillion) (6). To put this into perspective, only three years prior this number was below $27 trillion. Another just in time deal was reached to keep the government operating until November 17th, 2023 (7). We find an uneasy feeling with the trajectory of deficit and the debt ceiling issues. Over the last year (since October 2022) the federal government’s spending exceeded its revenues by $1,524,166,099,656 ($1.52 trillion) (8). Additionally, we remain hopeful a solution can be reached before November 17th, giving the market some more breathing room. However, continually extending the debt ceiling is not fixing the underlying issue of spending, in the opinion of Moore F.S.

In summary, Q3 2023 is ending with a high level of uncertainty. Most notably this high level of uncertainty pertains to the direction of interest rates, which hinges on the results of the Fed’s fight against inflation. My goal of highlighting the main three concerns the stock market faces (the Fed, UAW strike and the debt ceiling) is not to sound pessimistic, but rather to point out that the market has already factored in these concerns. We are excited for when the issues subside, especially as it relates to the Fed signaling their work against inflation is done. I realize that investing and seeing your money go up, down, or sideways is an emotional part of your life. In the same respect, I also understand that if we simply move all your assets to Treasury bills, which do offer a nice yield on short term money, your long-term positions will not be able to keep up with and outpace inflation in the way stocks and bonds have historically. As a result, my overall goal with you is to work in a balanced manner and remind you of the volatility that comes with investing in stocks or bonds. While there are no guarantees, the stock market has the potential to build your wealth, if you give it time. Historically, $1,000 into the S&P 500 in 1994 (a 30-year investment approximately) would now be $16,255.77, which represents a 9.91% return each year with dividends. Factoring in inflation, you’d be holding $6,827.13 worth of 1994 dollars (9). Thus, I believe if investors are willing to ride the ups and downs of markets their patience may be rewarded. I thank you for our strong partnership towards your goals and the trust you place in me.

Tyler A. Moore

TMoore@TMooreFS.com

https://finance.yahoo.com/quote/%5EGSPC/history/
https://www.marketwatch.com/investing/bond/tmubmusd10y/charts?countrycode=bx&mod=mw_quote_advanced
https://www.forbes.com/advisor/investing/fed-funds-rate-history/
https://www.cnbc.com/2023/09/12/wall-street-sees-potential-upsides-of-uaw-autostrikes.html#:~:text=A%20UAW%20strike%20could%20%E2%80%9Cdrive,if%20tentative%20deals%20are%20reached.
https://www.automotivedive.com/news/uaw-strike-domino-effect-suppliers-gm-general-motors-ford-stellantislear/691542/
https://www.usdebtclock.org/index.html
https://www.cnn.com/2023/10/01/politics/congress-spending-bill-government-open/index.html
https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
https://www.officialdata.org/us/stocks/s-p-500/1926#inflation

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.

< Older Post

Newer Post >

Mail

Moore Financial Solutions 1st Quarter 2025

By Tyler Moore • April 10, 2025

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.

Moore Financial Solutions 4th Quarter 2024

By Tyler Moore • January 23, 2025

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.