What Makes This Bull Market Different?
Estate Planning Fundamentals
Adviser Market Update
Strategy Activity Update
What Makes This Bull Market Different?
We’re running with the bulls again. It may be hard to believe given recent worries about the debt ceiling, Federal Reserve policy, lingering inflation, the overarching possibility of recession and more. But despite it all, if you include reinvested dividends, the S&P 500 was up more than 20% from its October 2022 low as of Friday, June 2.
It would be easy to assume that this rising tide has lifted all ships, but that’s not so. The “concentrated markets” trend is still in play. Let’s review what’s going on under the surface and some key takeaways.
The Magnificent Seven
You may have heard about the Magnificent Seven in recent weeks. It’s not a reference to the classic Western film (though we’ll touch on that in a moment) but instead to the seven stocks that have been behind a large percentage of the stock markets’ gains this year.
The Magnificent Seven are not all in the tech sector, but those that aren’t are nonetheless tech-adjacent (their business is driven in large part by advances in hardware, software and data crunching). And recently, the rise of artificial intelligence has created a tailwind.
Collectively these stocks (Apple, Alphabet, Tesla, Amazon, Microsoft, Meta and Nvidia) have returned 50.3% since the market bottomed on Oct. 12, 2022, and they’ve returned 70.9% year to date through June 6. They are all included in the S&P 500, boosting it to gains of 21.1% and 12.4% over those respective periods.
By contrast, the S&P SmallCap 600, which includes none of the seven, has returned just 3.6% this year and 10.6% since the market’s October 2022 nadir.
This is a remarkable run of outperformance from a very narrow slice of the overall stock market. Our investment team does not have perfect hindsight, but our core portfolios have benefited from exposure to these stocks this year.
Note: Chart shows hypothetical growth of $100,000 using total returns for the S&P 500 index, the Magnificent Seven (Apple, Alphabet, Tesla, Amazon, Microsoft, Meta and Nvidia) and the S&P SmallCap 600 index from 10/12/2022 through 6/6/2023. Sources: Morningstar Direct, Adviser.
How Does the Story End?
The analyst who coined the phrase “the Magnificent Seven” tapped into a deeper narrative of changing fortunes (intentionally or not). In the 1960 film of the same name, four of the seven gunslingers hired to defend the village against bandits didn’t make it out alive. The three survivors regarded themselves as no better off for their troubles. Life may not imitate art in this case, but there are parallels.
As wealth managers, we know the cyclical nature of the stock market well—what’s in favor today could be on the losing end of economic, technological or geopolitical trends tomorrow. And we don’t have to look too far back to find a time when these seven stocks collectively underperformed the broader market by a large margin. Between December 2021 and the end of 2022, they fell 46.4% compared to the S&P 500’s 18.5% decline over the same period.
The takeaway? Point in time and point of view both have a lot to do with stock market narratives.
Estate Planning Fundamentals
Your financial plan is only as strong as its weakest link. For many, that weak link is an estate plan. A recent survey found that 67% of Americans have no estate plan at all. Among the 33% that do have one, it’s unfortunately common to let those documents languish for a decade or more after the plan’s creation. These documents should not be left on a shelf—they should be updated regularly. We recommend reviewing them every five years as well as when Congress or the courts substantially change the laws governing these plans.
But before you create or revise a plan, you need a team of experts in your corner to make sure that every possible factor is considered and conveyed to the professionals who are working on your behalf.
That’s what we’re here for. We coordinate, communicate and clarify the estate planning process for you, paying attention to every detail: What matters most to you; where accounts are located; who the beneficiaries are; what properties or valuables need to be accounted for; whether your legal documents are well organized and in one place; how assets will flow from your estate to your heirs. We’ll even provide a framework for tracking your digital accounts, credit card accounts and airline miles.
Using this information, we’ll make sure you have a well-drafted estate plan that clearly determines who’s in charge and who gets what (plus how they will get it), which can help eliminate or at least manage family drama. Your plan will also cover how to minimize taxes and costs. It sounds straightforward, but crafting a plan that delivers on all of the above takes work and is well worth the effort.
With that, here are three estate planning action items we undertake with clients when we’re helping them refresh or create a new plan:
Update foundational documents. This includes a will or trust, durable power of attorney, health care documents and beneficiary designations. A will allows you to outline how your assets should be distributed upon your death, including designating your partner or children as a beneficiary. Trusts can help minimize estate taxes and eliminate the probate process. Creating these foundational documents gives you a head start in accomplishing the key goals of estate planning.
Make sure your marital status is current. Have you divorced and/or remarried? Was your right to marry affirmed by the Supreme Court’s 2015 Obergefell v. Hodges decision? The answers to these questions have major bearing on your estate plan. Understanding how the federal government or your state of residence qualifies the legal status of your relationship is crucial—it can affect your spousal rights and entitlements regarding inheritance, health care decisions and more. Anyone who entered into domestic partnerships or civil unions before 2015 should take this step, as should anyone who has not updated their estate documents following divorce or a new marriage.
Take advantage of estate-tax benefits. The legal right to marry carries significant estate-tax benefits. Married couples can utilize the unlimited marital deduction, which allows assets to pass from one spouse to another without incurring federal estate tax. This can help preserve wealth and provide financial security for the surviving spouse.
Adviser Market Update
Here are some of the things our research team is watching this week and why they matter:
June began with a quiet week on the economic and market front. The debt-ceiling drama went out with a whimper instead of a catastrophe as President Biden signed the bipartisan Fiscal Responsibility Act of 2023 into law on Saturday, removing a significant concern for markets worldwide. News of the successful negotiations drove stocks higher, crossing one major unknown off investors’ minds.
The job market remains hot heading into summer. The economy added 339,000 jobs in May, nearly double the amount expected. The Dow Jones Industrial Average posted its best day of the year upon the jobs read’s release last Friday. While the strong numbers may pressure the Federal Reserve to raise interest rates again at next week’s meeting in its battle to cool the economy, we’d note that annual wage growth is slowing, reducing at least some inflationary pressure.
Volatility as measured by the Cboe Volatility Index (aka the VIX or the “fear gauge”) is at a two-year low, often indicative of upward market trends (see the article above on the bull market). Recent trading days have seen strong performance from the financial sector and small-cap stocks as apprehension diminishes around these economically sensitive stocks—another good example of why it pays to diversify and
Strategy Activity Update
Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.
Dividend Income
No trades
AIQ Tactical Global Growth
Sell Cash
Buy iShares Core S&P 500 ETF (IVV)
AIQ Tactical Defensive Growth
Sell Cash
Buy iShares Core S&P 500 ETF (IVV)
AIQ Tactical Multi-Asset Income
No trades
AIQ Tactical High Income
No trades
If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@advisercapital.com.
Please note: This update was prepared on Thursday, June 8, 2023 prior to the market’s close.
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Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.
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