August 2024 DWM Market Outlook
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Policy/Politics: While a change in US Policy regarding Tax, Government Spending, Foreign Relations etc. is of course possible, it is not yet a certainty by any stretch. Still need to see how November elections shake out and making major tactical decisions with our clients’ portfolio based on something that might happen (vs. certain to happen) has not historically been prudent. However, should a major change of policy direction become clear at some point in the next several months then we will most certainly address it. As we have discussed at length over the years, a “split government” structure in Washington D.C. is generally the most likely historical outcome in election cycles, making major shifts in policy (impacting investors) less likely. Both Republicans and Democrats would realistically need to win ALL (3) Branches of Government to pass potential “game changing” legislation. But again, should major strategy or tactical allocation changes be warranted, we will of course address them accordingly.
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Recent Sell-Off: As you may already know, the most recent stock market sell-off/correction of roughly 5-10% is for multiple reasons...not a single reason. This historically happens at least once per year and sometimes more, even in years when the investment markets are strong and have produced significant positive returns. In other words, not something that is out of the ordinary and thus requires a dramatic response. Most recently, this has been caused by the unwinding of the Japan “Carry Trade”, some softer than expected labor market news last week, simple profit-taking in stocks that have had massive moves higher in 2024, among other factors, but again, this is normal on a historical basis and investment markets are still positive year-to-date even after this uncomfortable period. Once the current Carry Trade “unwind” completes its correction phase over the coming days/weeks, we anticipate the markets will stabilize and focus more on traditional fundamentals.
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Fundamentals: At this time, core US Economic fundamentals continue to show positive and stable attributes: Corporate Earnings expectations for the rest of 2024 & 2025 and US Economic Growth are positive, Inflation is becoming more and more benign, and Unemployment is still low on a historical basis (Americans are working). Until these factors change in a meaningful way, it is more likely than not in our view that capital markets can continue to produce positive returns for investors. An Economic Recession in the US appears unlikely in the next 12-18 months, but we will continue to monitor the underlying data and act accordingly.
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Capital Gains/Taxes: As we have discussed in the past, when we do ultimately re-balance and adjust portfolios, we will focus more heavily on IRA accounts as no taxes are incurred when we buy & sell securities. Taxable accounts can certainly be addressed/modified as well however we just want to be “tax-aware” when doing so. We always strive to help clients be as tax efficient as possible.
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The Long Term: It is common for clients to inquire (during difficult/negative market stretches) whether it makes sense to “raise cash” that can be re-invested at later date. In our opinion, this strategy is a form of attempting to “time the market” which theoretically requires that an investor would know precisely when to “get out” AND then “get back in”. This strategy has historically proven to be exceedingly difficult to manage and in my personal experience in the last 25 years, I have never seen it executed successfully. When we build financial plans for our clients, we project reasonable long-term returns on capital and avoiding market timing scenarios has historically provided the best path to productively working towards those return expectations. Our clients’ portfolios continue to be positioned for long term appreciation of capital in a thoughtfully diversified pool of investments and in what I often refer to as “Bend but Don’t Break” style. Assets have thus far achieved returns above our own projections/expectations which is great and we will continue to be diligent and make tactical changes as needed to pursue long term goals and keep risk/volatility at reasonable levels.
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Warren Buffet: While certainly interesting that Berkshire Hathaway sold a large stake in Apple recently, we believe that happened for mostly self-focused reasons vs. a “big picture” market call by Buffet and his team. Their position has grown significantly in the last 10 years so a simple act of profit taking is not unreasonable. They also could simply want to diversify into other investment opportunities they are seeing evolve in the global marketplace. They could possibly just want to raise cash for charitable giving or estate planning purposes. Could be tax driven if they want to realize the massive capital gain now and not in future years. It couple be something else or even a combination of all of these. Impossible to know for sure as it is their proprietary internal decision to do what they believe is in the best interest of their shareholders. But in summary, it does not appear to us that this is a “he sees something we don’t” scenario and is likely more based on general planning and investment management rationale.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and there is no guarantee of future results.
**The economic forecast set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful or protect against loss.
