Gift Tax Confusion
September 1, 2023
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November 1, 2023
By Brett Freese
August and September are historically challenging months for stocks and this year was no exception. The surprise has been in longer-term bond yields rising to near 15-year highs. The silver lining of this two-month pain is that longer-term treasury yields are now within historic norms. This is why it is important to have a well-researched, strategic, diverse, and historically tested approach.
Economic & Investment Highlights:
- The Federal Reserve (Fed) kept the Fed Funds rate the same at the 9/20/23 meeting with a leaning towards one more 25bps increase in 2023. With the 2024 election on the horizon the Fed would prefer not to make interest rate moves in an election year so as not to be perceived as pro or anti the current President. Interesting Reminder on the Federal Reserve: The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment.
- Inflation in rents, salary and some others areas are still very high, but there are continued signs in inflation breaking down. Employment is weakening, but is still at record strength. Many economists are watching the United Auto Workers vs. the “Big Three” Auto makers very closely. There is potential for upward inflationary pressure if there is a strike and upward inflationary pressure if the deal is strongly lucrative for the auto workers.
- Fiscal Policies – The unprecedented spending in Washington will have long lasting effects on the borrowing cost of the US Government especially with interest rates going up. Ongoing Government spending and debt ceiling debates continue to add to the market’s concerns.
- Recession Risks: Where do we go from here? No landing, soft landing, moderate landing, hard landing? Early in the year the stock market and the bond markets had priced in a Moderate Recession for good reasons: The Fed was still raising interest rates and there were many predicting corporate earnings to fall greatly and unemployment to rise. The markets have been positive this year due to economic resilience that jobs are still plentiful and corporate earnings and balance sheets remain strong. The strongest argument for a bear market in the 4th quarter into 2024 is the possibility that the effects of almost two years of Fed rate hikes have not been fully felt yet.
- Geopolitical Risks: The continued war in Europe, China’s ever-changing policies, money printing and tensions over Taiwan, and other challenges will continue to keep the financial markets on their toes.
- Artificial Intelligence (AI) has been a great topic of investment discussion so far in 2023 and extremely difficult to determine the winners and losers of such disruptive technology.
- Most of major stock indices were all down this past quarter (see “Market Scorecard” below).
- Commodities were mostly down this past quarter, with Gold down approximately 3.88% price per ounce, but the broad basket of commodities was up 5.84% for the last 90 days. Oil was up 27.68% for the quarter and up 2.30% over the last 12 months. Oil is currently around $90 a barrel, many in the industry are suggesting that above $90 is where US producers will find it profitable enough to add to production. Note: Energy prices are very difficult to forecast due to many variables like, production, temperatures, and conflict. But, lower or stable prices at these levels will be very constructive in keeping inflation more in check.
- Bitcoin was down 11.33% for the quarter. Many investment firms have filed for investment instrument approval from the SEC. They have been turned down in the past, but there seems to be more confidence that approvals are coming along with regulation.
Historical Stock Market Declines:
Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.
A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years
Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.
Market Scorecard for the last 13 weeks ending 09/30/2023:
US Equities:
– 3.27% S&P 500 (Index of the largest US publicly traded companies)
– 3.58% Large Cap Growth – Morningstar Category
– 2.52% Large Cap Value – Morningstar Category
– 7.32% Russell 2000 Growth (Index of Small-cap growth US publicly traded companies)
– 2.96% Russell 2000 Value (Index of Small-cap value US publicly traded companies)
International Equities:
– 7.79% Foreign Large Growth – Morningstar Category
– 2.01% Foreign Large Value – Morningstar Category
– 6.32% Foreign Small/Mid Growth – Morningstar Category
– 0.63% Foreign Small/Mid Value – Morningstar Category
Bonds:
– 3.06% U.S. Aggregate Bond (Index representing intermediate term investment grade bonds in the U.S.)
– 2.69% Corporate Bond – Morningstar Category
+ 0.18% Short Government – Morningstar Category
– 2.91% Muni National Bond Intermediate Index – Morningstar Category
Other:
– 3.88% Gold Price
– 11.33% Bitcoin
+ 5.84% Commodities Broad Basket – Morningstar Category
Current Annual Money Market Rates ending 9/29/2023:
5.24% Schwab Value Money Market
5.05% Schwab Treasury Money Market
Market Indicators:
Inflation:
3.18% as of 09/01/23 (Down 0.87% from 4.05% on 6/13/23 and Down 5.40% from 8.58% in June 2022)
Unemployment:
3.8% as of 09/01/23 (Up 0.1% from 3.7% in June 2023)
Fed Funds Target Rate:
5.25 – 5.50% as of 09/20/23 (Up from 06/27/23 of 5.00 – 5.25%)
Suggested Next Steps:
- Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. The ups and downs of investments many times seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
- Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
- Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).
