Let me be among the first to wish you well this summer. I know, I know, Memorial Day was last month. But officially I write to you during the first week of the season. Summer means different things to different folks: from opening the pool, to visits from the grandkids. A universal theme however, is a rising thermometer.
Stocks are heating up alongside temperatures. May was a tough month in what otherwise has been a robust year for US equities, but our markets have been sizzling like the mercury as we move through June. The parallel is coincidental, but we are happy to enjoy the gains!
When markets are hot, we field questions about harvesting gains. Shorthand analysis like “you never go broke taking a profit” is conventional wisdom, but that does not mean it translates into wise strategy. The appeal of pocketing a windfall when the market pops is something we all feel. But selling just due to higher price amounts to market timing. Market timing generates unnecessary fees and taxable events, and is certainly not necessary for long-term wealth creation. Moreover, many times we wind up exiting our best positions and strongest holdings when we try to time the market.
That said, there are many good reasons to sell an investment. Setting aside technical items like tax planning and rebalancing, I would like to discuss a few of these with you this month:
- Money is needed for something else: You may need funds to make a different investment, pay a tuition bill, or to facilitate a dream vacation. Investments are a store of value, and at points in our lives, we are going to want to reassign that value. It is even OK to sell ‘good’ investments if there are better opportunities.
- An investment thesis is no longer valid: If our reason for making an investment is no longer relevant, it may be advisable to exit our stake. This applies to both single investments and broad allocations (e.g., swapping stocks for bonds as we grow older).
- Valuation has become problematic: Valuation is the price of something relative to our ownership stake/interest, and is more than just nominal price. We understand this intuitively: A $50k lot in a subdivision could be a bargain, while a $30k lot next to busy train tracks might be overpriced. Similarly, a $50 stock could be ‘cheap’ and a $30 stock ‘expensive,’ regardless of the price we paid.
Your Wealth Advisor is a valuable partner. Making sell decisions is not easy, even with a set of guidelines. Monitoring valuation requires data and diligence, tracking thesis points is tedious, and ensuring all decisions are congruent with your (up-to-date) financial plan is daunting. Alas however, there is no need to get all worked up like the temperature; your wealth advisor has the expertise, tools and support to guide you through hot and cold markets.
– Spencer E Joyce, VP, CFA
Name to Know for June
Lt. Gen. Kenneth F. “Frank” McKenzie, Jr.
Commander US Central Command
General McKenzie was installed as the 14th head of the US Central Command (CENTCOM) on 3/28/19. CENTCOM is one of six unified US combat groups, and would be responsible for any military action against Iran.
Gen. McKenzie may be noteworthy this month as officials communicate with the public regarding Iran. McKenzie likely will have an influence on Iran strategy, and is reported to have recently requested additional troops. The US has not had a senate-confirmed Secretary of Defense since Jim Mattis left the post on 12/31/18.
US Equities: The S&P 500 fell 6.4% last month, but has rallied back 7.2% in June (total return basis).
Global Equities: Developed and emerging markets fell in May, slipping 4.8% and 7.3%, respectively.
Federal Reserve: The Fed left interest rates unchanged at its June meeting; one Fed official ‘dissented’ with the decision, preferring a rate cut. Futures are pricing in a 100% chance of a rate cut in July.
US Treasuries: Treasuries rallied in May and have continued to rise in June. Current yields on 1, 2, 5, 7 and 10-yr notes are below certain shorter maturities, marking ‘curve inversion.’
US Credit: Investment Grade and High Yield corporate bonds yield an average of 1.27% and 3.61% over Treasuries, respectively. Spreads have tightened considerably in June.
Markets Rundown Source: Bloomberg
Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.
Past performance is not a guarantee of future results.
Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC, A Baird Company, cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.
All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversification and asset allocation do not guarantee a profit or guarantee against a loss. Note: It is not possible to invest directly in an index.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.