Disclaimer: These are the views of Summit Financial Consulting and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
SANTA CLAUS RALLY? YEAR-END MARKET COMMENTARY
Investors were hoping for what many people call a Santa Claus rally to end the year. Since 1929, the market has been positive in December 72% of the time, and those numbers improve if you look at the last 10 and 20 years (Source: https://seekingalpha.com/article/4225368-santa-real-monthly-seasonality-djia)
Unfortunately, this turned out to be a record-breaking year, but not in the way we were all hoping. In the month of December the S&P 500 lost 9%, the DOW lost 8.7%, and the Russell 2000 small-cap index lost 12%. Many investors take note of the high point, and from the high point to the low point, the S&P 500 dropped about 20%.
Now that 2018 has come to a close, we can also discuss the year-end numbers. The Russell 2000, which is the top small-cap stocks in the US, lost 12.1% for the year. The S&P 500 lost 6.2% for the year, and the DOW lost 5.6%. This was the worst year for stocks since 2008 and only the 2nd time the DOW and S&P 500 fell in the past decade. Source: https://www.cnn.com/2018/12/31/investing/dow-stock-market-today/index.html
Despite all of this volatility in 2018, our in-house managed accounts at TD Ameritrade invested in the Income, Conservative, Moderate, and even our Aggressive portfolios were UP for the year. We did give back gains in December but were able to keep our head above water in these accounts because we moved a portion of the accounts to safety back in September before this market downturn started.
Another reason we were able to outperform is because we took this opportunity of increased volatility to replace almost all our mutual funds with TD Ameritrade’s new trading cost-free ETF’s (Exchange Traded Funds). ETF’s by design provide similar diversification to mutual funds, however, are up to 90% less expensive and trade by the second, unlike mutual funds that trade at the end of the day. This allows us to trade throughout the day and can potentially help us enter the market during rallies, and potentially minimize losses during selloffs.
If you subscribe to our 401(k) recommendations, you very likely outperformed as well because we sold Small Caps and increased bond exposure late in the 3rd quarter. This is a time where buying independent research and reviewing the portfolio holdings daily can pay off for our clients. We can’t always perfectly time market selloffs and rallies, and we did give back some gains, but not nearly as much as the market lost, and we are still solidly up for the year to date. We had Utilities, Gold, bonds, and Real Estate which held up rather well during the downswing. Please check your statement or give us a call to discuss your personalized portfolio rate of return.
If you were invested in a tax-managed portfolio, please remember that this is part of your “later bucket”, so this portfolio will more closely mimic the index performances. If you’d like to discuss the performance of any portfolio at any time, please don’t hesitate to give us a call.
WHERE DO WE GO FROM HERE?
As you may know, we purchase independent research from 6 different research companies. One of those companies gives us a daily indicator of how overvalued or undervalued the market is at the moment. The indicator goes from 0 all the way up to 36. As of year-end, the indicator was at zero, which means the market is severely oversold and poised to rebound. Past performance is no indicator of future performance, but in the past, this has been a fairly accurate indicator. Because of this, we purchased some stocks in December near the lows with the hope that they would rebound in the first quarter. That’s the goal of most investors: Buy low and sell high. We were able to sell high in September and early October, and we bought low in December. Our short-term indicator is currently green. We’re hoping to get some positive news soon regarding the reopening of the government and resuming China trade talks. We’ll continue to monitor the portfolios and research daily.
We will let you know if there is a situation which calls for immediate attention. If you have any questions about taxes, your investment portfolio, our 401(k) recommendation service, or anything else in general, please give our office a call at (586) 226-2100. Please feel free to forward this commentary to a friend, family member, or co-worker. If they would like to be added to our complimentary commentary, please send us an e-mail at firstname.lastname@example.org at your earliest convenience. If you have had any changes to your income, your job, your family, your health insurance, your risk tolerance, or your overall financial situation, please give us a call so we can discuss it.
Thank you for your confidence and referrals!
Bob, Ken, and Jim
Summit Financial Consulting
The S&P 500 has produced the best outcome under a Republican president and a split Congress yielding an average annual return of 12% since 1928. Source: –MarketWatch, November 8, 2018
Of the $43 billion in U.S. music sales generated in 2017, the musicians took home only $5.1 billion of that, or 12%. Source: –Business Insider, August 7, 2018
Millennials now have their own special edition of Monopoly where players invest not in houses and hotels but in “super relatable” experiences, such as a trip to a vegan restaurant or a three-day music festival. Source: Washington Examiner, November 15, 2018
Since WWII, the average correction for the S&P 500 lasts 4 months and sees equities slide 13%. The average loss for a bear market is 30.4% and lasts 13 months. Source: CNBC, October 26, 2018
Last year, 70% of all frauds reported were perpetrated by phone. The average phone fraud victim lost $700 last year, for a total loss of $332 million. Source: –The New York Times, December 7, 2018
Thirty-two percent of college graduates end up in a career that didn’t require a college degree. Source: –The Wall Street Journal, December 10, 2018
The third year of a presidential cycle has been positive for the DOW in all but one instance in the past eight decades: 1939, at the outset of WWII, when it dropped 2.9%. Source: -Barron’s, December 17, 2018
The US playing card company, Bicycle, manufactured cards to give to all Prisoners of War in Germany during WWII as a Christmas present. These cards, when soaked in water, revealed an escape route for the POWs. Decks of these cards are said to have helped at least 32 people escape. Source: -Business Insider, December 22, 2016
Disclosures regarding our performance reporting: Because some clients are in the 10% tax bracket and others are in the 37% Federal tax bracket, we have decided to report performance before taxes. If you have a non-qualified account, please feel free to contact us to determine your individualized rate of return after tax. All of Summit’s performance is after our 1.25% advisory fee that is deducted monthly. Your fees may be higher or lower depending upon the amount of assets invested with our firm. Feel free to contact us to receive online access so you can see your personalized rate of return. The Aggregate bond index we use is ticker: AGG. All dividends and distributions are reinvested and included in the performance. The S&P 500 index quoted above does not include dividends within the performance. If a holding within our portfolio does pay a dividend or other income, it is reinvested, so our performance does include dividends. This report has been prepared from data believed reliable, but no representation is made as to accuracy or completeness. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges. This information is provided to you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy or sell any securities. In order to verify that all account values and transactions are accurate, we encourage you to compare the information provided in our statement with the statement you receive directly from your custodian. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Past performance does not guarantee future results.
Summit Financial Consulting LLC
43409 Schoenherr Road, Sterling Heights, MI 48313
Phone: 586-226-2100 Fax: 586-226-3584 E-mail: email@example.com
Securities offered through Gradient Securities, LLC (Arden Hills, MN (866)991-1539) Member FINRA/SIPC
Summit Financial Consulting LLC is independent and is not an affiliate of Gradient Securities, LLC. Investment advisory
services offered through Summit Financial Consulting LLC, a Registered Investment Advisor in the State of Michigan.