October Newsletter 2024

 

 

October 1, 2024

 

Kickoff to a Strong Finish: Navigating September’s Market Playbook

 

As September ends and October's crisp, clean air arrives, it signals the start of football season. This season brings new opportunities filled with potential and promise. Similarly, the end of September marks the beginning of the final investment quarter of the year and with it more opportunity. Traditionally September is one of the lowest performing months of the year, but this September was different, with performance results being positive. I am reminded of the excitement and anticipation that each new football game brings to the season. It is that time of the year when football fans are eagerly awaiting their favorite teams’ performance and outcomes, hoping for a strong start that leads to a triumphant season. While the Broncos have challenges ahead, as a college football fan and Oregon Ducks alumnus, I have plenty of reasons to cheer. Steve supports the Utah Utes, Jeannie roots for the Stanford Cardinal, and Laura is all in as a Badgers fan. Like a football team preparing for a winning season, we are gearing up for a pivotal market this fall and here is our strategy for the months ahead.

Here is where we stand at the end of September: 

1. Economic and Market Indicators: Much like analyzing football statistics and team performance, we closely monitor key economic indicators and investment performance. Recent reports on inflation, employment, and consumer spending have offered valuable insights into market trends and economic health. Despite years of rising prices and increased debt costs, consumer spending remains surprisingly resilient, and corporate earnings reports indicate strong profits in several sectors.  

 

2. Interest Rate Movements: Just as a football coach adjusts strategies based on the opponent’s play; September 18^th marked a shift in the game plan regarding equity investments versus income investments.  That was the day the Federal Reserve took action to reduce interest rates, beginning with a one-half percentage rate cut. With two more Fed meetings scheduled for this year, the financial markets are anticipating the possibility of two additional cuts by the end of this year.  This new easing of interest rates will impact all sectors and as we navigate this lower interest rate environment, we will remain agile.

 

3. Key takeaways for the month:  As the economy and financial markets signal that the time for rate cuts has arrived, the case can be made for a soft-landing.  That potential has boosted market returns this past month and for now, have some economists talking about an environment where stocks and bonds could both do well. This is amongst a broader global rate-cutting cycle just getting underway.   That global environment includes China that just announced a blitz of measures to support its weakening economy, which has driven up valuations of our portfolio’s recent addition of alternative equities supporting all things electric.

 

In addition to the review of market events, I would like to share some valuable lessons and insights from Warren Buffett’s estate plan as discussion points, we can have with clients.  Some of these lessens apply to your estate “game plan” and are useful to clients at all levels of wealth. Just as a football team has a strategic game plan, Buffett’s estate plan reflects thoughtful preparation and flexibility:

1. Flexibility in Estate Planning: Buffett’s estate plan underscores the importance of flexibility. He has updated his will multiple times to reflect his children’s maturity and changing life circumstances. This adaptability is crucial for addressing unforeseen changes and ensuring that estate plans remain effective. Regular reviews of your estate planning documents, especially after major life events, and impending tax law changes can help maintain their effectiveness.

2. Transparency: Buffett’s approach is notably transparent. By avoiding complex trusts and foreign entities, he ensures that his estate plan is straightforward and open to scrutiny. This transparency helps manage expectations and aligns with his philanthropic goals, showing that simplicity can often be more effective.

 

3. Communication with Heirs: Effective communication is a cornerstone of Buffett’s estate plan. He’s shared his plans openly with his children, ensuring they understand and can execute his wishes. Engaging in transparent conversations with your family about your estate plan can help avoid misunderstandings and conflicts, as well as providing some assurances for children “in-need”, of help with life’s challenges.

 

4. Adapting to Change: Buffett’s estate plan allows for adjustments to accommodate future changes in laws or circumstances. Ensuring that your estate plan is adaptable to evolving tax laws and regulations is crucial for long-term effectiveness, particularly in light of expected tax law changes in 2025.

 

5. Honoring Donor Intent: Buffett’s decision to let his children manage charitable giving emphasizes the need to honor donor intent. Carefully documenting and managing your charitable intentions as well as being clear about what is exactly passed down to future generations can help avoid disputes and ensure your legacy aligns with your values, as well as instilling solid values for future generations.

Our Game Plan: Strategy and Execution

Just as a football team meticulously plans each play and adapts to in-game developments, our investment strategy is built on thorough preparation and adaptability:

• Diversified Approach: A successful football team relies on a range of plays and players. Similarly, we are maintaining a broadly diversified portfolio to spread risk and maximize potential returns.
• Quality Investments: Like a coach selecting the best players, we are focusing on high-quality investments with strong fundamentals to ensure consistent performance, growth and income.
• Flexibility: In football, the ability to adapt is crucial. We will remain flexible, adjusting our strategy as market conditions evolve and new opportunities arise all while tailoring them to your individual needs and goals.

 

Personal Touch: A Winning Season Ahead

The following chart shows strong results over the last one, five, and ten-year time periods for the total aggregate portfolio, that we manage.  This past twelve months has been a period of higher-than-average performance results with the Domestic Equity Portfolio returning over 32 percent and the Alternative Equity Portfolio returning over 21 percent, which combined equals a Total Equity return of 27.58 percent.  This provides for opportunity to look at rebalancing once again in the fourth quarter.  The CD/Bond Ladder returned over nine percent and the Alternative Income Portfolio returned over 37 percent for a total return on the income side of the portfolio of 15.56 percent.  The listed total performance numbers are listed net of fees.

Intelligent Investment Management, LLP Total Aggregate Managed Portfolio

Historical Total Returns

The strategic moves we have made for your portfolio throughout the year have produced positive results. We added hard assets and investments to enhance the overall portfolio to participate in the growth of a future Artificial Intelligence (AI) economy that takes data centers, energy, and technology hardware to go along with the advancements in technology software that has market participants thinking of a growing economy. Notably, the latest third quarter GDP estimate, released today reports real GDP growth in the third quarter of 2024 of 2.5 percent, down from 3.1 percent on September 27, 2024.  Our commitment to a disciplined, proactive approach remains steadfast, and we are confident in our ability to navigate the market’s challenges and opportunities. Included in this month’s letter you will find your “winning” quarterly report.

We are cautiously enthusiastic as we approach the final stretch of the year. While market momentum remains strong, valuations look stretched in the area of US equities.  Many corporations are reporting concerns as the economy is slowing down.  The conflicts in Eastern Europe and the Middle East, coupled with anxiety over the election cycle here at home, and the nagging inflation add to our concerns.  Lastly, today’s Wall Street Journal reported that the International Longshoremen’s Association has rejected the latest offer and remain on strike:  “Dockworkers at dozens of U.S. ports are digging in for a massive pay increase, seeking to flex their power in a strike that aims to strangle the flow of trade across much of the country. The walkout shuts down some of the country’s main gateways for imports of food, vehicles, heavy machinery, construction materials, chemicals, furniture, clothes and toys.”

This next month I will be attending the first ever wealth management conference that is one hundred percent focused on AI and its’ uses in the investment landscape.  By attending this event I will be able to collaborate firsthand with financial advisors from across the country and see what the investment field is doing to utilize and prepare for the impact of AI.  Of note, rest assured that your portfolio decisions made by Intelligent Investment Management will be based on Real Intelligence  after analysis of the AI generated data.  In November, Laura will be attending Schwab’s annual conference where she will get the latest that Charles Schwab has to offer on its platform, the latest in financial news and what economists are saying about trends; as well as an update on what is ahead both at Charles Schwab and the investment management field as a whole.

We are thinking about and hope all the family members and friends you may have that have been affected by hurricane Helene are safe and recover quickly.  If you have any questions you would like to discuss or you need a recommendation on estate planning attorneys in our area, please feel free to call our office. Here is to a strong finish this year - on the gridiron and with your investments!

Best regards,

Intelligent Investment Management, LLP