This Week in Review:
Where Will the Fed Head Next?
Here’s what else we’ve been watching this week:
- Fed-speak. Minutes from the Federal Reserve’s latest committee meeting signal that policymakers remain steadfast in their inflation-fighting efforts. Members stated that an “insufficiently restrictive” approach to taming inflation—in Fed-speak, rates not going high enough yet—could reverse recent success in bringing prices down. The Fed is caught between a rock and a hard place: Raise rates too much and it risks pushing the economy into recession; pause rate hikes prematurely and consumer price inflation could remain stubbornly high.
- Inflation data. Market-moving inflation news arrived today with a report on personal consumption expenditures (PCE)—the Fed’s preferred inflation measure. The report shows inflation remains stubbornly high, meaning the central bank may decide to raise rates by a larger-than-expected margin—with the subsequent headwind for growth-oriented stocks. We’re watching closely and adapting as needed.
- Earnings reports. The final stretch of fourth-quarter earnings season is here. Results from more than 80% of the S&P 500 were in by Monday, and another 50 companies are reporting this week. Notably, bellwether consumer retailers Home Depot and Walmart—which were stock market darlings during the mid-pandemic home-improvement kick—revealed that shoppers were shifting their spending from goods to services. That’s consistent with wider trends we’re seeing and positioning portfolios for.
Is Volatility the New Normal?
By Matthew P. Erickson, Senior Portfolio Manager
If you feel like the markets have become more volatile in recent times, you’re right. Over the past 30-plus years, the frequency of dramatic price swings in the stock market has gradually increased.
How can we tell? Because of the VIX. “The VIX” may sound like the name of the bad guy in the latest Marvel movie, but it’s not—it’s industry shorthand for the CBOE Volatility Index. The VIX tracks the price of certain near-term options on the S&P 500, providing investors with insight into how volatile the stock market is expected to be over the next 30 days. When the VIX is low, market conditions tend to be stable. When it’s elevated (a reading of 30 or higher), the trading waters can become choppy.
Back in the ’90s, the VIX went nearly 1,800 days without ever exceeding 30. In more recent years, we’re barely able to make it 100 days without the VIX cresting this threshold.
Numerous factors have led us to this point. Nonstop news cycles, so-called meme stocks and even economic policy (including interest-rate hikes) can create momentum and cause markets to move on a dime—even though knee-jerk reactions can derail long-term financial plans.
Regardless of how we got to this new normal, the takeaway is simple: Don’t allow the increased volatility in the markets to impact your investment discipline. The most successful investors have a plan and stick to it. Talk to your wealth adviser if you’re worried about market volatility. They know your situation and have a plan to help.
In Trusts We Trust
We rate trusts highly as a tool to pass wealth along to the next generation in a tax-friendly manner. In fact, a trust-based estate plan is often more effective than a will-based estate plan, especially for high-net-worth individuals and families. Reach out to us so we can talk about the different types of trusts and even connect you with an estate attorney.
Here are some advantages of trusts:
- Faster resolution. Assets placed in a trust are generally safe from creditors and can be disposed of (i.e., sold) by the trustee in short order. In contrast, under probate it can take months or years for debts to be paid and heirs to be notified before beneficiaries receive assets they’ve inherited.
- Greater control. Trusts make it easier to ensure the money you pass on is earmarked as you wish. With a will, named individual or institutional beneficiaries can generally spend bequeathed funds how they please.
- Greater flexibility. Many types of trusts allow the grantor to access the assets during their lifetime. This makes it easier to adjust your estate plan as needed.
- Less complexity. If you have real estate or other assets in multiple states, or if your heirs live in different locations, a revocable trust may help you reduce complexity by avoiding the need to establish a probate case in each separate jurisdiction.
There are numerous types of trusts. One example? An irrevocable life insurance trust (ILIT). The ILIT owns a life insurance policy on the grantor’s life. When the grantor passes, the proceeds fund the trust and are distributed to beneficiaries. Life insurance proceeds not held in an ILIT are taxed as part of the insured’s estate. With an ILIT, those proceeds are excluded from the insured’s estate, reducing the estate tax burden.
Ask your wealth adviser about trusts—we’re here to help.
Next week we’ll be reviewing data on durable goods orders, pending home sales, home prices, consumer confidence, manufacturing, construction spending, vehicle sales and the service sector. As always, we’ll be here to break it down and tell you why it matters to you and your financial future.
If you’d like to learn more about our tactical or fundamental strategies, please contact our team at 800-268-9046 or firstname.lastname@example.org.
Please note: This update was prepared on Friday, February 24, 2023, prior to the market’s close.
This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.
Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgments about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.
Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.
Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.
Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.
Third-party publications referenced in this article (e.g., Citywire, Barron’s, InvestmentNews, CNBC, etc.) are independent of Polaris Wealth Advisory Group. Opinions and statements contained in third-party articles are for informational purposes only; they are not investment recommendations.
© 2022 Polaris Wealth Advisory Group, an Adviser Investments, LLC company. All Rights Reserved.