NEWSLETTER

2023 | Q2

Quarterly Insights – July 2023

Predicting short-term movements in the stock market is a highly challenging task. Historically, it is rare to come across a short-term investor who consistently outperforms the market over the long run. Surprisingly, the stock market has experienced an exceptional first half of the year, defying the expectations of both pessimistic investors and market skeptics.

Market Shift: Bulls Take Charge as Bears Retreat

Predicting short-term movements in the stock market is a highly challenging task. Historically, it is rare to come across a short-term investor who consistently outperforms the market over the long run. Surprisingly, the stock market has experienced an exceptional first half of the year, defying the expectations of both pessimistic investors and market skeptics. Despite the predominantly negative sentiment in business news, we are pleased to share that our three-part investment strategy has proven effective. None of our clients sold off their investments during the 2022 market declines. While a few sought additional downside protection, the majority remained committed to our strategies. Our long-term investment approach has yielded impressive relative returns, both year-to-date and over the past twelve months.

We consider ourselves fortunate to have direct communication with the creators of structured products, particularly those who actively engage in competitive bidding processes. In the past year, we have successfully secured the most favorable pricing and invested in structured products from a total of nine renowned banks, including Citi Corp, JPMorgan, Bank of America, Goldman Sachs, and several others. Blue Bell PWM has direct access to the structured product issuers, our size along with our independence and expertise, ensures that our clients receive the most advantageous caps available. Furthermore, each of these investments comes with a full 10% downside buffer versus declines, making them likely the best risk-reward proposition across the country.

What has been the primary driving force behind the recent movements in the stock market since our last newsletter? It was the S&P 500’s best first-half performance in 4 years (2019) and the Nasdaq’s best in 40 years (1983). It comes as no surprise that the explosive growth of artificial intelligence (AI) has played a pivotal role. AI is and will continue to be, a transformative force, shaping the market for years to come. Investing in AI can be seen as a highly dynamic endeavor, and I concur with that sentiment. Interestingly, a significant majority, if not all, of our clients currently hold shares in major global AI companies, such as NVIDIA, which has experienced a remarkable 180% increase year to date. However, you may wonder why you don’t see NVIDIA listed explicitly on your statement. The reason is that we do not directly purchase individual shares of NVIDIA for you. Nonetheless, as a trillion-dollar company, NVIDIA is included in the S&P 500 index, numerous Closed-end Funds, and most Structured Investments. Although it may constitute a relatively small portion of your portfolio, this single component within the S&P 500 has contributed significantly to its overall performance since the beginning of the year. This is precisely why our investment strategy proves effective.

Third Quarter Market Outlook: Will the Markets Roar or Snore?

As we begin the third quarter of 2023, there have been improved economic indicators. Inflation has hit a two-year low, economic growth and the labor market remain impressively resilient, the Fed has temporarily paused its historic rate hiking campaign, the debt ceiling extension is resolved, and we’ve seen no significant contagion from the regional bank failures from earlier this year.

That improvement in the fundamental outlook has been reflected in stock prices so far this year, as the S&P 500 hit the best levels since last April and more cyclically focused sectors led markets higher late in the quarter on rising hopes for a broad economic expansion.

However, while clearly, the past quarter brought positive developments in the economy and the markets, leading the financial media to proclaim a “new bull market” has started, it’s important to remember that potentially significant risks remain to the economy and markets. Put more bluntly, the market has taken a decidedly positive view on the ultimate resolution of multiple macroeconomic unknowns, but their outcomes remain very uncertain and thanks to the strong year-to-date rally in stocks, there is now little room for disappointment.

We remain vigilant towards economic and market risks and are focused on managing both risk and return potential. We understand that a well-planned, long-term-focused, and diversified financial plan can withstand virtually any market surprise and related bout of volatility, including bank failures, multi-decade highs in inflation, high interest rates, geopolitical tensions, and rising recession risks.

Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.

We remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.

The Importance of Comprehensive Planning: Building a Solid Financial Foundation

Shifting gears to another topic we recently discussed during our luncheon, let’s address the importance of financial planning, which can admittedly seem somewhat dry. However, it holds immense significance for investors of all ages. Many financial firms often charge a substantial fee for tax planning and financial planning services. According to a recent KITCES survey, the average cost of a financial plan stands at $2,400. Unfortunately, the foundations of a proper financial plan may not always be fully met by many, if not most, companies.

Regrettably, I have come across numerous instances where financial plans were utilized to recommend costly and heavily commission-based products, such as whole life insurance. Some of the negative feedback we have received from clients who switched to our firm from other companies appears to validate these concerns. A well-designed plan should assist in setting future goals and devising a strategy to achieve them. It should serve as a tool to help you organize your financial life and uncover strategies that align with your specific objectives. Moreover, it should provide peace of mind, particularly in volatile years like 2022, and instill confidence in your financial goals, enabling you to focus less on the noise generated by pundits and more on the long-term perspective.

Finding solace in avoiding day-to-day news reports can be truly comforting. A well-crafted financial plan can extend its benefits beyond the realm of finances, positively impacting various areas of your life. By clearly defining your needs and desires, it helps prioritize savings and ensures the growth of your savings over time. Additionally, it enables you to optimize tax strategies and effectively manage other aspects of your financial life, including charitable giving. At BBPWM, we take pride in providing our clients with a comprehensive financial plan without any charges. Furthermore, we offer our tax planning services at no cost to you. While we are not accountants, we can thoroughly analyze your tax return and possess the ability to offer valuable suggestions for approximately 50% of the tax returns we assess.

Finally, we are delighted to inform you that our recent luncheon held at the Blue Bell Inn had an outstanding turnout. If you haven’t had the opportunity to attend this event, or if you wish to invite a friend or relative, we encourage you to contact our office without delay. By doing so, we will ensure that your name is placed at the forefront of our guest list for future luncheon dates.

Please do not hesitate to contact us with any questions, comments, or to schedule a review.

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