MAY 2024
ENDURANCE IS KEY
My youngest son Jackson just completed the grueling trek of an Ironman competition in Houston, Texas. He endured and conquered 140 total miles of swimming, biking, and running in the time of 12 hours and 8 minutes. Just thinking about an endurance test like that makes me tired!
Jackson and his college brothers, however, wanted to achieve something special in their senior year of university. So, they plunged, literally, into months of training to prepare for a 2-mile swim, a 112 mile bike ride and a 26 mile marathon.
How in the world can you bike for six hours after swimming for over an hour? And then, have enough left in the tank to run a marathon. I’ll never know, because I will never compete in a triathlon.
Nevertheless, all of us have had to face or deal with one endurance test or another on this adventure we call “life.” Part of the endurance tests we face generally involve our finances in some manner or another. Fortunately, a comprehensive financial plan with a sound investment strategy can and should endure the seasons of uncertainty and withstand the surprises that unfold from time to time.
We have all been dealing with the uncertainties of the economy and the markets since the 2020 pandemic and the 2022 bear market. Historic inflation and a huge increase in interest rates has tested all of us. The economy appears to be resilient, but the Federal Reserve remains unsure as to when inflation will be licked, and they can begin reducing rates.
The stock market has delivered positive returns in the second year of the new bull market which began in October of 2022. Just like a triathlete, we will persevere through the highs and lows of the market to stay on course and keep executing the principles of your solid investment strategies.
We are especially pleased and proud of you, our clients, that have stayed true to the disciplines of our investment models, that have managed risk and provided performance in line, and often in excess, of their respective benchmarks the last five years. You have seen these numbers in your progress sessions, and the results affirm the importance of maintaining patience for long term strategies.
We are grateful for the excellent leadership of our branch’s Chief Investment Officer, Andrew Steinmetz, whose implementation work these last five years has been stellar. Our investment committee, which includes your Trinity Strategic Wealth financial advisor, meets every Monday to pore over data, charts, analysis work and ideas to monitor your investment strategy, and discuss opportunities. We are fortunate to have such a dedicated group who truly care about your success.
Thank you for the continued opportunity to serve you. You have proven yourself to have endurance for the long haul of the investment journey, and we will endeavor to match your patience with diligence and perseverance.
Enjoy your summer!
Sincerely,
Mike Mazzei, CFP®, MPAS®
MASTER PLANNER ADVANCED STUDIES®
CEO, Trinity Strategic Wealth™
mike.mazzei@raymondjames.com
(918) 858-2802
AUGUST 2024
“STRANGER THAN FICTION”
The past couple months of the 2024 presidential election have been stranger than fiction with a disaster of a debate, an assassination attempt of former President Trump, and President Biden withdrawing his candidacy. Here, we try to answer some of the questions around the elections and implications for the markets and economy.
What are our current thoughts on the election?
President Joe Biden recently took the extraordinary, but not surprising, step of withdrawing from the presidential election. This has set up Vice President Kamala Harris to be the Democratic nominee. While this does solve the age issue for the Democrats, it remains to be seen exactly what Harris’ policy platform will be. As of the date of this letter, the betting odds favor Vice President Harris with a 51% chance of winning versus 47% for former President Trump. The current average of polls in the Electoral College battleground states indicate a slim margin for Trump. As usual the states of Arizona, Wisconsin, Michigan, Pennsylvania, and Georgia will likely determine the election results. The Senate is likely to flip to a Republican majority based on the map and the House is really 50/50 in terms of what could happen.
What are the key policies of each candidate?
As mentioned previously, Vice President Harris has not yet fully articulated her policy platform. For these purposes, we will assume that she lands on something close to President Biden’s economic strategy. The key component for economic policy will be the expiration of the Trump tax cuts in 2025. Harris would likely support the extension of the personal tax cuts for incomes less than $400,000, but the future of state and local tax deduction (SALT), business taxes, and estate tax exemptions would depend on Congressional control.
Trump would support a full extension of all expiring personal tax cuts and reinstatement of expired business tax cuts along with the SALT deduction. We would also expect no change to the current corporate tax rate of 21%. The Democrats would also likely work toward the rest of the Build Back Better agenda – paid family leave, affordable housing, and childcare. We would also see an increased focus on oil and gas energy with Republicans, which would include an increase in drilling.
What would be the impact on markets depending upon who wins?
Politics can bring out strong emotions and biases, but investors would be wise to tune out the noise and focus on the long term. That is because elections have, historically speaking, made almost no difference when it comes to long-term investment returns. Which party is in power has not made a meaningful difference to stocks either. Since 1933, there have been eight Democratic and seven Republican presidents, and the general direction of the market has always been up. The presidential election is not the only one to watch. The results of key legislative races will determine which party controls the Senate and the House. History has also shown that stocks have done well regardless of the political makeup of Washington. Since 1933, there have been 44 years when one party controlled both the White House and Congress at the same time. During these periods, stocks averaged a robust 14.4% return, only slightly higher than the average gains when Congress was split between the two parties. Historically the “least good” outcome has been when Congress is controlled by the party opposite the President, but even this scenario averaged double-digit returns.
What about the government debt?
The government debt relative to Gross Domestic Product (GDP) for the United States is now just north of 120%. At face value, the dynamics look worrisome, especially when we look at the current year budget deficit. That deficit is nearly 7% of the economy, which is a number we have historically only seen during wars and major recessions, not when the economy is growing at a robust pace and unemployment is near 4%. The United States benefits from being the global reserve currency, meaning that demand for our debt is almost always strong. As we look forward, the deficit likely remains high, debt continues to climb, and demand for US Treasuries continues. However, debt cannot rise forever. At some point adjustments will be needed to make the US fiscal path more sustainable. We see this happening 10 or more years from now with some form of debt consolidation through either spending reforms or higher taxes, or both. While that seems unlikely now, attitudes may change over time, especially if inflation and interest rates remain at, or return to, uncomfortably high levels.
What is the bottom line?
We still have 2 ½ months until the election, an eternity in political time. While we will not make any bold predictions right now, polls and betting odds are currently pointing to a close race in the presidential election, the Senate flipping Republican, and the House a toss-up. Historically, it has been beneficial to ignore politics when making investment decisions. We will wait for actual fiscal policy to take shape to determine whether any changes are warranted for the model portfolios. As always, we will work to manage the risks and take advantage of opportunities in markets going forward.
Thank you for your continued trust and allowing us to serve you.
Sincerely,
Andrew K. Steinmetz, CFA, MBA
Branch Chief Investment Officer
Trinity Strategic Wealth™