Bond Ladders, Earnings Season, and Election thoughts
Some thoughts for fall (the season, not a market prediction!)
Well, the worst September return for the S&P 500 in 20 years was followed by the best October for the Dow Jones Industrial average ever! Such goes the market.
But you may note that we used two different indices in those comments. That is because they show some real diversion, depending on how much technology they hold. For instance, the Nasdaq (primarily tech) was up 3.9% in October, while the Dow (much lower tech) was up 13.95%, according to CNBC.
We have been touting dividend stocks and value since early 2021. Blue-chip, dividend-paying, value-oriented stocks are still outperforming their technology counterparts. We would maintain a serious overweight to those stocks, even though we still recommend holding a below-normal stock allocation overall.
Investing in bonds: I have grown very irritated with our industry regarding bond investing over the past several months. Time and again, I’ve seen advisors who seem to have NO IDEA how to buy an individual bond discuss bonds. For retirees (who may need to regularly withdraw funds from their accounts to pay for living expenses), one of the easiest ways to meet those liquidity needs is to have a bond mature when they require those funds. My industry seems to have forgotten the simplicity of this technique.
Instead, some advisors have become accustomed to putting a client’s fixed income or bond allocation into mutual funds or ETFs and ignoring their inherent risk. While rates have risen, most bond funds are down 10 – 15% in 2022.
When you buy an individual bond, you know the maturity date, the quality rating, and exactly what you’ll make between now and when the bond matures. Our method of individual bond buying provides peace of mind (our firm’s motto) because you know exactly what you’re getting out of it.
With short-term Treasuries paying above 4.5% and investment grade corporates paying 4.75% – 6%, you must ask yourself: Why don’t you own these in your bond allocation… and not in bond mutual funds or ETFs?!
Earnings season: We are well underway, and some big technology names have been smacked after announcements. Meta (Facebook) was down 32% the day after announcing. Microsoft was down 7.7%, blaming slow computer sales. Amazon was down nearly 20% on the day of and the day after its announcement. Alphabet (Google) was down almost 10% the day after announcing due to a drop in revenue — its first-ever decline in advertising revenue.
According to FactSet, energy earnings (our largest overweight sector) are showing a year-over-year increase of 134%. Removing energy from the equation, all other S&P 500 companies combined have seen earnings decline by 5.1% since this quarter in 2021. That perfectly reflects 2022 performance, as energy is the only sector positive this year.
Midterm election market performance: Raymond James recently made some predictions in its “Washington Policy” piece on October 18. Their odds were 50% that the GOP would control both the House and Senate; 35% that the GOP would take the House and Democrats to control the Senate; and 15% of a status quo that Democrats maintain control of both the House and Senate.
My favorite stat in this report: over the past 40 years, the party in power has lost an average of 23 House seats each midterm election.
Could this possibly mean we, the people, are never happy regardless of who is in power? No way!
As always, don't hesitate to contact us if you have any questions about your personal portfolio.
Nate Lovelle, CFA
Director – Portfolio Management, Council Oak Wealth Advisors
918-984-9102 (Direct)
918-779-4022 (Fax)
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
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